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Practice Management > Succession Planning

Getting Your Succession Planning Back on Track

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Succession planning is top of mind these days with many advisory firms and the good news is we’ve seen many actual transitions to the next generation of advisors taking place, among our clients and in other firms. However, in our experience, perhaps the biggest challenge that successions face is a phase of what I call ‘disillusionment’—when everyone gets ‘disconnected’ from the ultimate goal.

This often happens when there is a shakeup in management or when discussions turn to the ‘deal’ for the transition (money issues). The good news is that if a firm can make it through the disillusionment stage, then it’s downhill from there on out. The danger is that some owner advisors get stuck in disillusionment—get angry, mad, disconnected—and ultimately lose confidence in their team and in the idea of a succession.

When these issues get to a breaking point, it’s the owner’s job to step up and be the leader. During succession planning, being the leader becomes the central part of making the deal work. Many owners vastly underestimate how much time this process takes. We’ve found that the best way to do this is to make their intentions and goals very central and clear. In our experience, the most successful vehicle for this is a letter—a very personal and direct letter—to the potential partners that express the owner’s deepest concerns, thoughts and feelings, and set some boundaries around what the goal is and the intentions of the succession.

This may not be everyone’s style, but writing a letter often is very eye opening for many reasons. If there is no reaction to the documentation except continued push-back on the deal structure, then it’s likely the successors are not ready to be owners—or are truly just greedy (which is really the same thing). But as is often the case, the letter will reset the tone for moving forward and working together in good faith to make the deal happen.

If you’re a firm owner in the process of succession planning and it’s not going well, I suggest you take a couple weeks to write the letter to their team. You need to take all the time  necessary to get this letter right—writing and rewriting and rewriting. By doing so, your goals will become clear again and the succession plan will turn to appreciation and promise. Here’s an outline of what the letter should include:

  1. State why you are writing the letter. For example: “Over the past year and through this transition I have had time to really reflect on my life and my firm and I wanted to write a letter to all of you about the things I have had time to think about….”
  2. Spell out your initial vision and history of the company: why you started your firm, what motivated you to serve advisory clients, the struggles you faced in the early years, the hardest decisions you had to make as an owner and the personal toll it took on you.
  3. Tell your partners why you hired them: the potential you saw in them, the impact they’ve had on firm growth, how you strived to take care of them over yourself, how you shielded them from your own heartache, what you did to protect them from financial heartache through the growth process and your perspective on how to treat employees.
  4. Tell them why you picked them as partners: what makes them unique, how they earned this position, why you didn’t do it earlier, why you are doing it now, what’s in it for them. Then remind them how much time they have to build the company, compared to where you were when you were their age.
  5. Tell them your frustrations now: how hard it is to let go of everything you have built, how and why you structured the deal the way you did, and why the deal is important to you and to them.
  6. Tell them how to refocus: that you need to come to agreement, that no amount of money is going to pay you for your work, while no selling price is going to be low enough for them, and how you both equally put in efforts to build the company into what is today.
  7. Remind them of ethics: how a good business owner will pay a fair price for a good company, not try to buy a bad one for a bargain, and how you are feeling about the transition at this point.
  8. Finally, give them a deadline: “We have talked about this enough and it’s time to come to an agreement.” Let them know the agreement is fair: that you want them to have the firm, and they are not going to get a better deal anywhere else, and remind them how dragging this out is only going to make the value higher, not lower.

If you take the time to write this letter properly, and put your heart into it, you will get the result you want. This is the last major thing, as the leader of your company that you need to do for yourself, your team and your business. It is perhaps the greatest legacy that you will leave behind.


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