The Rolling 5-Year Plan: Solving Succession Challenges

One of the best things about financial advisors and wealth management professionals – you love your job. You enjoy the puzzle and the prospecting. You enjoy the paycheck. And you enjoy your clients. We know this because we know you. This is what you and your peers tell us every day on the phone, in emails, and at conferences. 

This is why when it comes time to talk about an eventual exit and the “R-word” you wield so effectively with your clients, you brush off the conversation. You say, “It’s too early to talk about that, ask me again in five years.” And the next year you say the same thing, and the next, and the next, until suddenly it’s time and you just gotta work with what you’ve got.

On our side of the industry, we shake our heads and call it the “Rolling 5-Year Plan.”

We’re not saying there’s no value in simply cruising along and dealing with a sale of your business when the time comes, but you will have eliminated any choice other than to sell. And, without value-minded growth in the meantime, you’ll be pressed to realize a truly satisfying value for the business you’ve spent a career building. In deferring the exit conversation–in putting off important planning and active value building–you are cheating yourself out of not only money, but a more optimal exit than just selling and walking away.

What do you tell your clients about their investments? If you start putting money in today, the return is exponentially greater than if you wait even one more year to start. Which means whether you see your retirement date as a quickly growing figure on the horizon, or you have a double digit exit timeline, you have every reason to start now.

If you’re an older advisor, avoiding the subject isn’t realistic, especially if your dreams include reducing work gradually while keeping up an income. And, of course, a dream without a plan is just a wish.

Starting your plan now isn’t just about making sure you’ve got a high ROI on the business at the end of your career. If you even think you might want a slow exit and an internal team of successors to take over the business when you walk away, you have to start that process way ahead of time – ideally 10 to 15 years.

Building a succession team and incorporating multi-generational ownership–creating an enterprise that the next-generation of talent and leadership wants to buy into–takes time. You’ve got to shore up structures that centralize cash flow, balance compensation, protect the business, and generate high profitability. You’ve got to implement efficiencies and strategies that ensure long-term sustainability. 

On top of the work you may have to do on the business itself, it takes time to find the right people to help you lead the business and one day take over. If you think about ownership potential, is there anyone on your existing team that comes to mind? If so, congratulations, you’ve shaved off a little bit of time. But are there multiple people that tick the boxes? Because the word “team” is an important one in the idea of a “succession team.” You’ll need multiple partners of diverse generations to create stability and support sustainability. Not only does multi-generational ownership make a business grow faster and accumulate more value, but a team of experienced individuals ensures every aspect of the business is at maximum capability and that there will be no disruptions if any one person has to exit suddenly.

So, you’ve got to take time to enhance your business structures and recruit talented folks with ownership potential. Then you’ve got to test the waters. How long before you’re ready to bring them into the equity ownership circle? What do they need to do to demonstrate their grasp of an ownership mentality? And even after you sell them a small amount of ownership, what if it doesn’t work out?

Finding and vetting talent, testing the partnership, and (knock on wood) starting over if you have to – it all takes time. If five years is your exit, or your slow down, and you have a potential team in place, you might just about have the time to get it all done. But you have to take the first steps now. 

Whether it’s an external sale down the road, or the dream of internal succession, the best possible result and the highest possible value comes with intentional strategy and action. Change your “Rolling 5-year plan” to a plan that starts in 2024!  

Check our white paper, Building a Sustainable Enterprise for Long-Term Growth, to learn more about creating a business with exponential growth that supports your exit, and more importantly, itself far beyond any one owner’s career (including yours).