There’s no doubt that starting an advisory business can be harrowing, but finding good people to eventually take over your business may be even harder, says John Brackett, a regional director with Financial Network Investment Corp.

“When you’re inserting a new person into that mix, it’s danger time,” he says. “If you pick wrong person, you can’t take the business back.”

Helping adviser firms make good decisions in each stage of their businesses’ life cycle is the goal of a new white paper from Financial Network, one of three broker-dealers under Cetera Financial Group.

 The paper, “Building and Realizing Value, Success at Any Stage: Understanding the Advisor Life Cycle,” looks at three developmental stages for firms and specified the challenges and opportunities that each brings.

“Emerging firms” are those formed within the past five years with assets of less than $25 million. Their “priority challenges” include building revenue generation, developing client acquisition capabilities and establishing performance benchmarks.

The consequence of failing to meet those challenges—business failure—is obvious. But advisers should be thinking about more than just survival, says Brackett. “In that emerging stage, you’re setting the stage for how the practice is going to be valued out into the future,” he says.

Meanwhile, the danger for “established firms” is complacency. Such firms have been in operation for between six and years and typically have assets under management of between $25 million and $75 million. The middle stage brings human capital management challenges and requires greater attention to operational efficiency and adding capabilities.

Businesses that avoid dealing with those issues are likely to stagnate, and to have trouble finding eventual buyers, says Brackett, who leads Financial Network’s BAR Financial region, based in Pleasant Hill, Calif. 

“You will not attract additional clientele because you won’t have the resources to market to that clientele,” he says.

What’s more, continuing to strengthen the business during this stage will allow advisers to maximize the value of the firm when transition time arrives.

“If you don’t have everything from the fee schedule to the clientele well thought out, that minimizes the future value of your business,” he says. “That’s so critical, but people don’t pay attention to it.”

Finally, “transitioning firms” are those that are at least 15 years old and are approaching a landmark such as an owner’s succession, the acquisition of another firm or a merger of equals.

When’s a good time to start planning for succession? The first day your firm is in business, says Brackett. Realistically, new advisers are mostly concerned about business survival, he says.

When a firm’s leadership is ready to hand over the reins, they will find that there are about 100 buyers for every seller, says Brackett. That makes transition sound easier than it is however.

It’s one thing to have a practice in a talent-rich metropolis like Dallas or San Francisco. But what if your firm is tucked away in a corner of New Mexico? “It’s certainly going to be hard to attract talented advisers that want to live in that location,” says Brackett.

And once you’ve found an adviser you can see eventually owning and running the company, you need to answer this question, he says: “Does the person you choose have the wherewithal to buy it?”