A new report by Elixir Consulting has suggested that regardless of whether the current principals are intending to exit the business in the near future or they’re planning to stay long-term, resilient firms are sale-ready, and the owners are either aware of their potential or preferred exit strategies, or they have an active succession plan in progress.
The report, titled The resilient advice business strategy handbook 2023, sets out that effective succession should ensure that business owners are able to extract the capital value from their entrepreneurship and efforts.
Moreover, Elixir explained that resilient advice firms not only plan their equity transfers but that they also plan their leadership transfer.
If it is an internal succession, they train up their successors, progressively giving them more management responsibility and independence over time.
“The most successful succession plans are those where the transaction is done with a firm focus on what is best for the clients and the staff of the business,” Elixir Consulting said.
“From a commercial perspective, the exiting owner will always extract more value if there is alignment with the new owners, otherwise they find their second instalment is impacted if the business implodes after transfer,” it continued.
“Most advice principals seek a greater return than purely financial, however, they enjoy a sense of satisfaction and fulfilment when they see their legacy in good hands”.
Ultimately, Elixir pointed out that regardless of plans, “you want to ensure your business is sale-ready at all times”.
“Absolute visibility on financial and client data, documented processes, good compliance scores. You might not know how you’ll realise the asset value in your business just yet, but planning to maximise your return makes good business sense”.
While options for succession are many, they may include a combination of any of the following:
- Business Sale – complete sale to a new owner external to the business.
- Employee share plans – gradual equity transfer to employees over time.
- Internal successors purchasing equity from Principals over time.
- Mergers (rather than an outright sale, the business is merged with another, typically meaning that management and staff move with the clients).
- External investors – there are many groups including AZNGA, Broadleaf, new players to the Australian market Merchant, as well as many licensees, who will make investments in advice businesses.
- IPO (Initial Public Offering) is also a potential option for large organisations.
