Dave De Kuyper is a firm believer in his central tenet of succession planning: an early start offers a strategic advantage.
With foresight, “you have many more options,” says the executive vice-president of Market Management with Northbridge Insurance. It also offers brokerage principals the lead time required to build a fully encompassing strategy — pinpointing the people, timing and proper tax tools — rather than falling back on an eleventh-hour plan. How do you develop the strategy? De Kuyper and his colleagues offer five critical steps:
1. Define objectives
Setting goals early creates a foundation for the rest of the succession strategy, says De Kuyper. He advises brokers to survey options for their brokerage’s future at least 10 to 15 years before their planned retirement: Do they want to keep the business in the family? Sell to a larger entity? Sell to existing management? How will they maximize brokerage value? “It’s important to document and understand what those key objectives are,” he says.
Once owners have identified a preferred exit date, a successor and brokerage goals, they can “work backwards” to achieve them, he points out. Although this stage sets the strategy in motion, many brokers bypass it, says De Kuyper. “They get close to the five-year mark (before retirement), and think, ‘I have to start figuring things out.’ By that time, they’re much more limited in what they can do.”
2. Map the strategy
With clear outcomes, brokers can establish key milestones for grooming new leaders or moving equity. “You have to build that out over years,” says William Wallace, senior corporate counsel with Northbridge. That might mean an increased focus on mentoring or giving the next generation new responsibilities; gradually providing the opportunity to build an equity stake in the brokerage, he says.
Mapping also highlights any gaps, points out De Kuyper. A broker might want to keep succession internal, but lack a logical candidate. “There may be (someone with) financial ability, but the individual (may not have) the skill set required to manage the brokerage,” he explains.
3. Explore solutions
Brokers should view solutions from two perspectives, says De Kuyper. The financial front poses practical considerations, such as setting up share transfers or proper tax strategies.
Getting an early start on tax structures can ensure that brokers maximize their after-tax dollars, notes Dan Teguh, manager of corporate finance with Northbridge. “That’s your nest egg and you want it to be as safe as possible,” he says. For instance, an “estate freeze” approach is proactive and tax efficient, while in a sale, a broker can save significant tax dollars through the lifetime capital gains exemption or through the use of a capital gains reserve and promissory notes. “Tax options are tools,” stresses Teguh. “If you think about them early enough, there’s a way to structure the deal to meet both your financial and business needs.”
Then, there are leadership considerations. “A lot of potential candidates are producers,” De Kuyper points out. “They haven’t really run a brokerage, and need to be exposed to the parts of the organization (that go) beyond selling insurance.”
4. Strategic partners
Northbridge continues to team up with its key broker partners on succession planning. “Good partners can strengthen any strategy. We’ve helped brokers with workshops on planning and identifying their objectives as well as developing customized and flexible financing solutions that meet their evolving needs” says De Kuyper.
5. Stay flexible
Time and changing circumstances can affect a longterm strategy, and that’s all right, says De Kuyper. “It’s not one-size-fits-all,” he points out. “We’ve created a flexible set of solutions that meet brokers’ needs to help them become more successful.”