A question we often hear from brokers is: ‘When should I start planning my exit?’
As much as it sounds counterintuitive, we recommend starting your business with your exit in mind: meaning that your business is structured soundly and that you’re considering short, medium, and long-term personal and professional goals on an ongoing basis, preferably in conjunction with your accountant.
One of the quickest ways to determine your exit strategy is by identifying whether you have an expanding business, a mature business, or a business in decline. In broad terms, an expanding business will have higher upfront income relative to trail income. A mature business will have approximately equal upfront and trail income and a business in decline will have a higher trail-to-upfront income ratio.
Here are some other common traits of an expanding business, mature business, and business in decline to help determine where your brokerage is at in its life cycle:
Expanding business
Upfront income is greater than trail income. An expanding business is in a high-growth phase, driven by a hungry business owner motivated by the return of hard work. It’s consistently cracking record volumes, expanding its team, bringing on more referral relationships, ramping up marketing, and raising its presence in the community. Busy keeps getting busier.
It’s focused on streamlining processes to maximise efficiencies to handle the ever-increasing demand. Everything’s green. Everything’s expanding, everything’s going up, and everything’s growing, including income, trail, and goodwill (reputation). While it may sound contradictory, this is the time to start to map out your longer-term goals (including your exit) to ensure you achieve the most lucrative exit.
Mature business
Upfront income approximately equals trail income. The foot is coming off the pedal in a mature business. The business owner is happy, lifestyle-oriented, and content. They’re not necessarily thinking of retirement, but not as hungry as they once were. They usually lose a bit of energy. They can be a bit slow to return phone calls. They won’t be as proactive as they once were. This may also coincide with loosely contemplating whether to sell or stay.
Warning: At this stage, a business can slip into decline subtly, yet progressively. Accordingly, to optimise the brokerage’s value, we strongly encourage brokers to plan their exit strategy, while the business is strong and goodwill is still high.
Business in decline
Upfront income is less than trail income. A business in decline is when everything is less: less time is spent on growth, less money is spent on marketing, and less effort is being made overall.
This usually corresponds with an over-reliance on referrals to maintain business. On this note, a common statement made by a business owner in decline is: “I don’t need to market anymore. I just rely on referrals from existing clients.”
Under the guise of a lifestyle trade-off, we often also hear: “I’m winding back to spend more time with the family and travel.” It’s important to look at the business critically and objectively, recognising that a business in decline will suffer and is not sustainable. On the upside, goodwill is still high and valuable. As such, we encourage brokers not to put their heads in the sand. Conversely, be proactive about the exit strategy to maximise the remaining assets.
Nick Young is a results-driven specialist with over 25 years’ experience in the mortgage broking industry and now heads Trail Homes: Australia’s most established and longest-serving trail book purchaser.
