Anyone who owns a home is familiar with the benefits of amassing as much equity as possible; you want to have a large gap between what you owe and what your home is worth when it’s time to sell—so you can pocket the proceeds.
The same concept is applicable when it comes to your business. The question, however, is this: when it comes time for you to put an exit strategy into action, will you have any business equity?
Unfortunately, for many sole proprietors, the answer is going to be no. Why? If your business is built based on you showing up to serve clients, the likelihood is that they’re going to scatter if you’re no longer there. No one wins in this scenario: your family is left with little or nothing and your clients are left in the lurch.
What’s the alternative? You can build value by becoming part of an ensemble firm. A number of things transpire when this takes place, including the fact that your business is worth more, you can focus on the things you’re good at, and your stress level is significantly reduced because you know your colleagues have your back.
Additionally, most former solo practitioners find they earn more and have more control as a member of a team. And, they’re no longer a prisoner to their practice; they can choose to spend time with family and even take vacations—knowing their clients are being taken care of in their absence.
How does this relate to equity? It’s significant. When you join a firm, there’s more to your practice than just you; it’s more valuable to both you and your family. Your clients are familiar with the brand you work under and have peace of mind from knowing their money won’t be in motion, so they’re not likely to flee to an advisor at another organization in your absence. That’s of great value.
Frankly, you have everything to gain by moving from a “lifestyle practice” to a stronger business model based on collaboration and teamwork—and much to lose if you don’t. From day one, you’ll add equity to your practice, gain stability, avail yourself of systems and processes to support your work, and provide your clients with the knowledge that things will be OK if you’re absent from the practice due to retirement or because you’re enjoying a week in Bermuda.
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