Archive for the '02_02_Succession Planning' Category
May
14
Many factors affect business equity value and succession payouts. Succession and exit planning start with the business model which for financial planning firms includes type of revenue streams and their correlation to selling price; personal, business, and economic timing; and constant attention to business equity value. The owner needs to pay attention to its customer concentration, employ high yielding capital with investment in human capital with the right talents and chemistry; and have better control of the operating expenses to streamline process. Adjustments to selling price can results from technology platform, key person dependency, location, sales or gross revenue, client retention risk, market demand, and type of deals or financing. The revenue size of the practice positively correlates with the selling multiples of the sales revenue. Also, employing the appropriate appraiser can create a favorable selling price. Considerations for growing business equity value include deciding on the best type of practice for you: solo, silo or ensemble practice. Team structure and compensation with career tracks and ladder training structure is also important. Opting for appropriate exit/succession planning is a choice for a positive future.
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Apr
24
Robots are being more and more accepted in the home for utility and entertainment. They help us by freeing up time for other enjoyable things. Robo-advisors in the financial industry are used to reduce costs for investors. They successfully manage billions of dollars in assets and are projected to expand in the future. According to the Journal of Financial Planning, about 25% of financial advisors use robo-related tools when managing their clients’ assets. Use of robo-advisors by tech-savvy Millennials and Gen Zs makes sense, but it seems the more automation is out there, the more human advice or contact is needed. We still need the human interaction to relate our emotional needs to financial decisions. An example of a human interaction surpassing an automated one involves an artist being shoe-horned into the family restaurant business that was amicably resolved the human way. Another scenario involves family preparation of heirs to receive and survive inheritance, again, the human way with family governance. The future of financial advising is about areas that robots can’t yet handle. That is, to teach and learn proper financial behaviors when making financial decisions.
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Apr
23
Our thriving society causes us to feel entitled to certain levels of service and benefits. A recent presentation by Mr. Mark Edwards at NextGen Mentoring Forum pointed out how acting on feelings of entitlement rather than careful consideration in claiming Social Security benefits can profoundly affect our loved ones in the future. If you are married and love your spouse, consider claiming Social Security retirement benefits at a later age to maximize the benefits for the surviving spouse. In 2015, over 50% of males and over 60% of females claimed benefits before their full retirement age (FRA). An example demonstrates how a man who retired and claimed at age 62 took a 15% reduction in his monthly benefit by not waiting until FRA when he could have had a 39% increase by waiting until age 70 to claim. His wife was adversely affected because she did not have her own benefits and received only a portion of her husband’s benefits. If he predeceased her, her monthly benefit was considerably lower than it could have been had he claimed at age 70. Show your love of spouse by claiming Social Security retirement benefits later to maximize the benefits for the surviving spouse.
Apr
14
More and more women are taking on business ownership and management roles, gaining skill sets and perks. Experience with and utilization of the CAPEX process will help women businessowners gain appropriate equity value if they ultimately sell their business. The three steps to CAPEX decisions are: determine weighted average cost capital, determine projected net cash flow from the investment, and evaluate the project. The example used to illustrate CAPEX is a financial service practice (ABC Advisors) considering acquiring a near-retirement female advisor’s practice (Advisor X). Payout ratios are determined. In step 1, WACC is determined from balance sheet items of long-term debt, taxes, and stock. In step 2, two financing options are considered. The first option is financed and the second option is a 20% perpetual payment to Advisor X that considers Advisor X’s life expectancy, asset shrinkage, depreciation methods, expense ratios and transition project costs. Step 3 looks at the net present values and modified international rates of return for each option. Option A appears to be the better option for ABC Advisors but Option B would yield a better result for Advisor X. More women solo practitioners are urged to utilize the CAPEX process to derive more satisfactory equity value when they sell their businesses, arriving at good results for both seller and buyer.
Apr
9
When stress-related ill health threatened the author’s career, she consulted with a financial planner to help with her financial situation and found herself attracted to the financial planning field. She set goals and time frames for formal training and to accumulate working capital and started a financial planning practice. It took her a few years to achieve the type of practice that satisfied her personal and cultural goals and she shares some key practices here. Attention to demographic information is important, but while baby boomers are the current hot market, be aware that too high concentration of a single demographic can increase risk and decrease the firm’s equity value. Business revenue should be diversified for the health of the business. She suggests that rather than being a “quarterback” for the client, the practitioner should be a project manager, managing all aspects of a client’s wealth with her/his personal and cultural goals in mind. Common client goals and objectives include areas of lifestyle, retirement, education, parent care, estate planning and special needs. Taking the Chinese-American demographic group as an example, the goals of higher education for children and attention to and long-term care of parents supersede retirement goals. Know the clients to know their priorities. Some people use financial planners with the modular approach and investment thresholds to manage their portfolios, but the portfolio is only one of many assets on the retirement balance sheet. Financial product implementation as a practitioner’s priority does not integrate all assets in management, protections, community, social and family legacy. A case study regarding education funding shows that a quick recommendation of a 529 account fails to consider other available options, singly and in combination. Employing the same processes for oneself in business as for the client helps to position the business in a satisfying manner. Once in the field, a practitioner can diversify the work and client base for a happy career and career end.
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