Owning a successful brokerage takes years of hard work, entrepreneurial drive and adaptability. Even if you’re a very astute brokerage owner, you may not be familiar with what is needed to successfully transition your brokerage. Many, if not most, brokerage owners have not prepared their business to succeed after their exit. In fact, according to the results of a PWC Canada survey conducted in 2018, when it comes to succession planning overall, only 19% of Canadian family businesses have a comprehensive, formalized plan in place.
Whatever your initial thoughts are on succession, you have decisions to make and complex issues to address. The key to addressing these issues is to start planning for ownership succession at your brokerage now! A change in the ownership of your brokerage is inevitable. It’s far better to be proactive than reactive. Just like retirement planning, it’s best to begin preparing for the transition of your brokerage early and to review your plan often. In fact, planning for your brokerage’s succession at least 2 to 3 years in advance of transitioning is essential but planning 5 years in advance is optimal.
Deciding how and when to pass on ownership and control of your brokerage involves careful thought and planning. As a brokerage owner, your options include keeping brokerage ownership within your family or exploring a sale of the brokerage outside of your family. The five succession options available to you can be summarized as follows:
Groom a family successor;
Retain ownership but hire professional management outside of the family;
Retain ownership using a hybrid approach with only some family members involved in brokerage operations.
Sell 100% of the brokerage to management or to a strategic buyer;
Sell a partial stake in the brokerage to a private equity firm.
Each of these options has pros and cons and it is important that you work with a team of trusted advisors that form your “Business Transition Team”. These experts will help you choose the right option for you and your brokerage and keep you on track as you execute your plan. This “Team” should at a minimum include experts in financial planning, accounting, legal, and business strategy. Most importantly, the succession option you select and resulting plan must take into account both the preparation that needs to occur before and after succession.
Selling or transferring a business is an intricate process that involves a coordinated approach in order to be successful. This process, and its ultimate success, is borne out of early preparation, defining your goals, implementing your plan, monitoring its progress, and modifying your plans if necessary. Your planning framework should address both the “technical” aspects (i.e. brokerage valuation, method of transfer, tax and legal implications) and the “human” aspects (i.e. family harmony issues, communications plan, brokerage governance) of a brokerage succession. While technical aspects are very important for any succession plan, studies show that how well a family is prepared to deal with this change is equally, if not more important, to ensure a successful transition.
Your insurance brokerage took years to build. It is therefore common sense that, as a brokerage owner, you should be prepared to invest 3 to 5 years in a formal brokerage succession planning process to maximize on the value of your brokerage, and ultimately, leave the legacy you desire. Don’t delay.