It happens to all of us every day – the menace of pedestrians (of all ages), drifting along, headphones on, eyes glued to their mobile device, maybe even with a dog on a long retractable lead …perfectly oblivious to the goings-on around them. A danger to everyone in the vicinity! And it’s not just the walkers, how many times do you notice a driver with head down and eyes lowered – unconscious of the fact that the red light has now turned green?
I don’t want to come across as old and fuddy-duddy (maybe I just have!), but the lack of general awareness and unresponsiveness to immediate surrounds continues to amaze me.
On my regular walk last week, as I dodged the preoccupied pedestrians, I got to thinking about the state of succession/transition planning in the Australian advisory industry today (sad I know) and how many practice owners are just like these unresponsive walkers! There are a number of monumental shifts in play at this very moment in our industry (regulatory, economic and demographic to name just three) yet many owners don’t appear to be aware of this – if they are, they’re playing it super cool. Simply put, from all our work over the last few years, we’ve seen no real progress in the area of transition planning. If anything, it seems that the state of play has gone backwards, consider:
- Only 3 in 10 Australian practices have a clearly documented succession plan or buy/sell agreement
- 41% of these firms have not identified a successor who has formally agreed to the plan
- 35% of these firms have no structured funding arrangement in place
These are not good stats, especially so given the average age of Australia principals is fast approaching 60!
Our work in the United States reveals a similar situation, where only 30% of owners have documented their plan for succession. With an extremely depressing 4% having implemented their plan effectively (successor identified, funding in place and plan reviewed regularly – especially important for valuation purposes).
I’ve written before about this issue, it is obviously important and very often deeply personal for the people concerned. It’s difficult and challenging. But this does not excuse owners from proactively taking control of their transition planning. If they don’t plan, they will remain vulnerable to the vagaries of the market and exposed to the real possibility of an increasing number of practices coming onto the market, a shortage of potential buyers and (surprise, surprise) reduced valuations.
Owners without transition plans are akin to my preoccupied pedestrians… oblivious to their surrounds and likely to get run over by a bus they didn’t realise was coming!
And the irony in all of this? According to Business Health’s latest Future Ready analysis, effective succession planning is one of the major drivers of practice profitability. Those practices with an effective succession plan in place (even if they don’t intend to exit in the near future), are achieving significantly higher levels of profitability than their peers who have yet to embark on their succession journey.
As the old adage goes – the best time to start your transition planning is before you have to!
For your consideration.