FP Transitions | Northwestern Mutual

FP Transitions is here to help you transition your sole proprietorships into an equity based business where you focus on not only revenue growth but profitability. We help you build the infrastructure to create a firm that is investable, profitable and transferable business with partners, growing the business together and it becomes about firm production and not individual production. 

You create the entity-based model that continues to grow and founding owners retire, the next generation begins to bring on their future successors and the business continues beyond any individual advisor. 

Moving from a sole proprietorship compensation model to an entity compensation model is a MIND SHIFT … AND an evolution of your business. It isn’t just a focus on the top line revenue, but a bottom-up view of the business and a focus on the profitability of your business. 

Building an equity-based business doesn’t require having a G1 and G2. It doesn’t require the partnership to have equal equity ownership. It is about creating a formal arrangement, an entity centric business, to manage and operate a business by creating value from a bottom-line up view and share its profits while providing the infrastructure to bring on additional owners and create a succession plan that allows flexibility in how you leave the business. 

Creating an entity also allows you to bring in non-advisors, team members, into the equity circle. This isn’t meant to be a compensation solution but to bring a client facing, revenue generating team member into the ownership circle that is ready for that role. Talk with your Practice Management consultant about the policy of non-advisor equity owners. 

This approach can also allow you to leave the business in way you most desire, whether that is leaving one day to your next adventure, or slowly, over time becoming the ambassador for the firm, focusing on relationships and not the day-to-day business building, operations or service of your clients…this gives you choice. 

Equity is established by the contribution of assets when setting up the equity-based business. An analysis is done on each prospective owner’s book of business to determine what equity percentage each should receive based on their contributions. 

After setup, equity only changes through a sale/purchase of stock. Equity isn’t adjusted each year based on production. You are now a business where all owners are working for the benefit of the firm, not just themselves. 

This is different and may be a hard mind shift to make. Northwestern Mutual is leading the industry in partnering with a firm like FP Transitions to provide a path for the advisors to form equity-based businesses. 

A sole proprietorship model where you bring in revenue, pay your expenses and what’s left is yours is a two-bucket system. We help you build a three-bucket system where all partners revenue is contributed to the entity, you pay General Overhead Expenses, which is all expenses for the business, excluding equity owners’ salary, or Guaranteed Payment to Partner; that is bucket two – Owners Compensation; getting paid for the work you do every day. Bucket three is everything that is left - Profits. Profits are then distributed pro rata to equity ownership. 

Owners Compensation, your salary is not related to your equity ownership. It is getting paid for what you do every day…produce, run the financials, the operations…. It is establishing that “Bucket #2” and does have an impact on profitability. We will work with you to help you establish reasonable salaries that meet your needs.

In an equity centric entity model, shareholder value has four components:
1. First, Wages or as I referred to earlier, Salary or Guaranteed Payment to Partner 
2. Second, Profit distributions that are distributed, likely quarterly, pro rata with ownership percentages.
3.  Third is Equity Income. When you begin to sell your shares to new equity owners, you will have that income coming in either through seller financing or a bank financed transaction.
4. Finally, you have stock appreciation that grows tax free, or more accurately tax deferred, until you sell it. 

The engagement with FP Transitions is more than just the legal documents. It’s a process to help you through moving from a lone ranger to a partnership, working together to create something bigger than the individual parts. The legal agreement is entity documentation filed with your Secretary of State and an EIN number. It has annual filing responsibilities and is your legal business agreement that states how owners will operate. 

Our process doesn’t answer the question “are we better together”, that is a decision that is made prior to going through the build of your equity-based business. 

The engagement is a flat fee that encompasses you working with four teams at our firm. We are strategic consultants and technicians. We work with you to create a structure that works for you today and in the future and complete our engagement with the legal documentation for your Entity(ies) that is already NM approved.
The first team you will work with is the consulting team in Strategic Assessment. We factfind to learn what you have built and what your goals are, we provide education that is relevant to your goals and objectives and build a plan that meets your needs today and in the future. 

The second team you will work with is the financial analysis team. This team combines our Analytics and Valuation team members to provide an analysis on your books of business so that a recommendation of equity ownership can be provided, an equity based valuation on the combined firm will be done and then we show you how it looks by the numbers; they will create a Proforma spreadsheet showing how cash flows within an entity structure and how you transition from Eat What You Kill to running a profitable and investable business. With all this information in hand, the next step is to work with our legal team who will create, educate and finalize the legal documents to stand up your new entities.

If you have questions about the equity-based model, contract your Practice Management consultant at Northwestern Mutual Home Office and if you are needing additional information we can schedule an exploratory call to answer your specific questions.