Exit Planning: Closing up shop

(December 2007) The process of selling a practice or book of business can be a standard business transaction. But it is not quite cut and dried because a practice in transition is a dynamic environment. The ‘real’ work truly begins once the sale has closed.

This is a busy time for both the seller and the buyer. In addition to forming their partnership/relationship for transition, both need to lead staff and communicate change plans to clients while continuing to provide the service clients have come to expect. The buyer may also have an existing practice to operate.

For the seller there is also a wind-down process, which can be a stressful time of dealing with the emotional aspects of wrapping up personal and business issues that have become intertwined over the years spent cultivating client relationships.

Seller and buyer roles

Since sellers know their client base better than the buyer does, sellers typically construct most of the transition plan with input from the buyer. The buyer, of course, is responsible for the execution of the plan. For a successful transition, it is important to have commitment from both parties. While a written transition plan won’t solve all emotional aspects, it will provide the seller with a documented structure to fall back on during the post-closing phase.

What is a reasonable amount of time for the seller to be involved?

To make sure the client transition proceeds successfully, the seller’s continued assistance is essential. The first six months following closing of the sale are very important. After that, depending on the number and the location of clients, the seller’s full-time involvement may wane. Most sellers maintain their licence for up to a year after closing and make themselves available for troubleshooting or further client meetings as necessary.

Client communication

The approach for communicating with the clients ultimately depends on how often the seller communicated with them in the past. It also depends on whether the seller has previously communicated their transition plans. It is important to allow enough time to convey the information and accomplish the goals (i.e. client retention), both for clients and the seller.

Communication tips

• Avoid delivering a surprise to your clients by mail. At the very least, make a phone call first to mention that they will receive a letter with more information. Clients adapt to change over time so give them the opportunity to do so.

• Don’t try to communicate the news to clients in one phone call, one letter or in one face-to-face meeting. This is too much information, too fast for anybody to manage. Ideally the good-bye message should be delivered over the course of four to six calls, letters and meetings.

• Prepare a 30-second script describing the change that is taking place. Provide the script to every member of the transition team to ensure all parties are on the same page and delivering the same message as they communicate with clients. During the first few months of the transition, have this message updated each month as the transition progresses.

• Draft a series of letters to use with clients during the transition period.

First letter, signed solely by the seller. Purpose: Tells clients about the overall succession planning strategy and the seller’s affiliation with the buyer, their new advisor. If a change of dealer will occur, make sure any new benefits and services are noted.

Second letter, signed jointly by the seller and the buyer. Purpose: Informs clients about the status of the transition process and provides more information about their new advisor’s experience and qualifications.

Third letter, signed solely by the buyer. Purpose: Communicates the message that the seller has transitioned out of the business.

Each letter should contain details describing things that will remain the same — phone numbers, office address, fees and administrative support. It is important for clients to feel some continuity, safety and progress, not a drastic change.

As a natural part of the selling process, the seller should plan on dealing with their emotions. It is truly okay to be emotional at this phase and it is not necessary for a seller to hide the fact that they care about their clients. The best thing they can do, besides being themselves, is to find a buyer who shares their same passions for the business.

The seller and buyer should also expect and plan for occasional disagreements. If both have been successful in running their businesses as sole practitioners, handling a staff of three or four people, and guiding both the business and their clients through the good and bad times, they are necessarily tough and decisive. Chances are their successors are as well.

More Exit Planning

• Build your retirement plans • Transitioning best practices • Knowing what you want • What is your practice worth? • Reaching qualified buyers • Doing your due diligence • Bidding and final negotiations • Documenting the deal

The business perspective: Managing risk

Speak with your liability insurance broker about what coverage you will need to protect yourself during this transition and in retirement. Most, if not all carriers, offer extended reporting period coverage for practitioners who exit the industry.

The retirement perspective: Preparing for retirement

It is a good idea for the seller to create a written plan for their personal transition. The financial services industry may be somewhat unique in that it offers financial practitioners a variety of options, from full-time work to traditional retirement.

The seller’s options include self-employment in a new business, a bridge position to move into a new role or industry, pursuit of nonprofit opportunities and partial retirement or full traditional retirement.

It is important for the seller to take control of their retirement the same way they have done with their practice.

Moving on

It can be difficult for a seller to leave a practice that for many years has been a major source of pride. The final exit can be made easier by knowing that their practice is in good hands once they have settled all their retirement issues and put the appropriate legal, financial and tax components in place.

Moving on can actually be the hardest commitment to keep, but if a seller has planned and executed their transition properly, their former practice will continue to be served by an established practice built by themselves and the buyer.

Cindy Jenner Cowan is chief operating officer at Worldsource Financial Management. With more than 17 years of experience in the financial services industry, the expert in relationship management and value-added coaching recently developed FRAMEWORKS, a training program for Worldsource advisors, focusing on advisory practice life cycles. For more information please visit www.partnerwithWFM.com. You can also contact Cindy directly at (604) 376-9119 or cjennercowan@worldsourcewealth.com.

(12/17/07)