A successful succession starts with clarity and preparation. This feature, sponsored by TrailBlazer Finance, examines the key challenges brokers face in succession planning and outlines how accurate valuations and strategic tools can maximise business outcomes.
For brokers immersed in daily operations, exit strategy often feels like a low priority. Yet without a clear succession plan, they risk a suboptimal outcome when it’s time to step away from the industry.
Planning ahead smooths this process and can significantly increase a brokerage or trail book’s value.
Jeff Zulman, managing director of trail book valuer TrailBlazer Finance, says the strongest outcomes typically come when brokers who understand that their business has a lifecycle.
“The maxim I’m often asked is: ‘When is the ideal time to plan for selling?’. I tell people: ‘A few days before you start the business’,” he says.
“In other words, if you’re going to build a business as a business and not just as a job, then it has a life cycle, like we do as humans. I liken what I see in my experience as a corporate adviser, which is how I started my evolution into focusing on helping mortgage brokers.”
Zulman adds far too many brokers leave planning their exit too late.
“What I’m trying to help people to understand is that you shouldn’t leave all your inheritance and financial planning and who gets what until you are in your 70s,” he adds.
Exit strategy
Part of the challenge is defining what the exit should look like, whether it’s a sale, internal succession, merger or staged exit.
The decision often hinges on the owner’s goals, timeframes and the maturity of their business.
For brokers, the starting point is a clear, reliable understanding of what their business is worth.
As Zulman explains, TrailBlazer Finance brings transparency to this process by offering trail book valuations, a buy-and-sell platform and strategic guidance.
“When we created the business, there wasn’t a market for trail books. At the beginning, it was very opaque. Nobody discussed what they paid for them. The market wasn’t transparent. The market was probably trading on average multiple of one and a half times the anniualised trial amount as the value for the book and indeed the whole business,” he says.
“We publish results. We publish e-books, so people can see and understand how and what the value is likely to be of their book, and as importantly how to progressively increase this value. And we provide liquidity so that people realise we’re not just going to give you a valuation. We’re going to stand behind the valuation with money and put our money where our mouth is. That has helped to build confidence and transparency in a previously opaque market.”
Zulman says brokers are now getting far better outcomes.
“We see what books are selling for. We’ve got a real sense of what the market is. We facilitate these trades. We’re the most active in this area by a long way, and we do it quietly. There are others that buy books and make an undisclosed markup and they sell them on,” he says.
“We’re very transparent about what the fee is, and we disclose everything, because we realize that’s helps to foster a market and then we all benefit. That’s why, in big part, as the industry evolves, that average one and a half multiple is now closing in on three times – almost doubling in value in. So, it works.”
TrailBlazer Finance can also provide clarity on how factors such as run-off, clawbacks, loan book composition, lender mix, client tenure can impact a brokerage’s position.
“We have a tiered approach. Some people ultimately just sell their trail book. Some sell the trail book plus the clients. Some sell it as a going concern, where the buyer values their processes, maybe their staff, or their brand name,” he says.
“Some will sell it as a business, where they buy the whole thing, with the lease and staff, with everything that’s there. And finally, some will be able to sell a whole enterprise – that is the pinnacle and the mark of having built a market stand- out.”
Handing over the keys
Sydney-based broker Nick Kharitou provides an example of a successful exit, having handed the reins of his brokerage to in-house broker Beier Li.
From the outset, Kharitou had a clear vision of how his exit would look.
“I really instill in people to have that long-range plan. That’s what we did,” he says.
“For every business owner, they should be looking at and putting plans in place in their 50s, in order to make their retirement happen, stress-free and predictable.”
Ensuring a trusted successor for his clients was central to the plan and a primary reason he felt comfortable transitioning the brokerage to Li.
“To his credit, he felt the same way that I did about the business customers and customer service,” Kharitou says.
“It was a natural fit that he was going to take on the business once I departed.”
As part of the transition, Li approached Trailblazer Finance for a valuation.
“The most pressing thing for this kind of situation is definitely the valuation. The seller doesn’t want their business to be devalued. [And] the purchaser might want to ask for a certain fair price. [But] these could be totally different,” Li explains.
“If they won’t get on the same page, nothing will happen.”
Kharitou says this guidance helped ensure an optimal outcome.
“I had a sense of what the book was worth and I got this from dealing with TrailBlazer as an observer, looking at the books they’re selling,” he says.
Impartial judgment and a clear valuation helped the transition.
“It was a bit of an eye-opener, but it wasn’t far from the mark, [in terms of] where I expected the book value to be. And they were able to explain exactly their methodology and why it sort of derived the number that it did, which is all good and fair,” Kharitou says.
“Beier – who, funnily enough, is my buyer – appreciated the valuation, as it gave him a little bit of incentive. I was always prepared to sell it at a slight discount. So, everyone was happy.”
Next stage
To help brokers prepare for the next stage, TrailBlazer Finance has provided a free, downloadable succession planning e-book.
Zulman says the cheat sheet will prove valuable to brokers approaching retirement.
“If people started their second career when they were 40 or more (when they left the bank and went off on their own, for example) they might now be 55 to 60. They’re ready to become grey nomads,” Zulman says.
“The industry is a cottage industry. It’s made up primarily of small boutigues, located in neighbourhood small retail or office environments or working at home operators. That will remain, but there will be a lot more consolidation. Many of the small brokers became brokerages that are now businesses, and they’re being built by smart business people. So, the industry is consolidating.”
With support from TrailBlazer Finance, Kharitou secured an exit that protected long-standing clients and delivered a fair value for his business, giving him more time to focus on passions.
“I’ve always been a musician. The more I had to deal with banks, the less I found I had in common with them,” he adds.
“I always wanted to play and write more music, and that’s what I’m doing.”
For a confidential discussion, valuation or to download TrailBlazer Finance’s succession planning cheat sheet, visit trailblazerfinance.com.au
