ADVISOR SERVICES | CLIENT RELATIONS | PEOPLE | SUCCESSION PLANNING | TAXPLANNING | TECHNOLOGY | YOUR PRACTICE
Changing Of The Guard
The time you start building a business is the time you must start thinking about how to get out .
By Karen DeMasters
THE PARADOX IN RUNNING A BUSINESS is that from the very moment you start one , you need to keep its end in mind . In other words , the owners of private companies , whether they ’ re financial advisories or widget manufacturers , should build a company with the idea of selling it .
It doesn ’ t matter whether that sale is meant for profit or to pass the business on to family ( or employees ). This is where financial advisors , consultants and coaches play a crucial role .
The first step is to identify who you ’ re selling to , says Jeff Brown , president of the newly formed Stratos Private Wealth , a San Diego firm created to help business owners transition out of their companies . But no matter who it is , whether it ’ s a family member or an employee , that person is going to need time to take over to learn and make mistakes , Brown says .
“ A business owner should be thinking ahead five years at a minimum to avoid having to perform triage on the business at the last minute when you are forced to get out ,” Brown says . And yet financial firm owners may be the worst at taking their own advice . “ Sixty percent of financial firms do not have a succession plan ,” he says .
Time is the thing that trips up most sellers , says Jordan Smith , vice president of advanced designs at Schechter Wealth , a wealth management firm based in Birmingham , Mich . “ Most business owners are focused on tomorrow and the short term , not the long term . They think they have more time to make these decisions than they actually do ,” Smith says .
Business owners basically have three options , Smith says :
They can transfer their ownership to a family member , usually a child ; they can transfer to a key employee or group of employees ; or they can sell to an outsider . Each choice poses different problems , but in any case the founder still needs to envision what happens to the company after he or she leaves .
If the plan is that a child will take over , the company founder needs to decide how to treat other children in the family fairly . If a key employee or group of employees are taking over , the founder must make sure the successors have the financial resources to buy him or her out or that arrangements are made to make it happen over time . This type of arrangement can also be used to provide the founder with ongoing funds during retirement , Smith says .
A key consideration for those selling to outsiders is who can add the most value to the company by bringing in capital or new skills , he adds .
“ It ’ s important in each instance to ask a lot of questions to determine the mindset of the new owner or owners ,” Smith says .
Some firms have come up with innovative ways to help advisories in particular make the transition out of the business . AmeriFlex , a hybrid registered investment advisor , has devel-
SEPTEMBER 2023 | FINANCIAL ADVISOR MAGAZINE | 33