Will your people survive the sale of your business?

When it comes to the sale of your business, where do your staff stand in terms of either being rewarded or retained by the new owner? If you have a Succession Plan, what provisions have you made for those that have helped you become successful as a planner, namely your staff?

Succession Planning is not just about realising the value that you have built in your business, but ensuring that key staff, who may well be younger, and needing to keep working, are considered, along with the needs of your clients.

All too often the 'soft' issues relating to staff are not adequately addressed, by both sellers and buyers.

Recently I was involved in discussions with a Principal who is looking to find a buyer for his business. Along with the Principal were two support staff, both of whom are keen to work, and who not surprisingly are well known to the clients. Being a good business in terms of type of clients, advice process and platforms used, there was a good level of interest from prospective buyers.

One offer was particularly generous from a price perspective, with the buyer prepared to pay above market multiples for the business. There was one condition of purchase, and that was that neither the Principal nor his staff would be required once the purchase had been completed. Suffice to say the offer was rejected as the Principal was concerned as to how his long-standing clients would be looked after in the absence of both him and his staff.

"It's not just about the money!"

It is every Principal's goal to achieve a good price for their business, given the effort put into building it over many years. But for most owners it is more important to find the right cultural fit, vision and advice philosophies. As many of you will agree, long-term clients can become long-term friends, who enjoy the same interests. How would you face such clients in the knowledge that you sold out on price alone, and that the new owner was not an ideal fit for your business. Furthermore none of your loyal staff were retained in the business. It is quite common in planning businesses for key staff to be held in as high regard as the Principals, given they are attending to routine matters on a regular basis with your clients.

The majority of succession transactions will involve a "back end payment" that will reward the seller for the retention of clients over say a 12 month period following the sale. Key staff play an important role in such instances given their relationship with clients, and only confirms why they need to be included in your succession plans.

This is particularly the case after the events of the last 12 months given the impact of the Global Financial Crisis. Businesses large and small have been affected by this, resulting in redundancies. Tough times require tough decisions, which no doubt many of you have faced. But you will need to still retain key staff despite this. If there is continued uncertainty, it can result in staff making their own decisions about whether to look at alternatives. If however you have implemented a succession plan, that still may have 5 years or more to run, which includes the buy-in from key staff, you will be in a much better position. Despite the last 12 months, the financial planning industry remains a growth sector, and it can be expected that Revenues will recover in due course. Key staff will be critical to assist in the re-building of your business.

It is no surprise that in the current environment there is much more interest from Principals in formulating a succession plan. Studies by the Business Health group indicate that those businesses with a Succession Plan in place, are in fact more profitable, as there is greater focus by all involved in the business. Doubts relating to future exit strategies are removed and staff are more likely to buy-in to the future plans for the business. This can also involve suitable financial incentives, including shareholding, leading to the future sale of the business.

All too often Principals do not provide adequate incentives to both advisers and key staff in the business. It also becomes an issue as businesses become more successful making it prohibitive for such staff to access sufficient funds to buy-in. But by even ensuring they have a minor shareholding will ensure such staff are suitably incentivised in the business.

When it comes to Succession Planning, and the ultimate sale of the business, Principals are looking for certainty:

• certainty of business value
• certainty of the process for the business to change ownership
• certainty that the sale process will extract value for all parties, namely shareholders, clients and staff
• certainty that when they leave the business the business will continue to provide a high standard of service to clients, and will ensure that it remains successful into the future. Existing staff will have a role to play in this regard.

In summary, some Questions to ask yourself:

1. What expectations do your staff have upon your exit?
2. Have you made promises to staff that need to be kept?
3. Ask yourself what value do your clients place on your staff?
4. How successful would you have been without the support of your staff?

Planning for your succession is a critical process, and it is essential that key staff have buy-in with the process, thus ensuring any doubts are removed about their future in the business. Once the plan is finally implemented you will likely achieve a better result for all parties concerned, rather than just achieving a trade sale of your client base, which is typically the case with many planning businesses.