In Focus: Future Talent  

How to find the right successor for your business

  • Explain why it is important to have a succession plan in place early on
  • Identify ways to hand over your firm or clients
  • Describe how you can find the right successor for your business

A management buyout or MBO involves the existing management team, usually with the help of external financing, purchasing all or part of a business.

With the right team in place this route leaves the firm intact providing limited upheaval for clients, a lower risk strategy for the exiting owner, and an exciting future for the management team. 

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Time is required to highlight the right people in the business to mentor and develop, recruit where there are skill gaps, and to make those who are exiting the least important people in the firm.

Merging with culturally aligned peers could be part of this strategy, providing a greater breadth of talent and more liquidity for a future exit.

With similarities in terms of legacy preservation, limited upheaval, and opportunities for your valued team, employee ownership trusts (EOT), which are a form of indirect business ownership, are gaining popularity.

Here the shares are owned by a trust fund for the benefit of the employees to an agreed formula. This is the owners' way of ensuring the business continues beyond them, with their earn-out coming from future profits of the business. 

Most financial planning firms in the UK are small, with more than nine out of 10 having fewer than five regulated advisers.

Often these businesses do not have the expertise internally to provide succession, or the owner does not have the time or the appetite to build a team capable of taking the business forward.

If this is the case, you are probably going to need to look outside your business to find your future exit and succession plan.

There are a range of external succession routes available, from networking with local peers, to find a culturally aligned adviser or firm you think would offer a great fit for your clients, to selling on the open market.

External routes to succession

Over the past few years we have seen an increase in interest from private equity.

With wealth clients typically paying ongoing fees, high persistency rates, the resilience of the profession and so many advice firm owners set to exit in the coming years, it is not hard to see why.

With so many acquirers out there, and a lot of ‘noise’ creating misunderstandings, learning about the different types of acquirers, their expectations, and their long-term ambitions is important.

Typically firms will appoint a business broker, or a corporate financier to provide access to a broad range of potential suitors and to help owners consider their options objectively. 

Early on, it is important to establish your red lines. What is imperative to you, your staff and your clients for the business to succeed when you are no longer there?