An important consideration when you are a Financial Services Provider (FSP) is what will happen to your business in the untimely event of your death, temporary disability or decision to retire.
Succession planning goes beyond meeting regulatory requirements. You may be encouraged to evaluate your financial position and determine if you can afford to retire, considering that the capital realised from the sale of a business often isn’t enough to replace the income needed. If this applies to you, do you have other income provision in place?
You may also consider the well-being of your clients and how they will be looked after when you are no longer there or able to service them anymore.
Who needs a succession plan?
As Key Individuals (KI) are key to the functioning of an FSP, KIs need a succession plan. By law, an FSP needs a KI to operate and ensure product providers continue to pay commission. If there is no KI, the business comes to a halt. Other role-players to include in your succession plan are support staff and representatives, as they build relationships with clients and can continue your legacy, culture and approach.
Some practical steps
The idea of implementing a succession plan can be daunting and overwhelming, but it does not have to be. Here are some practical steps to implement a succession plan in your business:
Identify personal goals and objectives
Business owners’ personal and business goals are usually closely linked, so write down your personal goals and objectives. Think about those who are financially dependent on you, such as employees who could be left jobless and family members who depend on the proceeds of your business. Are you a breadwinner, do you have minor children at school or university and is your bond paid off? Have you done your own financial planning? What goals or ideals do you picture for your retirement?
Identify business goals and objectives
A business valuation would identify the value of your business. Knowing your business’s value could help you decide whether to keep your business as a going concern or sell your client book.
Formulate a successor profile
You will also need to formulate a profile of your ideal successor, highlighting the practical and ethical characteristics you think are important for your business. The ideal successor should have the same product knowledge and experience as you, and the same value system, approach and manner in dealing with your clients. This will ensure your clients’ needs and objectives are continually met at the same standard to which they have become accustomed. Having this person in your business already guarantees that you can mentor them and so safeguard your vision for the future of the business.
Your successor profile, if not your actual successor’s name, as well as details regarding a business valuation, should be included in your business plan. While having a documented business plan is a regulatory requirement, keeping one available for staff encourages them to become acquainted with its contents.
Identify stakeholders who may be affected
Identify your stakeholders, such as business partners, employees, clients and product partners, and include them in your succession plan. You will also need to specify how any material changes to your succession plan may affect them and how they will be notified.
Over years of working with FSPs, Masthead has found that a business owner’s family is key to a successful transition of a business. Therefore, make sure family members are fully informed of your succession plan and on board. Informing stakeholders of your succession plan places them in a good position to assist with any disputes that may arise.
Allow for potential trigger events
You may plan for retirement or the end of what is hopefully a long lifespan. However, life sometimes throws in unexpected events like the illness of a spouse and subsequent full-time care, a car accident that results in a three-month hospital stay, or a health scare that forces one to re-evaluate one’s lifestyle and priorities. Your succession plan should thus focus on a voluntary or planned exit, as well as an unplanned or emergency exit.
Have a transition plan
A transition plan should ensure your business can continue in your absence until your succession plan is fully implemented. This will result in minimal disruption of services to clients and the business enjoys a continued income stream.
If you have already identified a successor, you can notify your clients and business partners and ease in the change. If you have not yet identified a successor, your succession plan informs those around you of your intentions.
As Robert Half concludes in his article, What is Succession Planning? Your Steps to Success, “A succession plan is an investment in your company’s future.” Having a plan in place relieves some of the unavoidable stress that arises from an event where succession planning comes into effect. Think of your succession plan as the disaster recovery plan for you! Be sure to review your succession plan regularly to ensure it remains relevant.
Masthead conducts business valuations and assist FSPs who are considering retirement. Masthead also has tools and templates for succession and business planning, and can assist you to implement your succession plan.