An article by Jerry Gleeson published on the Registered Rep website describes three things you do not want to do when you create a plan for passing on your business:
• Building the wrong bench. Those building teams of individuals who will eventually buy the business often groom people who mimic the current leadership. In a rapidly changing market, that can be a mistake. The clients of the next 10 to 20 years will have different needs than current clients. It is important to appreciate that what got the business to Point A will not necessarily continue to work into the indefinite future.
• Turning succession into a horse race. If you tell several potential successors they all have a shot at taking over the business one day, you may be asking for trouble. Destructive competition may ensue. Instead, the owner needs to send a message about the value that the successors represent to the firm.
“We want to make an investment in you. We’re going to put a development plan together. These are the strengths for you to develop,” is the best message. That takes the competition out of it, and instead focuses on building a great team. Whoever the successor is is going to need a strong management team.
• Acting out of fear. Envisioning your death and the subsequent collapse of your practice may engender some action on succession planning, but it’s not the best way to approach it. Instead, close your eyes and think about your loved ones, your employees, and your investors—people who have put their trust in you. Then consider how the lack of a strategy would affect those three groups.
You can find more information about business succession planning here.