The 7-Step Guide to Starting Your Succession Plan with a Merger or Partnership
DEAR ADVISORS,
Most Succession Plans start with some form of Merger or Partnership. The new partner needs to come on before the older partner can transition out. The merger or partnership is similar to getting married, where the Partnership Agreement is a Marriage Certificate and Pre-Nuptial Agreement together in one document. There are the 7 steps to a successful Merger or Partnership to get your Succession Plan off to the right start:
Step 1 - First date
Starting the conversation with a potential buyer or seller may seem daunting, but just try to be yourself and ask lots of questions about the other person. Ultimately, you’re trying to discern if there’s any reason why this won’t work?
As you get to know each other, discuss your goals for your careers, your business, and your personal life. If you have a few non-negotiables, now’s the time to discuss them!
Step 2 – Continue Dating
Get alignment with your potential partner setting your ideal client profile for your firm together. Discuss your respective roles and responsibilities. Lastly, you want to finalize your fee structure per service model to the point where you can each confidently discuss that with clients.
While those things are important, you also want to make sure you’re building a relationship with the potential partner based on open communication, trust, and mutual respect. The longer you continue dating, the more you get to see of the “real person” and go into the partnership without rose-colored glasses.
Step 3 – Meet the Family
Discuss how the business is structured now, and how that might need to change in light of your long-term goals for the business.
Decide on ownership percentages in the beginning, and set expectations for how those will shift over time. This can seriously impact how each partner feels about their importance to the company and how they interact and work with other partners and team members.
Step 4 – Get Engaged
Sign your Non-Disclosure Agreement so you can share more private information and legal documents about your firm. This will include all financial documents, tax returns, operating agreements, etc.
Set a timeline for each partner’s transition into or out of the firm, as well as the buy-in and buy-out timeline. This may change over time, but continuing to push the timeline out can put the younger generation in a position where they can’t lead the firm as an owner and ultimately they may lose hope that the transition will ever happen.
Step 5 – Get Married
The Partnership Agreement outlines your commitment to each other and to the business. As you begin to consider the terms of the Partnership Agreement, consider all the possible scenarios and how you want to structure each outcome. Each partner should hire their own attorney to review the legal documents.
Getting a valuation done ensures that the deal is fair for all partners. It also provides the framework for adding some
Step 6 – Honeymoon
I call this the honeymoon stage because I think these are the most fun projects! Figuring out what to keep, replace, or upgrade among your tech stack gives you a chance to truly revolutionize your firm! Technology for financial advisors continues to improve so changing your technology gives you the chance to enhance your client experience, work faster and smarter, and possibly increase your fees!
When two firms join together, there’s usually a degree of savings, while revenue stays the same or goes up. As you detail your firm’s digital and tangible assets, you can make upgrades and splurge a little on the office comforts you always wanted!
Step 7 – Living together in real life
Now the real work begins. Once a firm has merged or brought on a new partner, the culture and inter-workings of the firm usually shift. It’s not the same company as before, so everyone has to learn to adjust. There can be growing pains, but it’s vital that all the partners keep a positive attitude and learn to work together.
The best projects to start with are updating certain processes and procedures or develop some that are needed. Another good exercise is auditing and improving the client experience. It’s helpful for the new partner to have a clearly defined project like this where they can take ownership and see immediate results that benefit the company.
Checking in on how your partner is feeling about the partnership is a healthy activity to do at least every year, if not more often. Both the business and the partners grow and change. Unlike a marriage certificate or Pre-Nuptial Agreement, the Partnership Agreement can and should be updated as the needs and desires of each partner change over time. The goal is for each partner to be happy, fairly compensated, and have a good work-life balance throughout the entire transition. Following these steps will help you secure the future of your family and your advisory firm!
Warm regards,
Brooklyn
P.S.
At Ellevate Advisors, we believe that advisors deserve to retire too. What does that look like for you, your family, and your business? Let’s figure it out together! Click here to schedule an initial phone call or get to know me on my bio here!