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How to hand over the keys to your kingdom

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For RIA owners at the top of their game, handing over the keys to the kingdom is often the last thing they want to consider. No one likes to think there’s a sell-by date for their leadership.

But the truth is, if the business is important to you, succession planning is one of the most vital decisions you can make.

I was talking to an advisor recently, and we had been reviewing buy/sell agreements for his practice. His firm is a family practice, like many are. It’s run by him, his wife and his two sons. He said to me, “It’s a difficult thing to think about. What would I do if my son left? Or if something happened to my son? Because that is my succession plan.”

It’s important to acknowledge that succession planning is sensitive and personal, especially if your business is your life’s work (and your family’s nest egg). And it starts with figuring out what’s next — or, in many cases, who’s next.
Here are three scenarios to consider:

Keep it in the family.
For those who own a family business, a good first step is to sit down with the other members of the family to discuss the future:

  • Who wants to stay in the business?
  • Who will take over the leadership?
  • How will responsibilities be shared?
    These conversations are crucial to determining whether a family business will stay a family business.

Hire new talent.
If the business won’t be taken over by a family member, or if the anointed family member would like some help, now is the time to groom someone new. Perhaps there is someone already on your team to whom you would like to give more responsibility. Another idea: consider hiring recent graduates who you can mentor.

Either way, your pick is going to need some buy-in. Think beyond hiring for a specific task and salary and invest in people who you trust with the next generation of management responsibility. Think of it not just as hiring, but as investing in human capital.

Look outside the business.
If you’re ready to hand over the reins to someone outside the business, you have several additional options. One to consider early on is working with an industry aggregator, who can not only give you a good price for your business but will also help with media relations, marketing and top talent.

Look into this option sooner rather than later; doing so will help you get the best valuation for your firm long-term, rather than an eleventh-hour fire sale where you may be at a disadvantage.

Another option may seem counterintuitive — talk to other regional firms within your market (yes, the ones you’ve been in competition with for decades). You may end up finding a potential partner with similar ideologies and goals.

A third option is to look at firms outside your region; however, you’re likely to find better synergy within the region where you’ve been building your network.

If you do choose to partner, it’s important to outline a step-by-step process that will guide you as you steer the strategic direction of the two firms together. A sample process might include analysis and commitment; due diligence; planning and closing the transaction; integration and alignment and optimization.

No matter how you choose to move forward, the most important thing is that you put a plan in place, whether that’s passing on the business to your son or daughter or joining forces with another firm in your community. Having a plan will help protect the business you’ve worked hard to grow so that it can continue prospering long after you’ve stepped down.

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