The first step in any business succession plan is to properly valuate your business. This is much easier said than done for certain industries such as financial services. These types of businesses rarely have many hard assets, instead their value lies in intangibles such as goodwill. This is not to say assigning a value is impossible, but it is a challenge.
An accurate valuation of the business makes for better business decisions. An accurate valuation will help obtain more favorable loans and will also help determine equity when creating the business succession document. Once a realistic determination of value is obtained it will be easier to create ways to increase the value before passing it along to a loved one or selling.
For those in the financial services industry determining valuations require specialized skills. The expert will look at the book of business and whether income is derived from commissions, fee-based, fee-only, or a combination model.
Your business is likely the cornerstone of your retirement plan. It is imperative that you understand the businesses assets and investments, future cash-flow projections, and tax obligations. An accountant or Chief Financial Officer should look for revenue leaks and suggest ways to increase cash flow and reduce tax liabilities.
It may seem obvious, but it is also important to know who or what will take over when you leave the business. Will you sell or pass the reigns to a family member or business associate? How will you tell your clients so that they feel comfortable with you departing?
Whether a small or large business a succession committee is a great idea. The committee should involve key employees, the CPA and attorney, and relevant family members. Questions to discuss are what would happen if you were incapacitated or pass away. Would legal ownership, licensing, or agreements be affected? Who will deal with vendors and creditors?
Life insurance, disability insurance, and Long-Term Care insurance should play a major role in any business succession plan. From buy-sell agreements funded through Whole Life insurance, there are many insurance products that can be tailer-made for your specific needs.