In this Section:

Five Components Of A Good Succession Plan

Succession planning is easier to get off the ground if one starts with a plan for the plan, experts say.

In other words, break the succession plan into bits that can be accomplished in systematic order. It also helps produce a stronger plan, experts add. With that in mind, here are the five components of good succession planning, courtesy of Scott Bishop, a financial planner based in Houston.

1. Create a clear vision. The most difficult thing for many business owners is simply getting started. It requires a willingness to look at personal and professional goals with deep introspection.

Setting the company aside, a good way to start is by asking, “What does a successful transition look like for me?” Bishop said. “Getting to that answer requires personal reflection and careful consideration.”

2. Determine the business valuation. Establishing the value of the company generally starts with operating cash flow. “Unlike book value, revenue or net income, cash flow is the best indicator of company profitability and overall operating efficiency,” Bishop said. “Prospective buyers want to see dependable, growing and predictable flows.”

If the succession plan includes staying on to work, or retaining a part of the business, or even a quicker exit, a valuation specialist might be a good investment to assist with the plan.

3. Maximizing value. Buyers place a high value on business continuity, or retention of staff as well as clients.

“Clients who can easily follow disengaged staff out the door are an obvious risk to a successful transition,” Bishop said. “This risk can be mitigated by hiring key employees and professionals who are a good long-term fit, and by creating a compensation strategy with incentives that help employees share in the firm’s success.”

Likewise, it is best to connect the client with the firm, and not the individual advisor, he added.

4. Maximize scale. In other words, make sure the business is efficient and productive. To a point, that is. It doesn’t make sense to be so “efficient” that staffers are overworked and office morale is low, Bishop said. But a profitable and streamlined agency is one that will be of great interest to buyers.

5. Demonstrate consistent growth. Firms that attract premium offers are ones with sound growth strategies and strong business development plans.

“Successful firms tend to have well-documented business development compensation and incentive plans in place for the entire staff, to ensure that everyone has a vested interest in the firm’s growth,” Bishop said.


InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. Follow him on Twitter @INNJohnH. John may be reached at [email protected].

More from InsuranceNewsNet