Many business owners go about their day-to-day business with a sole focus on sales and making a profit. While this is essential to ensure they can meet their creditors when they fall due, this shouldn’t be their sole focus.
Most owners only briefly consider selling their business because they think it is something they can do when they decide to retire. However, business owners often don’t realise how long it can take to prepare a business for exit, especially if they want to maximise the financial returns upon sale.
No time like the present
The sooner a business owner starts thinking and writing their exit plan, the more likely they will achieve their full exit potential. However, there are many risks associated with exit planning if it’s not executed correctly, so a long-term strategy is important.
Depending on the sector and size of the business, it can take anywhere between 3-5 years to exit successfully. Due to the financial industry’s finer complexities, regulation and compliance, it can take many years to ensure a business is ready for sale.
Exit planning at The Cornerstone Network
When thinking about the future of your business and any future sale, we encourage and support all mortgage brokerages to utilise a ‘Build to Sell’ model. Our innovative model is exclusive to our members, and we support them through every stage of preparing their business for sale.
Here are some of the ways we can help businesses prepare their exit strategy when they work with us:
Quality of business
With the FCA as the industry regulator, a major emphasis is placed on the quality of advice and written business. Any potential suitor and eventual buyer are likely to be much more interested in purchasing your business if you can demonstrate repeat business.
A loyal customer base over many years is a key indicator that a business is well run. Ideally, your customer base should be 65% repeat business, 15% personal recommendations and 20% referrals to be considered more attractive to potential buyers. To achieve these levels of repeat business, a solid functioning CRM is essential.
A good CRM will provide secure and accurate records, capture all data and provide renewal dates in advance. At The Cornerstone Network, we have spent a lot of time and effort ensuring our systems provide all the necessary workflows to ensure this is achieved. We have built our systems with exit planning in mind, making sure you can demonstrate the quality of advice and written business when you come to sell.
An understandable concern of any potential buyer is that the business will be successfully set-up again and retain repeat business. Mortgage professionals spend many years or even decades building relationships, so this buyer concern is not surprising.
Depending on where the seller is in their career at the point of sale, the number of years that the business has been operating for will also be considered. As a result, mortgage brokerages with fewer business years behind them may encounter certain clauses as part of the sale, such as:
- The ability to retain the principal owner for up to 3 years. If the seller can demonstrate this, the buyers’ fears will likely be reduced in the confidence that the current principal will remain in place to drive and grow the business. An owner thinking of selling should factor this in and start the exit planning process sooner rather than later.
- Should retaining the principal owner not be an option, a phased payment option could be a solution. If you’re planning on retirement, then you may be offered an initial lump sum and payments on annual anniversaries for a set period.
High compliance standards
The standard of compliance will be a key consideration for buyers – no potential buyer wants to inherit a history of FCA investigations or complaints. If compliance is poor, it’s likely a buyer will not proceed, making strong compliance a key component to a smooth sale.
The FCA focus on the quality of advice, so your ability to demonstrate this when selling a business is really important. All brokers should prioritise choosing a network where compliance is of the highest order but where it doesn’t impact the day to day running of the business.
At The Cornerstone Network, we facilitate robust but sales friendly compliance procedures, meaning our advisers and cases are monitored without any direct interruption to the advice process.
Our members can rest assured that if they wish to sell their business, our compliance procedures will help facilitate a smooth sale . We ensure our members have the following:
- Full documentation clearly showing the customer journey.
- Client files with correct and up to date details.
- Robust cyber security – an essential to ensuring you are fully compliant.
Strong financial records
Your businesses’ financial records are arguably the most important factor in any due diligence undertaken by a potential buyer.
Many brokerages do the minimum with financial record keeping and see it as an inconvenience. However, we believe that good financial records not only aid any future sale but play a key role in decision making on a month-to-month basis.
We offer members of The Cornerstone Network a free consultation on best practice and provide templates and guidance to ensure their records are suitable for their needs. Monitoring key areas monthly rather than waiting for an and of year financial review from your accountant is really important. We help you prepare your financial records by taking the industry’s preferred business valuation model into account, ensuring you’re in a great position to present your businesses’ financials.
Who are your potential buyers?
This can vary by sector, but for mortgage brokers, there are a few potential purchasers who should be approached. These may include:
- MBO (Management buyout)
- Your network
- Private equity
- Trade sale
- Other mortgage brokers via a ‘pay away model’.
Business owners often assume that as not all business areas are easily measurable, they don’t believe they have anything of value to sell. However, this doesn’t have to be the case with some creative exit planning thinking.
A wider exit strategy that spans many other business areas should be considered to increase the value of your business sale. This can be very detailed and will range from strategy, staff motivation and technology to business processes, culture and values.
There’s a multitude of considerations involved with exit planning, and for first-time sellers, the idea of exiting your business can feel overwhelming. At The Cornerstone Network, we have experts in this area who can help implement these changes to ensure the best possible outcome when you want to sell.
To find out more, please feel free to speak to us today on 02921 660 550 or request a call back.