Finally, in establishing a baseline value for the RIA in completing a G2 succession plan, the stockholders also establish the underwriting and valuation criteria a third-party buyer will ultimately use and rely upon. Stated differently, you have already pressure tested valuation and established a valuation benchmark on the date valued—this will act as bedrock pricing (lowest possible pricing). That is, any subsequent valuation will add incremental growth, and third-party competitive sale situations with multiple competing buyers will drive valuation higher as they bid auction style for the business. Win-win.
D. Put Your Plan In Writing
Do not rely on a handshake, or a friendship, as the basis of your succession plan. Document your agreement in writing, be detailed, and don’t rely on memory or oral agreements outside of the written agreement. Whether it’s a partnership agreement, membership agreement for an LLC or a shareholder interest governed by a shareholder agreement for a corporation, put it in writing! Succession planning fits the unique needs and wants of that particular founder, it’s not cookie cutter or one size fits all. It is incumbent on the founder to design their ideal “life after” including their ability to work in the practice after they transfer out as an equity owner. For all intents and purposes, the succession plan is the financial plan for the founder, and crucial to engage in the detailed planning for themselves that they’ve been doing for their clients for decades.
David Barton is vice chairman at Mercer Advisors.