While most in the industry are focused on growth, a prominent broker coach has urged mortgage brokers to consider the necessity of building a plan for retirement or business exit.
“For us brokers, our business is our retirement,” said Ash Playsted (pictured above), former broker and current strategy advisor for Broker Ideas Group. “We don’t generally have superannuation so when we are looking to retire or exit, whatever age that may be, the value that we create in our business is our retirement plan.”
“No matter where a broker is on their journey, focusing on exit planning means they are focusing on the right way to build a business in the here and now and not just being self-employed,” Playsted said in an Australian Broker Talk podcast.
An industry veteran with more than 25 years’ experience, Playsted started his career as a mortgage broker in the 1990s.
“I thought it’s purely an income-generating career. You can be free of being told what to do by a boss and become master of your own time,” Playsted said.
But after starting his first “business-building venture” in the early 2000s, Playsted realised that the asset he was helping create – trail income – was not, in fact, his.
“That was a painful lesson to learn. But this was the trigger to focus on mortgage broking as a business opportunity rather than just being self-employed,” he said.
Playsted said that many people came into this industry thinking how quickly they could generate business to make some money.
“Of course, that’s really important but what it means is the focus on building a business comes much later for most.”
Compared to small businesses in other industries which often would put aside a pool of capital to build a business on one’s own for six months to a year, brokers often rely on outside sources such as aggregators and outsourcing to generate wealth.
Because of this, Playsted said that as far as exit planning goes, it’s something he takes into every business opportunity and every broker he works with as a coach or mentor no matter how long they’ve been established.
“Our industry has entered a new phase where you are either building a business or working for someone who is. The era of the one-person band building a trail book that they can retire on is over.”
With more than 19,000 brokers and the market share continuing to grow, the mortgage industry has more nuances and facets than ever before.
Even so, every business owner in the industry will face this problem and Playsted urges these brokers to consider what’s next.
“The best place to start is to understand what the building blocks are that are required to position your broking business for both sustainable growth and for multiple liquidity exit options,” he said.
Essentially, Playsted said it was about moving away from building a trail book to building a business with different methods where you could exit and hand the business over.
“The sale of a trail book or a maximum multiple versus the sale of your business based on the multiple of earnings. This is generally more likely to produce a higher enterprise value.”
Of course, planning for exit doesn’t mean that you must eventually sell it on to the highest bidder.
You might want to pass the business on to a family member or let a manager take over its operations.
Another option is to enter a phase of semi-retirement, where you pursue other interests while maintaining a role as a passive investor in your own business. In this scenario, you wouldn't be involved in the day-to-day activities, but you would still receive a steady income from the business.
In any case, Playsted said these possibilities had the same fundamental building blocks but also subtle and important differences.
“There’s no one set recipe. It’s very important to take into account individual circumstances, personality traits, vision, age, all of these things play a role in customising an exit plan.
“I often get asked ‘why would a 35-year-old young gun be thinking about their exit?’ ” Playsted said. “There are reasons to sell throughout your career no matter how old you are and only having a single pathway to exit is risky. What if something changes in your life that means you need to sell?”
“The reality is what is needed to build a successful business is pretty much the same as what is required for your possible exit. They are pretty much the same thing so it’s always appropriate to be planning for exit even if you never take it.”
For the full breakdown of planning for exit, strategies for succession, and building a legacy, check out Australian Broker Talk’s latest podcast to be aired on August 28.
