Most small and medium sized firms/ businesses have no succession plan and haven’t even started to think about one. Absence of proper succession plan often results in
- Delay in retirement
- No proper monetization at the time of exit
- Delay in sale of practice and sale of business
- Ineffective transition between buyer/successor of practice/ business and seller/ outgoing partner of practice or business
How succession planning can help?
- By having a proper succession plan in place, it ensures the continuity of the business and profession from one generation to the next
- It helps to provide secure retirement for the owner
Why no one thinks about succession planning?
Most owners of business or CA/CS/ law firms do not want to face the issue of succession planning for variety of reasons:
- They are already burdened by tasks in a routine day that it becomes difficult to sit for planning
- If you are the sole proprietor, then letting go of something you developed from scratch is difficult
- Feeling that nobody can do a better job than you is often developed.
How should succession planning be approached?
1. Exit plan: There are lots of options available at the time of retiring from business or profession.
• Merge with another firm
• Let your client/ order book diminish
• Just shut the light and close the practice or business
• Sell the practice or business to another young practicing professional or budding entrepreneur
Any practicing professional before drafting the succession plan should weigh the options available to transit and exit.
2. Value your firm: Find out at what value any similar type of firm is sold in your area. It is always better to get an independent valuation. Some of the factors that may affect the valuation off paper are:
• If the business or practice is owner driven, the owner is the rainmaker then such firms get low value because absence of owner affects the client relationships severely.
• Outside buyer of practice or business pay more than the inside buyer because inside buyer believes that they have also helped in building the practice and business. A discounted value should be considered while selling the practice or business to them.
3. Informing the clients: When it comes to sell of professional practice, it is more about building relationships and serving the same client year on year. Clients need to be aware about the changes in the firm. If a sudden change is introduced they may not absorb it well and might develop apprehensions towards successor/ buyer of practice.
4. When is the right time to begin planning? : As a general rule start at least 10 years before the age at which you plan to retire. So if you plan to retire or sale your practice or sale your business at the age of 60 then it is suggested to start your succession planning at 50. Factors which needs to be considered are:
• How do I ensure my finances are secured?
• How to find appropriate successor/buyer of practice/ business?
• Am I committed to execute the succession plan?
Succession Planning Guide for practicing professionals
Succession Planning Guide for business