Preparing for the future now gives you the most options.

Similar to the advice you give your clients, planning for yourself and your business can give you peace of mind, knowing that you have optimally planned for yourself, your business, your clients, your employees, and your heirs.

No matter what stage you have reached in developing your business, planning for unforeseen events is extremely important. Most advisors don’t realize that pursuant to the NASD Rule 2420-2 (Continuing Commissions Policy) ongoing compensation cannot be paid to your heirs unless a bona fide contract is in place while you are still registered as a representative with your broker/dealer.

What does that mean? That if you neglect to enter into a buy/sell agreement or have an executable succession plan in place prior to your death, the purchaser of your business cannot pay your heirs a contingent revenue stream. In most cases this lack of planning will result in a one-time cash payment at a price significantly less than the market value of your practice.

How much less? It is difficult to say because each situation is different. However given the significant risk of uncertainty a buyer would be taking on, it wouldn’t be unusual for the purchase price to be 25% of the market value. Don’t wait for a crisis to force you, your clients, employees, or heirs into an unplanned situation where options are limited.

For those of you considering an internal succession plan, it may take five to ten years to fully implement a well crafted, strategic plan that addresses all of your issues. Even if your timeframe is longer, there are compelling reasons to put a formal plan in place now.

A formal succession and business plan creates sustainable infrastructure in your firm and allows you the flexibility to exit your practice on your terms.