For some brokers, particularly in an ageing demographic, that process will inevitably give rise to thoughts around an exit strategy for their business.
Whether it is a result of the current pandemic, Brexit, regulatory pressures, or for any of the many other reasons brokers decide to exit their business, a good exit strategy is a vital part of ensuring your business plan continues to perform right to the end and beyond – depending on the plan.
Don’t fall into the trap you so often see with your clients on retirement planning and only start seriously thinking about it close to retirement. You encourage your clients to invest into their retirement plan from a young age – you should do the same on your exit strategy.
It is no surprise venture capital companies are thinking about their exit even before they have bought the business they are negotiating with. It needs to be planned over the long term.
Make sure you have a plan in place long before retirement becomes a reality.
In a survey done by Aviva at the back end of last year, 27 per cent of brokers said they hadn’t even considered their exit strategy. It can often take years from the decision to sell to actually exiting the company.
If you are planning to retire and exit at 65 then you probably want to be putting wheels in motion when you’re 61. It can take time to get everything in place, find the right buyer, and complete all the due diligence for example, and that’s even before considering ‘earn-out’ periods.
The key thing though is simple, you need to make sure your business is worth something when you exit and start discussions early – don’t leave it until you need to make a fire sale.
Observe business trends
Owners need to factor in both market conditions and growth cycles to decide whether an exit is a sensible and timely decision. Current business performance may not attract the right sort of interest and favourable valuations from potential buyers.
The business needs to be achieving optimum financial performance to boost value and be in a good position for potential purchasers to undertake due diligence.
Ensuring that your corporate and financial documents are up to date is vital in speeding up the sales process and achieving the best price.
Looking after customers
Put customer service first. Customer reviews and brand perception are such an important asset as is evidence of long-term customer loyalty and retention as well as repeat and cross sales.
If you can manage the transfer to the purchaser, perhaps by working within the new business for a while to help retain clients and get them used to the new brand, this will help as often the value of your business is based on the expected future income rather than past income alone.
Recurring income will also add significant value to the business.
Added value services
Also, don’t lose sight of how general insurance (GI) and protection income can add value to the business. Develop a good insurance book.
Whilst the main value is in your financial services income of course, GI and protection income are a scalable and credible way of creating value now and importantly it provides you with options, meaning it strengthens your hand in negotiations.
You can sell the GI book with the main business, increasing the overall value of the business or you can sell the financial services business but enter an agreement with your GI provider about how they can support post retirement income. Many will look after the client and continue commission income into retirement.
Throughout the process, effective communication is vital; keep staff, suppliers, and customers informed along the way. Many a good deal has not achieved its full potential because of poor communication.
Difficulties might also arise because of unrealistic expectations on the sale price – from either the seller or purchaser.
In current market conditions, brokers looking to exit could risk focusing on inflated valuations that may not be representative of the business being sold.
The market is in a state of flux, but brokers looking to exit can achieve a good result if they are aware of the market mechanisms at work; are as realistic and objective as possible when assessing the state of their business; remain on their toes in negotiations with potential buyers and get their business into the best financial shape possible.