View more on these topics

Danby Bloch: Making a success of succession planning

While the consolidator route can work well for some firms, many have expressed dismay at such arrangements. Early preparation is key

Business owners need to start thinking about the long-term goals for their firm at least 10 years before they want to make an exit – preferably sooner. The key question is what sort of people do you want to take over?

The succession choices for most smaller advice firms are broadly:

  • Sell out to a much larger company – typically a consolidator;
  • Sell or merge with another firm of roughly the same size;
  • Pass the business down – or sell – to a member of the family;
  • Sell to employees or younger partners, in which case new employee ownership trusts may provide the right approach.

Each option has its advantages and drawbacks, and any could turn out to be the right answer for a business, depending on the characters involved and the state of the firm.

The most popular routes, however, are selling to a large company or to the staff.

Consolidator concerns
Many have been pleased to make a deal with one of the big boys, happily waving their business and colleagues goodbye and sailing off into a prosperous retirement.

The multiples of turnover or profit that are promised can look very attractive and there may be the opportunity to continue working within the enlarged company.

Phil Young: Are employee ownership trusts attracting the wrong firms?

Indeed, plenty of advisers have done this with consolidators and it has all turned out fine. But sometimes not everything goes according to the seller’s expectations. And it is not just that some business owners can’t let go. Many of the concerns are more substantive.

There is the worry that the ethos of the buyer organisation does not mesh well with practices that have been established in the smaller firm, leading advisers to walk and clients to complain.

If the erstwhile business owner continues to live in the same community, that might lead to awkwardness with former clients and colleagues on the golf course or in the pub. Heaven forbid there should be any shoehorning of clients into investment propositions, but it is not entirely unheard of.

If staged payments were agreed as part of the deal, then second or third instalments might not materialise or be as generous as expected if clients and advisers peel off and go elsewhere.

Looking inwards
With these concerns in mind, a business owner’s thoughts of potential buyers may well turn to partners or employees. In many cases, it could take quite a leap of faith for the owner to think that these people, who are perhaps decades younger, will one day be potential buyers of the business.

That could be a failure of the owner’s blinkered vision – it is sometimes hard for the old and experienced to discern potential in the young and brash.

But there might actually be a real gap in talent and scope for leadership, in which case the owner will need to start recruiting.

Should you sell your firm to your own staff?

Assuming the buyers are up to the mark, it is really worth exploring the route provided by the employee ownership trust.

There are tax advantages. For example, the capital gain on the sale of the company is tax-free, although this is a saving of only 10 per cent on the gain, so it is not an overwhelming consideration.

More important is the trust structure for the ongoing business, which will provide some continuing safeguards for the seller and a viable way for the successors to own and control the firm in the long term.

I will look at some of the pros and cons of employee ownership trusts in future articles. If you want to know more now, head to the government website, where there are several articles on them, or speak to Ovation Finance’s Chris Budd, who has lots of experience with selling his business this way and now runs a course and has written a book on the subject.

Danby Bloch is chairman of Helm Godfrey and head of editorial strategy at Platforum


Mark Carney 480

Carney says no-deal damage could be less than feared

Bank of England governor Mark Carney has said that previous estimates could have overstated the damage that may be caused by a disorderly no-deal Brexit. Three months ago, the Bank said that, compared to Theresa May’s deal for leaving the EU, a hard Brexit could leave the economy between 4.75 and 7.75 per cent smaller […]


Benchmark Capital acquisition process under question over fund flow ‘assumptions’

Questions have been raised over Benchmark Capital’s acquisition process after it appears the group gave a potential acquisition target “assumptions” for flows going onto its platform and in to its funds. A document seen by Money Marketing, was initially given to an advice firm in sale talks with Benchmark Capital. It is a spreadsheet which […]


Now: Pensions fee controversy escalates

Criticism of the way master trust provider Now: Pensions charges members has escalated with two letters published by MPs on the work and pensions select committee. In February, Now: Pensions director of policy Adrian Boulding wrote a letter where he rebuffed criticism from committee member and Labour MP Steve McCabe who alleged the way it […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm