Management
Issue No. 45 - Feb/March 2009
Succession a financial imperative
by Peggy Barker
Succession planning is fundamental to every business, and yet often it does not receive the time and thought required to reflect the lifetime of work most owners have invested in their organisation.
With nearly two thirds of all businesses in Australia being small or family owned, it is surprising to learn that less than 5% have succession plans in place.
Considering these businesses employ more than half of the nation’s workforce and generate $1.2 trillion in wealth for the country, the importance of succession planning is paramount.
The financial sector has never been more focused on succession planning than it has during the past two decades. The average age of SA’s financial planners now sits at about 54 years. Coupled with the added stress imposed by the gruelling bear market, it is not surprising that during the next five years a substantial changing of the guard is expected.
The unique structure of the financial planning industry highlights the importance of a well-considered and strategic succession plan.
Financial planning firms are built around ongoing, long-term client relationships, rather than the occasional or event-based dealings which form the basis of practice in other professional services industries. The transfer of ownership of a financial planning practice is often more measurable, because the client list, goodwill and assets are more readily identifiable.
The core asset of a financial planning practice will always be the client relationships it has established and the integral trust built while nurturing these relationships.
While business goodwill is an asset that can be bought the firm’s true value will only be realised if the successor earns clients’ trust through honest endeavour.
A primary concern for retiring planners and future successors is business valuation.
Key factors in determining the worth of a practice include the stability and recurrence of revenues, strong and co...
