How to Plan a Stress-free Exit Strategy

Nov 19, 2013

“Few men of action have been able to make a graceful exit at the appropriate time.” jrguy

— Malcolm Muggeridge, British satirist and author

A few weeks ago, I traveled with a new colleague, someone who hasn’t really traveled for business before. I started to regale him with my travel history. In the last 20+ years, I have been in 49 of the 50 states (not Wyoming, in case you were wondering), spent over 1,280 nights in one single hotel chain, and been in every major airport in the country. As you would expect, I was in my full glory entertaining my co-worker (travel hostage) with all my war stories.

He may have been throwing me a bone, or maybe he was really interested in the conversation — either way, he asked me to give him my top tip for making travel life easier. To which I responded, “Easy — plan your exit strategy.”

What I meant was that at the end of a long trip, all you want to do is get home. If there are delays or you are running late, you don’t want to be in unfamiliar surroundings, looking to find the rental car facility, the gate, or getting lost driving. You want the trip home to be as smooth as possible, so you can relax and arrive stress-free. I think the analogy works for an advisory business, as well.

Now, later, long-term

I’ve asked these questions many times on this blog, but they are worth repeating. When is the last time you asked yourself:

  • What am I doing this for?
  • What will business look like in 5 or 10 years?
  • What is my exit strategy?

The last question is really one of the more complex issues facing advisory firms today. In fact, I think it will be become a bigger and bigger issue as those “baby boomer” advisors start to think about slowing down, selling, or transitioning there business in the next 5-10 years. Unfortunately, most don’t have a plan.

Slowing vs. stopping

A good friend of mine is an advisor on the west coast. He started off as a wholesaler many years ago, but left to become a junior planner in an established RIA firm, with the idea that he would become the succession plan for the owner. The plan worked perfectly over the last 10 years, until the senior advisor announced his intention to “slow down.” The advisor decided that he was going to assign all but 5-10 of his best clients to my friend, he was going to focus on doing “research” and become “of counsel” to the firm. The advisor was going to travel more, enjoy his kids and grandkids and give back to the community, while still maintaining an office, a salary, profit sharing and the other perks of the ownership.

Fast forward three years, and the firm is a mess. My friend had his client load double, the staff is constantly waiting for decisions from the oft-vacationing owner, and no one in the firm has had time to execute a marketing or growth strategy. Revenue, margins and morale are all down, and they are limping into 2014 with no prospects for a better year.

Now by no means am I suggesting that the owner has not earned the right to slow down or to enjoy the benefits the firm he created. I do, however, question the plan (if there ever was a real one). Does he realize that by not letting go, that the value and integrity of the business is now in jeopardy? By not having a clear cut exit plan, the business is losing value (and revenue) every day. What do you think the business will look like in the next 3 or 4 years when he actually may want to sell? In fact, what is keeping my friend and the staff from leaving today — and could the firm last without them?

Advisor, know thyself

As you are doing your 2014 planning (and you should be doing that planning now), take a minute to think about the 10-year or the 15-year plan. Ask yourself:

  • Do I see myself ever giving up the business?
  • Am I the kind of person that needs an office to go to or feels the need to be a part of the business forever?
  • Will I (or can I) let go?
  • How will my decisions affect the business when it comes to compensation, ownership, morale and client satisfaction?

When you think about your business, do you have an exit plan so you have a stress-free trip home?

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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