Welcome to the Business Continuity Decision Tree!
As an MDRT member, you understand the importance of effective planning for those we love and the things in life we cherish. We regularly advise clients to be ready for contingencies — and we need to take our own advice.
Business continuity planning is not just the formalization of your wishes for turning over control of your practice. It could also include exploring the benefits of merging with another practice, acquiring books of clients, or other ways to scale your business or adjust your role and priorities. All of this planning relates to the long-term strength of your firm, both while you are there and after you retire.
Like any good estate plan, your business continuity plan considers the effects of death, incapacity, sudden exit or retirement from your practice. What happens to you, your family, your clients, your staff and other stakeholders depends on your thoughtfulness and efforts.
Who should engage in this planning?
- If you have been in the profession five or more years, you should have a contingency plan.
- If you are within 10 years of retiring, you should have a succession plan.
- If you are looking to expand your practice and want to consider your options for blending with the owner(s), advisor(s), staff, or clients of another practice.
This planning represents your commitment to those who have chosen to live with you, work with you and be served by you. The transition of our practice may seem difficult to consider, but it will happen someday — on our terms or not.
This site offers a wealth of information, guidance and resources developed to assist in your efforts. Many MDRT members have gone through this planning successfully, and so can you.
Learn more about business continuity in the Resource Zone.
Click an option below to start your journey.
The case for planning
Business continuity planning is in the best interest of the producer, his or her clients, the public, the industry and society in general. This planning provides many new opportunities for you, including but not limited to:
- Grow client base or AUM. Expand your clientele and revenue possibilities by looking beyond your practice to purchase another practice or merely a partial book of clients.
- Generate new business. Through acquisition, your practice can expand its reach and broaden the opportunities that are possible with your clients and partners.
- Expand service offerings. Perhaps you will gain clients who require you to expand your or your team’s capabilities. Perhaps you will bring on new staff to meet the needs of your clientele. In either situation, more services can facilitate more business with more people.
- Specialize. Can another practice help establish your business as the go-to experts for a particular clientele? Changing the nature of your practice can help you zero in on your specialty and the ideal clients you can help.
- Reduce client base. Needless to say, you never want to leave your clients in need without anyone to help them. If you are considering a change in your practice such as retirement or a reduction in work, a merger or sale can do that – and requires considerable planning to ensure the proper transition.
- Prepare for retirement.This process doesn’t happen overnight. Through the proper preparation, you can ensure that you are passing your practice and your clients to the right person or people.
- Find economies of scale. By merging your practice with another or purchasing a book of clients, you may be able to increase your production at a lower cost due to changes in staff, more efficiency in who you work with, or otherwise.
- Refocus your role. The only way to change your responsibilities is to make a change in your practice. That could mean beginning the transition of moving leadership tasks to your successor or merging with a practice where you will remain working but adjust your role.
Define your objectives
You need a plan, and this begins with assessing your current needs and considering the ultimate goals for your practice. The action you take today will serve your best interests and, more importantly, the best interests of your clients. While many factors need to be taken into consideration when developing your own business continuity plan, below are three options that can serve as a “blueprint” as you move forward.
As you think about the future of your practice, do you plan to…
Buy — You may think you don’t have time, or even see the need, to develop a succession plan when you are still trying to grow your business. However, taking some steps now, and as you get closer to retirement, will build a strong foundation and pave the way for your practice’s eventual transition. In the meantime, this guide will help you follow the necessary steps for acquisition and growth. Buying can help you grow your clients base, generate new business, and expand your service offerings.
Sell — Are you ready to transfer ownership of your business? Whether you plan to pass the torch to a family member, a mentor or an outside buyer, you will need to consider numerous factors that could affect the process. Selling can help you right-size your client base to focus on your specialty, refocus your role, and prepare for retirement.
Merge — Are you planning to merge with another practice in order to scale the business or adjust your role? You’ll need a short- and long-term plan in place to ensure you find the right partners to provide the best outcomes for you and your clients. Merging can help you expand your service offerings, refocus your role, find economies of scale, and prepare for retirement.
Identify prospective seller
Before buying a practice, you want to make sure you have considered all appropriate elements of the practice you are looking to purchase. Who are the clients? How were they serviced? What is the transition plan for this acquisition? Who will be involved, and what roles will they play?
This process can be time-consuming, and it should be. The more thoroughly you understand the practice you are buying, the more prepared you will be to make a smooth transition with confidence for you and your clients.
Psychological testing also can help provide a thorough understanding of who is the best fit for your practice. Consultants who specialize in this sort of testing may utilize surveys that take 10 minutes or six hours, but the goal is the same: to recognize personality characteristics relevant to running a business, working with clients and staff, and many more elements that may not otherwise be well defined in your own vetting process.
Contingency planning
A contingency plan addresses the continuation of your practice in the event of a sudden, unplanned exit from the profession. Indicating a specific successor or a plan for transferring the practice in this type of event will help your family, clients, staff and others who may be helping you through this period of change. Making the appropriate plans and offering the guidance in advance will go a long way toward a smooth transition.
Establishing an actual contingency plan may involve anything from a verbal agreement between you and a possible successor to a fully executed agreement outlining all stipulations. Below are a couple of variations:
Standby agreement: A person, persons or organization enter into an agreement whereby they have a right of first refusal in the event you are suddenly gone from your practice. You may have some written outline of expectations between the parties — but nothing formally binding either to buy, sell or assist.
Formalized agreement: This agreement formally binds each party to performing certain activities (buy/sell/transfer/assist) upon the occurrence of a specific event (death, disability or sudden exit). The structure, terms and transition plan should be in place and ready to go at any time. Agreements could be funded with insurance to provide liquidity.
Many unforeseen situations may arise when you will be happy to have a contingency plan in place. Agreements should address issues beyond death, disability or retirement to also consider divorce and bankruptcy and resulting financial complications (such as a lack of liquidity). In a situation with multiple shareholders, that could result in others being forced into buying larger percentages of the business.
Other areas to think about: What if your son is in the business and you pass away but your purchasing partner doesn’t want to partner with your son? Or what if you plan to pass along the business to a child and they ultimately decide not to fulfill the agreement and buy out the business?
This is also where an official, agreed-upon-and-funded valuation (involving a full advisory team, CPA, attorney and valuation expert) becomes particularly important. Without that, upon the death of an owner they obviously won’t be able to speak for what they perceived when an agreement was put in place, and family members may challenge terms as a result. It is advisable to keep spouses, significant others and/or children informed as appropriate about terms of buy/sell agreements. If everyone is on the same page about the value of a business and price of a sale, this can reduce business transitions by a few months.
The mechanics and specifics of a contingency plan will vary from practice to practice. Finding the right successor, agreement and terms is the key. Selecting appropriate legal counsel or area field expert should be considered, as well. We recommend that you refer to the pages in the “Pass it on” when structuring a contingency plan.
Build it
Do what you say: Everyone who has been in this profession five or more years has an asset they should protect for the benefit of their family. Is continued value guaranteed for your business when you leave?
Say you were approached by someone who said, "I will work with all of your clients and pay you half of the commissions while you were disabled or if you died." You would consider that a good idea, right? But you clearly want to make sure they are the right person.
A great way to ensure this is to look in your book of businesses for:
- A number of clients you have not called in two years
- Those you have not called in three or more years
Why not find a young agent in your area whose personality and work ethic you respect? Offer them the opportunity to call on these clients to see whether they make some new commissions that you would not be earning for yourself.
If this is successful, think about whether you want to form an ongoing relationship where they work with referrals and clients you choose not to. If this relationship continues to grow, it’s a strong sign this person could be a good successor for your business.
The need for successors is necessary for someone who is 30 or 40 years old, as well as 55, 60 or 65. This is what we talk to our clients about: death or a serious disability preventing them from working. You don’t want to negotiate with someone when you are totally disabled or for your family to negotiate after your death.
Determine practice value
Valuation methods:
Free cash flow. One method used in the United States is to value free cash flow and multiply it four to six times. Free cash flow is the owner's salary, plus profit, minus what one would need to pay someone else to do what the owner does. The less the owner does, the more valuable the business is, as it essentially runs without them.
Recurring and nonrecurring revenues. Another method is to take gross revenues for one year and determine how much is recurring revenue (asset fees, renewals, etc.) and how much is a nonrecurring (new sales). The higher the recurring revenue, the higher the value for the business. Nonrecurring revenue adds very little to the new buyer's price, as this is a "hope and a prayer" type of business. A multiple of 1 to 1.5 times recurring revenue for the past five years is a good starting point for valuation.
Full business valuation. A third method is to hire a valuation expert to assess your business and determine its market value.
Other considerations for pricing
Clients. Businesses are made up of diverse groups of clients. Varying demographics and needs help determine the value of a business. The following client issues should be addressed:
Number of clients you are selling — It is important for the buyer to know how many new relationships they must add to their book. From the buyer's point of view, they need to ensure that they do not bite off more than they can chew.
Number of clients who have been with your firm less than five years — This, again, is important to the buyer, as it is an indication of how much new blood is flowing into the business versus how many are long-term relationships. Long-term relationships seem to have a higher value, as these clients tend to remain clients of a firm, and their greatest potential is after years and years of the relationship.
Type of client — The buyer wants to know that the client type you are proposing to transfer to them will fit their market. In other words, if all of your clients are 401(k) clients and the buyer you are seeking does not have any 401(k) clients, it likely is not a good match.
Geography — The buyer will also want to know where these clients are located. If the buyer has a coast-to-coast organization and all of your clients are in a rural location 250 miles from the closest airport, it is doubtful this is the right buyer.
Concentration of client assets — In today's financial services market, assets under management are a valuable part of the business. However, if your book has 90 percent of its assets under management with one or two clients and the balance with 100 clients, there may be greater risk than a buyer is willing to take. On the other hand, if each of your 100 clients has the exact same amount of assets, there is considerably less risk (and greater value) to the buyer.
Service standards — When you approach a buyer, you should provide a detailed summary of your service standards For example, while you meet with your clients every month, this may or may not be the potential buyer's priority. It is important that the buyer's service standards meet your standards, as this will provide the highest statistical chances of the buyer maintaining the book.
Human resources. In some cases, an existing staff member might come with the purchase of a practice. In other cases, a buyer needs to incorporate the purchased clients into their existing business. Either way, you need to consider the following staffing areas:
Enough staff — Can the buyer move your business block into his overhead with no staff increase? If so, your business may be worth more. If not, how much will the buyer's overhead increase? Will the buyer agree to this increase?
Staff qualifications – Is the buyer's staff qualified to serve your clients with both expertise and license?
Staff coming with the deal — Will your staff be willing to work for the new owner? Will your staff and the new owner's staff have the same culture? Will your staff and the new owner's staff have similar salaries and benefits?
Morale issues — How will your staff feel about you exiting the business?
Staff crucial to the deal — Are any of your staff members so knowledgeable about the history of your clients that they are crucial to obtaining the best value for your practice?
Business assets. In addition to your clients, what other business assets will be part of the sale?
Real estate — You need to consider either your building or your existing lease during the deal. If you own your own building:
Are there other tenants the buyer will want?
Are there any liens or mortgages aganst the building?
If the building is not part of the deal, can you easily sell it as a marketable commercial piece of property?
What is the condition of the building and suite?
If now is not the time for the buyer to purchase your building, should the buyer have the option at a future date?
Infrastructure
Lease of premises
Will your files, desks and computer equipment all be part of the deal?
What is the age of:
Computer systems — Will a new system be compatible? Do you have any proprietary systems that will be in the deal?
Telephone systems?
Furniture?
Structuring the deal
The agreement is the blueprint that encompasses all operations; ownership; hiring and firing; distribution; succession planning at retirement, death and disability; and the description of responsibilities of each party. It will include methods of dealing with clients and how clients will be shared. The plan will disclose the existence of a noncompete clause, as well as a provision for additional compensation if one member retires and is asked to consult due to the unique ability of the individual, or a client's comfort with that member.
Obtain legal counsel for each party, with a separate attorney for each participant. Your own counsel will look out for your interests first and will advise if the arrangements are equitable. The group should find counsel familiar with the type of organization being created.
Buyout period: This area is really a personal decision between the advisors and can vary in length and how the selling advisor will exit. For some it can be immediate exit, for others a slower transition takes place where the selling advisor eventually removes themself from the firm. Typically the selling advisor will remove themself from the day–to–day operations quickly and remain on to handle client–related issues as the transition occurs.
Transition period: During a transition period, the buyer continues on with the firm after the transfer to the buyer. The duties and scope of involvement may vary, but the idea is to help the buyer retain their clients by smoothing the transition for the clients.
Immediate exit: In this case, the seller leaves the business immediately after transfer to the buyer. This method generally results in a lower valuation as there is no assistance in the transition and, therefore, more variables for the buyer.
Performance: Retention of revenues, assets or clients are measurable benchmarks on which to determine the ultimate value of any practice. Should a certain amount of retention not take place, the buyer may be able to reduce any future payments in recognition of the lower value transferred. Realistic expectations and reasonable performance benchmarks are important.
As part of the deal, it may be beneficial to add an option that allows the business owner to merge their firm to elevate operations and create efficiencies with staffing and compliance. The owner would remain engaged in the business at this time while setting the stage for a later buyout. This is especially advantageous to owners who feel they can no longer carry on managing their operation but want to continue working by dedicating themselves to other areas of the business they prefer, such as interacting with clients. Be sure to understand the emotional components of this process for each individual.
In other words, owners who may not want to manage people, monitor their books or oversee administrative functions may want to negotiate an arrangement to remain as part of the business in a non-ownership capacity. The terms would identify the seller’s role moving forward and set the course for the full buyout at a later time.
If there is more than one individual involved in ownership of the business, it is essential to make sure everyone is on board early when structuring a deal. Otherwise it is possible that one person may declare at the last minute that they were never in favor of the transition.
Selecting experts
There are so many people involved in doing a buyout, and you shouldn’t plan to handle everything on your own. That could mean attorneys, accountants and tax experts. It also could mean operations like FP Transitions (who assists with matching businesses for purchase/sale and related legal work) or Succession Link (who also helps bring together businesses who are selling and those looking to buy).
Services like this are particularly useful if you want to buy a practice but don’t know anyone who is selling, and they may be able to help you do the valuation, negotiate price and draft documents for each party to sign off on.
When considering an outside expert to utilize, look at how many transactions they’ve worked on and the value of them. What’s in their database in terms of buyers and sellers? And remember to still talk to your accountant and other advisors as needed to understand tax consequences and other aspects of the transfer.
You might also consider securing outside expertise from someone to help keep your books (System Six is one of several companies that can help) or a third-party asset manager to help design your portfolios, standardized to the advice you give. The more your processes are standardized, the better and easier your transition will be when you decide to exit the business or sell your practice.
Which experts do you need?
- Attorney specializing in business and estate plan
- Accountant
- Valuation expert
- Banker
- Business coach/consultant
- Industrial psychologist
- Business broker
How to find experts
- Referrals from MDRT members
- Ask centers of influence
- Professional associations
Questions to ask prospective experts
- How many transitions have you successfully completed?
- What is your area of expertise?
- What professional associations do you belong to?
- Can you provide references?
Pre-negotiation
Before you establish the value of the practice and negotiate terms of the deal, there is a lot that you need to know. This could involve lawyers assisting in documents declaring a letter of intent and drawing up non-disclosure agreements to protect confidentiality as part of the ongoing discussions of a deal.
In addition, tax specialists can help identify the best types of sale from a tax perspective, and mergers and acquisitions advisors can help you understand the market and aid in the negotiation process. Many advisors miscalculate the value of their practice, so it is often wise to have an objective, third-party appraiser establish the value to inform the negotiation of other terms. Relevant parties should also be prepared to know where funding will come from and plan for contingencies. Will this be self-financed? Consider how people will be paid and who will take ownership of clients immediately and in the long-term.
Your accountant and/or broker-dealer can help gather necessary business data to have on hand for the negotiation itself. Sellers should have all of their books up to date and may want to remove one-off events (drastically impacting business operations/revenue) to give a more accurate view of the business to potential buyers.
The actual legal document should specify how the price was determined and what, if any, basis may be used to change the value during the buyout period.
This is probably the No. 1 deal breaker because many assume their practice is worth more than it is. We recommend an objective third-party appraiser to establish the price, which is also important in establishing the buy-sell numbers. There is information that can be obtained easily: renewal account, assets under management, persistency of account, number of clients, reviews, repeat business, fall–off of clients, age of the book and second-generation clients. These factors will influence any arrangement and the price it will bring.
The side fund is possibly the most overlooked area when putting an arrangement together. All deals are great until one of the participants needs capital. Using a side fund will enable the entity to use the funds to take care of unforseen situations and obstacles that may have been overlooked. Often, when there are financial stresses on a firm, it can start to unravel. That is why a sum of money for contingencies is a must.
The document should include a list of the clients and the revenue amounts assumed from each client.
Financing
The buyer may want "expense" buyout instead of "capital" buyout. The buyer may wish to negotiate a deferred compensation package for the seller (deductible to the buyer and ordinary income to the seller), as it allows future cash flows to fund the purchase in a tax–efficient manner. The seller trades capital gains for ordinary income, but how much difference is there in the effective tax?
Internal buyers may have little or no capital. Thus, a "minority discount" may be required for the first phase of the buyout. This phase may find the seller moving 30 percent of the business to the buyer at a 40 percent discount. The buyer can come up with 20 percent of the discounted price and must bank or owner finance the difference. The annual profit distribution, however, will be based on 30 percent of the company's value. The ideal plan would find the profit adequate to repay the bank or the seller within a five-year period. If the buyer has proven he can help operate the business profitably during this five-year period, he is likely now going to be bankable for the last 70 percent. The last 70 percent goes at non-discounted value. In many cases, the additional work the minority owners perform (because they now come to work as an owner and not as an employee) increases the business value.
If the seller owns the real estate, another method of financing is to increase the lease from the buyer to the seller. This is also deductible to the buyer, but it adds the benefit of not being subject to the Federal Insurance Contributions Act (FICA) for the seller.
Plan execution and transition
A well–executed plan will make all the difference to ultimately satisfying all parties involved. Once things have gotten to this stage, stay with the program and see things through. This stage is really where the rubber meets the road and where the transition comes to fruition.
What do you tell your clients when you have sold your business? Should you tell them, "I'm out of here," or are you better off spending a year or two helping the buyer build a relationship? This is less a problem in the internal sale than it is the external sale.
Managing the transition
Understanding and executing all aspects of the agreed–upon plan is crucial. If there were any rough spots in the negotiations, ignore them and fulfill the agreed-upon plan.
Communicating with staff
Staff members are important stakeholders in this transition. In addition to transitioning clients, you are transitioning your employees. If they are staying on, they are critical to the success of the transition. Keep them appropriately informed and let them know their role in the transition.
Managing clients through the transition
Make the client be part of the process by informing them in writing of the process that will take place and how it will occur. This can be accomplished via mail, or video or client appreciation seminar–type events.
Let the client know a transition is in process by sending a letter explaining what is happening and why it is happening.
Schedule a meeting with any client to meet the new advisor along with the current advisor.
Add additional services that did not exist with the old advisor relationship, such as newsletters, website alerts, etc.
Let the clients know you are building the succession plan. They have probably already thought about what happens to them if something happens to the advisor, anyway. Having the plan will bring them relief. They want to know who is going to take care of them if the advisor dies, becomes disabled or retires. Advisors spend so much of their career protecting the client’s family from the events occurring within the family, only to never provide that same safety net for the client if they were to suffer the fate themself — leaving the client in the cold.
Identify prospective buyer
Finding someone you trust to take care of your clients can be such a difficult process that it often keeps producers from creating their succession plan. According to respondents to a 2007 survey by LIMRA International and Moss Adams called "New Game, New Rules, New Reality," the most important factor in planning for a successful transition is identifying the right successor.
Whether you select a family member, an employee or partner from your business, or an outside buyer, psychological testing can help provide a thorough understanding of who is the best fit for your practice.
Consultants who specialize in this sort of testing may utilize surveys that take 10 minutes or six hours, but the goal is the same: to recognize personality characteristics relevant to running a business, working with clients and staff, and many more elements that may not otherwise be well defined in your own vetting process.
This is because emotional intelligence and interpersonal dynamics can be difficult to assess in an interview setting, and even family members may have drastically different approaches when it comes to risk or other considerations involved in decision-making for the business. Psychological testing can help individuals better understand themselves and colleagues better understand each other, leading to a business transition in which everyone is on the same page about strengths, challenges, expectations and otherwise.
Sale to a family member
A common type of internal sale is to sell the practice to a family member. This allows an advisor to transfer the value of the practice to a younger generation within the family. If done properly, it can provide an income for the next generation.
The advisor usually agrees on a lower price for the practice, as there are other personal estate planning considerations with this type of sale. The difficulty with this type of sale is the chosen family member might not be the best choice based on competency and/or on the ability to pay the appropriate price for the practice. In addition, this type of sale encounters the age-old question: If I sell this practice to one of my children, what do I do for the other members of my family?
Sale to a key employee or partner
In an internal sale, an advisor sells the practice to another advisor within the same business structure. This method should provide the smoothest transition to the client because they can continue working with the same firm.
From the firm's perspective, this is one of the most beneficial ways to transfer, as they do not lose the client revenue. Thus, it is in the best interest of the firm to help an advisor plan for this type of succession.
This method is commonly used with a junior advisor who can be groomed to purchase the business. Another benefit to the firm is the development of the next generation, ultimately increasing the firm's value, while making it easier for the remaining advisors to transfer their clients at retirement.
Outside Buyer
As the name implies, an advisor sells their practice to an advisor outside their company, either at an individual level or a firm level. In this case, the advisor has not only accumulated personal retirement savings, but will profit from the underlying value of the sale. Furthermore, in this scenario the new advisor will take control of the client relationships. This way, the client is not left to find another advisor. The downside to an external sale is the amount of time and effort involved in seeking a suitable candidate with similar core values. In this type of transaction, a great deal of due diligence is required on the part of the buyer to ensure they know what they are buying. Carefully consider the following areas when deciding on an external buyer:
Similar clients
How do your clients compare with that of the buyer/seller in terms of income level, investable wealth, family dynamics, geography and age? These are just some of the considerations to make when determining if your clientele would blend smoothly.
Methodology/culture
When merging or selling your business, you want to make sure that the other practice does business in a similar manner, both to protect the clients’ interests and your own. If you are a warm, family-oriented organization, is the purchasing practice the same, or does it have a less intimate, more corporate feel to it? Will anything change in terms of the frequency of communication and where/how it takes place? Are there drastic differences in terms of marketing or HR policies? Will the practice still have an entrepreneurial mindset after the deal is completed? Are there any major differences in your belief system or values, or in the benefits for staff members? Don’t assume that discrepancies will be sorted out after the purchase is completed.
This of course matters for office culture as well to maintain employee satisfaction and an even transition of performance under new ownership. Unhappy employees will lead to unhappy clients as well, so be sure to communicate with staff and clarify expectations/changes at all stages. Consider methodology how you do things and culture how it feels. Cultural fit is one of the most important components of a sale.
Courting period
The time required to establish and finalize this relationship will vary, of course. But experienced advisors say that somewhere between eight and 18 months should be expected. Think of this like a relationship and the time it takes to get to know a person before committing for the long-term. Visit corporate offices, talk with leaders and staff members and discuss current and future strategies. Retention, growth and valuation are all relevant as well. In many cases this process may take years, not months.
Due diligence
There is seemingly no limit to the amount of information a purchaser may want to find out about you and your practice before committing to buying, and being prepared is essential. Similarly, there is an abundance of information you could acquire about the advisor looking to buy your practice. This will include vital questions regarding corporate structure of the business, the crucial items of financial information, the value of assets and how the business is run. This will encapsulate everything from contracts to intellectual property to staffing plans to pensions, regulatory issues, data protection and much more.
Depending on where you are located, you may have to ensure that you and your buyer/seller work under the same broker-dealer. Regardless, due diligence is ensuring you have gathered all of the necessary information, including elements found above in “Similar clients” and “Methodology/culture.” Something else to consider: Are decisions being made by people close to cashing out? If so, they may be making deals that benefit them personally but not the practice as a whole.
Take the time to make sure that your business will continue at a high level and consider what you want your role to be if you will be staying on in the organization post-acquisition. Any complications with any of the aforementioned details may extend the time it takes to complete the transition.
Confidentiality
Involve your attorneys to draft non-disclosure agreements to maintain confidentiality during the courting period and process of structuring and executing the deal.
Mergers
Perhaps you are ready to make a change in your practice but aren’t ready to sell or retire. Another option is merging with another firm, which can help scale the business and adjust your role and priorities. After merging, you may be able to resume doing things you miss, such as seeing more clients, and let the new co-owner take the lead on areas you enjoy less, like running the business or managing others.
Just as with an acquisition or sale, being strategic and selective comes with the territory. It is important to find the right person and the right practice to merge with yours in terms of how you run the business and serve clients. The biggest roadblock for a merger often comes from leadership conflicts. Before moving forward with a merger, be sure to discuss all relevant components of the relationships that will be impacted from a financial and interpersonal perspective.
- Who will be in charge?
- Who will own what percent of the business? (If a 50/50 split is desired, a cash payment is one way to balance the scales.)
- Who will serve which clients?
- What staff members will be retained, and which ones won’t?
- How will the back offices be combined?
- Are you comfortable bringing on all the clients, and do you have the necessary staff to take care of them?
Both during the formulation of the deal and afterward, an external mediator can help resolve conflicts that arise.
It costs a lot of time, money and emotion to demerge businesses that have been merged, so making the right choices throughout the process is very important and prevents big problems before they occur. During the discovery phase, you may realize that a full merge is not in your best interest but rather simply buying a portion of another advisor’s business, bringing on another advisor along with a select batch of their clients or selling your practice is the best course of action instead.
Whether or not different versions of such acquisitions and changes qualify as mergers is less important than ensuring all necessary details are in place to secure a smooth transition.
Whole Person benefits of business continuity planning
Planning for business continuity isn’t all about business. It’s also a way of keeping faith with an important aspect of MDRT membership: the Whole Person concept.
- Relationships: Protect clients and family with a plan to make sure that they are taken care of if we die, become disabled or decide to retire
- Health: Create a plan that removes the stress associated with worrying about the future
- Education: Learn by teaching and mentoring a protégé, partner or child who can continue your business into the next generation
- Career: Take responsibility for insuring the long-term promises made to clients will be fulfilled
- Service: For the future security of your clients, your family and your profession, create a dedicated strategy to care for their needs, no matter what happens to you
- Financial: Assure the most effective rate of return on your life’s work by ensuring its continuation through proper planning
- Spiritual: Create peace of mind for the important people in your life by establishing a plan that keeps the gifts of service, security and capabilities going long after you are gone