At some point in your career you will start to question what you want to do with your business when you no longer want to remain active in it. The choices can be difficult planning your exit from your business.
I get it, it's your life’s work and likely represents decades of blood sweat and tears.
All the more reason you should be carefully creating a succession plan before you need one.
You don’t want to leave this to chance or make a half-hearted decision at the last moment. There are big risks for not having a succession plan. Let’s look at some of those real quick, before we go any further.
Some risks of not having a succession plan:
Loss of mission critical knowledge that may never be recovered.
Naming a successor who lacks personal drive, commitment, knowledge, training or skills needed to perform the job successfully.
Significant loss of time spent getting a new successor up to speed.
Potential disruptions to workplace processes, workflows, and protocols.
The risks go on, but that’s enough to make you realize the importance of creating a succession plan long before you actually need one.
What is succession planning and why is it important?
Succession planning is the process of identifying very important positions in the organization and creating a talent pipeline, by preparing employees to fill vacancies in their organization as others retire or move on.
A successor is an employee with the knowledge, skills, and abilities to fill a vacant position until a permanent replacement can be identified.
Succession planning helps ensure business continuity and performance, particularly during times of shifting leadership and change. Even when there is no identifiable successor within an organization, succession planning can help identify the knowledge, skills and training needed in a future external candidate.
What options are there when creating a succession plan?
For the most part, there are 3 options you have as an independent agent.
In no particular order:
Option 1
Let your current book of business run off.
This is probably the least ideal option available to you. By not servicing your business you are not taking care of your customers.
Sure, at first it might seem like the easiest option. You stop servicing your clients, continue to get paid, and you may not even notice a drop off right away.
I assure you this will be short lived. As soon as your clients need help and you’re not there for them, they will look for help elsewhere, and other agents will be more than happy to explain how you intended to just lay back and make money off of them, without lifting a finger.
Your book of business will slowly, or even quickly begin to fade away. All those years of hard work slipping away. What a waste, right?
Option 2
Let a family member or business partner take over the business.
If you have someone in a position to take over your business this is a great option. Of course, it takes time to get someone up to speed with your business model and all the things that go into running your business.
If you have someone working directly with you, then this makes things easier. If not, well, that’s the point of the succession plan. To plan out how to get that individual up to speed, so they will be able to step in when you are ready to step out.
You will need to decide how the financing will be handled. There are endless ways to structure this, but at the end of the day, you will be getting paid as your business continues to thrive.
With this option you have the piece of mind that the business you put so much effort into will continue to help, not just your clients, but the new owners of the company for years to come.
Option 3
Sell your book of business.
You will likely have the option to sell your book of business to another agency. Agencies are always looking for a good book of business to expand their own.
Keep in mind, having a CRM in place will be a big deal when it comes time to sell. Most companies are going to want to import all the info from your business into their own CRM. This makes servicing the business far more feasible than if all of the information was on paper.
You are likely working with an FMO that may be happy to take care of your business, and also offer a fair price for it. That price will vary based on what’s in your book.
Generally, the average valuation we see in the industry is around 1.5 - 2 times the commissions, for example. This can obviously vary based on what’s in your book, the age of the contracts, etc.
Of course, you want to be sure that whoever you sell your business to will be able to service your clients. You want to know that the clients you worked so hard for, for so long, will be taken care of.
Final thoughts
We talk to far too many agents with 10 years into their business, who think they will live for ever and have plenty of time to worry about succession planning in the future.
That may be a mistake. The best time to start planning is yesterday. You never know what the future will bring and you don’t want to risk the business you put so much effort into.
Succession planning is serious business that must be considered carefully. If you have any questions or would like some guidance, our experienced marketers are here to help.