You probably have encountered all types of clients – those who have to take drastic action right this minute; those who live happily outside of their means; and those who believe that long term is next week.
It’s fun living your life now and not thinking about your obligations for the future. But when the fun stops, you’ll find that you have a lot of catching up and tidying up to do.
Fortunately for those individuals who’ve chosen to act early, they can enjoy their life today and still expect to experience the same enjoyment in the years ahead.
You can realise genuine financial security by adopting a practical long term approach, planning early, and implementing a financial planning plan gradually but surely – starting immediately.
Planners set up their practices for many notable reasons:
- To fulfil a need to improve and safeguard the lives of people
- To build a viable business that will earn money and let work opportunities and careers to grow
- To establish an asset that in the future will be important to another person with similar client-based objectives
Most successful planners can easily fulfil the first two points above, but struggle with the third item, which is referred to in financial/accounting circles as “succession planning.”
It is important to establish a business and make it successful that clients will flock to you, they wish to be your employee, they want to invest in your business, years after your retirement.
Sadly, a number of practice owners don’t bother with succession until they begin planning the details of their retirement party. By that time, you have turned into a price taker, not a price maker.
According to practice owners, they began succession planning roughly 10 years before their retirement. This is sufficient time to fulfil the following:
- Determine the right candidates who will own and operate the business in the years to come
- Present the new advisers to the clients
- Attain growth objectives to allow optimal valuation
- Obtain financing to allow the implementation of strategy
What’s even more challenging for these firms is resolving succession. There are questions that need to be answered, such as who has the funds to purchase the business, over what time period, and what the purchase price is?
A critical, but often disregarded, issue to take into account is “what’re the buyers’ intentions?”
Granted the pool of buyers is likely fewer for large-sized business, nonetheless the practice owner has to evaluate the real intention of the buyer.
- Do they intend to continue the client relationship that you have painstakingly nurtured over the years?
- Are they really committed to building a viable business that will allow careers to grow?
- Or they simply have lots of money and are eyeing high return on equity?
This succession-planning challenge is coming to the fore as the industry’s biggest and profitable firms begin to see manifestations of the problem. Over the past few years, we’ve witnessed listings, acquisitions by institutions, and management buyouts. These moves are largely driven by a party requiring an exit plan and a different party needing a growth plan.
What impedes this is that “exiting” and “growing” are two contrary concepts. Studies done over the years have shown that acquisitions rarely result in a win-win situation. It is the buyer and/or the client who lose out more often than not.
This is not something that should make vendors happy. A winning succession requires the convergence of similar interests. The only way this can happen is if the vendor begins planning in advance so that they can devise an exit plan while still working towards growth, This way the interests of both buyer and seller can be satisfied, while still continuing to sustainably serve the clients, employees and the community.
Begin planning today to allow you to take control of your future. It is only right that you do this for the sake of your clients and your employees. If you begin considering succession immediately, you’ll find that there are genuinely aligned options available to you.
Always keep your motives in mind and remain faithful to them. In doing so, you can always look back on your professional life and feel proud that you made a difference.
Seek financial advice today regarding succession planning to secure your future and that of your employees and your community. PJS Accountants offers a full range of services, including tax planning and compliance, accounting and SMSF services, and bookkeeping. For enquiries regarding our services, contact PJS Accountants.