Do you want to just build a job for yourself? Or do you want to create something valuable that outlasts, or even outlives, you?
According to David Grau, founder and president of FP Transitions, choosing the "build a job" answer puts you among 70% of the people who serve the workplace retirement market. If you choose the "create lasting value" answer, says Grau, you're among either the 25% who have built (or will build) a practice or the 5% who have built (or will build) a business.
Leading a March 22 workshop session on transforming a practice into a business, Grau outlined a long-term strategy to build equity via a carefully planned and executed succession plan. "A succession plan is not about selling [the business]," Grau declared, "it's about building equity." A different take on the same issue was offered by James Mars, QPFC, CFP, managing partner at VisionPoint Advisory Group (and client of Grau's firm), who co-presented the session. "It's about bridging the gap from 'eat what you kill' to 'grow the pie' -- or building a partnership that will be the foundation of a true business."
For an advisor, said Grau, the process of creating true equity in the retirement plan industry is as simple as this: "If you have a job, make it a practice. If you have a practice, make it a business." But while the process may be simple, the optimal strategy -- stretching over 20 years or more -- is a complex mix of business financials, tax strategy, asset building and the right structure to maximize profits and value. And a strategy that, by the way, will also allow the founder to exit the business with maximum assets and compensation.
Grau recommends planning for three generations of ownership, starting with the founding owner. The second generation -- which could include the founder's children but does not have to -- should be 10-15 years younger than the first. In turn, the third generation should also be 10-15 years younger than the second.
The first generation should hire the second, and the second generation should hire the third, Grau asserts. "At each generation, keep the ones who excel, and send the rest to your competitors," he advised.
To Mars, who is in the midst of a succession plan that is working smoothly, the plan's success derives from its alignment of thee elements: the scale that is necessary for growth, collaboration as the practice grows, and attention to bedrock business financials. Mars offered three critical drivers of a multigenerational succession plan: a shared vision (i.e., the second and third generations must share the founder's vision for the enterprise), shared values, and getting the structure right from the outset.
