Succession Planning by the (Hard) Numbers

“Over 100 people at a presentation about succession planning at 7:30 on a Sunday morning shows you the commitment to the topic.”

With that, Nexus Strategy president Tim Welsh launched into a discussion at FPA Experience 2013 in Orlando of why it’s so popular — and important. Yes, you need a succession plan to ensure continuity and continued client goodwill, but putting hard numbers to the possible valuations made the advisors in attendance sit up and take notice.

“The multiples when it comes to the value of a firm can be as high as 10 times,” Welsh said. “That means $50,000 in cash flow suddenly becomes a $500,000 asset.”

He noted the aforementioned goodwill of the client base is what drives success, but if that goodwill is represented by documents and processes “that are a mess,” why wouldn’t the advisor spend $20,000 or $30,000 in technology to help clean it up and ready the firm for sale?

“Think about something like a document management system and the ROI it can bring,” he explained. “It helps to establish compliance processes and reduce costs, enhances productivity, reduces overhead, streamlines workflow and makes life fun again.”

Technology integration results in 20% more annual income and 30% higher operating profit, he noted. Workflow automation results in back-office savings of 5% of revenues. With a document management system, savings to overhead equals 9% of revenues.

“This is often the advisor’s biggest asset, and they get one shot at monetizing it for retirement, so they better do it right,” he added.

He also pointed to “the people with capital behind them” that also see the opportunity in purchasing advisory firms, and in many cases flipping them.