The Covid19 Pandemic has highlighted, particularly in China, Europe and the USA, that we never know when our time is up. There has never been a more important time to get your ‘ducks in a row’ to ease pressure on yourself, and your family, if the worst case happens.
As financial planners, you know about income protection, and other insurances to protect yourself and your loved ones if the worst happens, but do you know how to protect your business? Financial planners, largely being sole traders or advisers, leave a gaping hole in their business if they were to suddenly pass away, or become incapacitated. Your family aren’t financial planners, they haven’t run your business before – they will also undoubtedly be under other stresses at a difficult time. Selling a business as a going concern (that is, a business operating normally) is going to lead to a more successful solution – for both client care and financial outcomes, than a fire sale of a client base sans adviser. There are things you can put in place beforehand that will save significant stress and could lead to much greater financial outcomes.
Preparing Your Business for the Worst-Case
- Who will run your business in a temporary capacity?
Responsible Agent, Licensee issues, Client Facing, Professional Indemnity Insurance. Is this someone working in your office – a second in charge? A colleague in the profession? Ideally, you would ask this person, talk them through what would be required, etc.
- Who will be on hand to transition client relationships?
Any employee who knows the clients, a friendly receptionist, paraplanner, or assistant can make a big difference in a relationship-centric handover. How can they be supported during this time, but also prepared in advance – so that the best outcome is achieved for all, with as little stress as possible. The key staff should be made aware that they would be critical in any event – and steps should be in place to ensure consistency with the business administration, e.g. their pays, so they can continue servicing your clients in your absence.
- Who has the important details of the business, and structure?
Your trusted adviser having an entity map and key information to go through with your estate lawyer, and family. Considering the most tax-effective ways to strip cash from a corporate structure can save issues down the track. This person may take on a temporary role of business administration, completing pay runs, preparing payments, etc. to ensure business continuity.
- Who will help advise your family?
Someone who can explain the process, likely timings, and outcomes, and take them through each step of the journey. Business owners often find it useful to engage an external adviser, someone not emotionally attached to the business, to be the point person. Someone who can play a bad cop in a negotiation. In a usual sense, this frees up an adviser to focus on running the business, in other circumstances – there is plenty to think about and process – you don’t need to be learning how to sell a business too.
- How will a sale or transfer of ownership occur?
Discussing with an adviser the process and documenting a contact, or short list, in your estate planning can be a good first step. This way, you can have some comfort in those who could help your family. There are steps you can take now to have a working document for a future sale – an Information Memorandum that needs updating is still better than a not started Information Memorandum.
Depending on the circumstances and client base, the business would then be marketed to a relevant shortlist from our database or taken directly to a known purchaser who could efficiently execute the transaction. The process can take 4-6 months to complete due diligence, agree on a terms sheet, and settle.
We had an experience with a terminally ill adviser, known to us, who spent much of their last weeks and months dealing with a client base sale, instead of precious time with their family. He was unwell for some time and clients had begun moving to other practices, as they were not being serviced to the usual level. Midway through the transaction, the adviser sadly passed away. The family was obviously preoccupied, and an interim adviser placed in the business through the licensee – a new person for the clients to meet. Just before the contract was signed off, the permanent employee in the business resigned and moved to another job, believing they were easing the burden on the family. The deal almost fell apart without the staff member transitioning with the clients (that friendly face). In the end, the client base sold, after multiple months, and for a lesser price than had the transaction gone more smoothly.
We have the experience to be able to preempt issues you and your family will face along the way, and the expertise to keep transactions moving.
Have a look at the latest edition of our Practice Valuation Guide for more information:
