Preparing Your Agency for the Unexpected is Critically Important to Your Family Estate and the Future of Your Firm
This could happen to anyone.
During this past year, we were engaged with three different agencies that lost an owner to illness or tragedy. In each case, the agencies involved went through turmoil that could have been prevented with planning.
Preparing your agency for both expected and unexpected transitions.
When an agency is navigating a death or incapacity of the owner or one of multiple owners, nothing is more important than having a plan already in place to deal with this tragedy. This includes a written document detailing how the owner wants the agency to operate if he or she becomes disabled or passes away.
In addition, you should have the right insurance plans in force to ensure that the owner’s family estate receives full value for the agency. You also need to have ample cash available to help the successor ensure that key members of the senior team stay with the agency to avoid the loss of management talent during this tragic time.
Contingency planning should be a core ownership activity. The good news is that it’s the same holistic approach used for non-emergency owner exits which are designed to enable owners to leave the business on their own terms.
Like any other critical business objective, careful planning is required to achieve a good outcome whether your exit is planned or the result of unfortunate circumstances. As an agency owner, your exit plan should include a comprehensive set of integrated strategies designed to achieve your goals (as well as meet the needs of your family).
What are the key goals of a plan for an unexpected owner exit?
Based on our experience in helping many owners to successfully exit their agencies, here are the key goals for your exit plan:
A written plan for how the agency will operate in your absence.
Identification of your successor and ensuring they will have the authority to manage the agency with some oversight from the trustee of your estate.
Delivering to your estate an amount of money required to maintain a desired lifestyle.
The estate maintains control of the agency throughout the process of a possible management buyout or some other type of sale.
Creating a perception in the marketplace (to clients, prospects, staff and business partners) that the departure of the owner is being managed by a competent senior team through careful planning and a strategic approach.
Begin by identifying your objectives.
Your plan’s objectives should identify both the benefits to the owner’s estate and the benefits to the organization as a business.
Benefits to the owner’s estate include:
Defines and controls the overall exit process.
Clarifies priorities.
Facilitates progress by identifying the desired outcomes.
Focuses energy on the most urgent concerns.
Motivates and retains key staff.
Creates the ability to sell the agency.
Benefits to the organization include:
Motivates a high-performing and stable senior team to rally around the agency. Your family estate will be very dependent on your senior leadership team in the aftermath of any tragedy.
Assigns new responsibilities and tightly defined roles for each senior leader with aligned accountabilities and incentives.
Provides stability to both the business as a going concern and also the retention of key talent.
Buys time for your estate to determine the best future path for the agency.
Are you prepared in case of tragedy? The four areas that need careful assessment with any type of exit.
There are four areas of “Readiness”. Each of these must be fully prepared to ensure the success of the owner’s exit and for the agency’s future to be in the best shape possible.
Owner’s readiness – Is your estate in order and is there a written plan in place detailing your wishes for how the agency will operate?
Organizational readiness – Have you prepared the agency to operate at a high level in your absence? Have you mapped out the aspirational organizational chart that serves as the backbone of your written plan?
Successor and senior team readiness – Over time, have you prepared your senior team to take on greater responsibility without you? Are they ready for it?
Continuity readiness – Have you put in place disability buyout and key person life insurance policies at high enough funding levels to 1) ensure your family is protected and 2) the agency has adequate cash resources to pay tenure bonuses to key senior leaders to avoid an out-of-control downward spiral of talent and the loss of clients?
Assessment Area #1 – Owner’s readiness.
As the agency’s owner, there are many important questions which you must carefully think through… and the exit/emergency plan must then reflect your answers.
As a starting place, how much wealth do you currently have? How much more does your family need to maintain a desired lifestyle?
What’s the value of the agency? Is it enough? Is your agency a saleable asset without you?
Do you have a preferred path for the agency should something happen to you? Options to evaluate in terms of readiness include:
External sale.
Internal sale. (Can your people afford to buy the agency?)
Passive ownership by your estate.
ESOP.
Assessment Area #2 – Organizational readiness.
It’s just as important for the agency to be fully prepared for the transition as it is for the owner. There are many questions that need to the answered.
Does the sudden loss of an owner have an impact on:
Agency strategy?
Business development?
Ability to deliver service offerings?
The firm’s financing?
What are you doing today to minimize the impact of your loss on the agency? Thoughts to consider include:
Is there an alpha successor already on staff?
How can your relationships, skills and knowledge be replaced either through recruitment or by being transferred to others over time via mentoring and training?
Further, as the senior team will be required to step up both during and after the transition, what resources will be needed below them? And what will the impact be on:
Client service delivery?
Business development?
Talent recruitment and development?
Financing and ongoing financial performance?
You also must consider and address what the future organizational chart (and talent) need to look like for the agency to continue as a going concern without you including:
Where are the holes?
How will the holes be filled? (The estate may need resources for recruiting talent.)
How will the agency operate or make decisions without you?
Lastly, how stable is the staff if you are gone?
Assessment Area #3 – Successor and senior team readiness.
Any planned or unplanned owner exit is much easier to navigate if there is a trusted successor already on staff. You need to have previously identified the right person who has the skills, knowledge, temperament and alignment on vision and values to keep the agency running smoothly.
You should already have a plan for training and preparing her/him in advance to be ready to fill your role effectively after your exit:
S/he will probably need coaching to move from being a manager (however senior and capable) to becoming a visionary who can continue to propel the agency forward.
Formal skill/knowledge training where required.
Mentoring (especially by you).
Your senior team will also need considerable care and attention throughout the transition process including:
How will each feel about reporting to the successor?
How will they feel if new responsibilities are thrust upon them?
Do they have the skills, knowledge, attitude, vision and values to be effective in those roles?
It’s very important that your top people remain committed throughout the transition process. Tools for achieving this include offering them more responsibility, minority or phantom equity, a new compensation package or “stay” bonuses.
Assessment Area #4 – Continuity readiness.
Finally, you need to develop written instructions (essentially a plan) for how the firm will be governed if something happens to you:
Who will be in charge?
Roles of senior leaders.
Roles of outside advisors and trustees.
“What if” insurance also needs to be in place:
Key person insurance on the owner in case of death or disability (and which pays your estate fair market value for the firm).
Key person insurance on your successor (which will pay their estate fair market value and provides additional coverage for a likely decrease in FMV).
In both cases, you should also have enough insurance to pay “Stay” bonuses to senior leaders.
Summing it all up.
As you can see, preparing yourself and your agency for your planned or unplanned exit is a complicated task. However, it still needs to be done well and with diligence in order for you to protect your family and your life’s work.
Prosper Group has helped many agency owners reach the four states of readiness outlined above. We have also helped owners to achieve successful outcomes in M&A transactions (involving several different scenarios).
We offer this wealth of knowledge and experience to you. Please don’t hesitate to contact us at any time.
We’re here to help you prosper.
Prosper Group exists to help the owners of independent marketing and communications agencies achieve their ambitions and maximize the value of their life’s work.
Our team is comprised of former agency leaders and owners who focus their deep experience on implementing proven proprietary methodologies across our three practices of agency performance, owner exit planning and M&A transactions in order to drive owner and agency success.
To learn more about us, please visit the Services page in our website www.prospergroup.net.
