Be realistic when buying or selling a trail book

Mortgage brokers selling books need to be realistic when it comes to price and buyers need to be realistic about what they're getting into, an M&A specialist said



Mortgage brokers selling books need to be realistic when it comes to price, a sales, merger and acquisitions specialist said.
Connect Financial Service Brokers CEO Paul Tynan said sellers create a “major issue” for themselves by basing the price on their emotional attachment to the business.
“It’s natural for sellers to over-value their business.  It’s been their life, blood, sweat and tears and now selling that life time of work is an emotional undertaking – but ultimately it is the current market that determines price.”
While there are presently more buyers than sellers in the mortgage broking, financial planning and accounting markets, Tynan told Australian Broker the price for established businesses has remained steady and for those financial planning businesses which have moved to fee-for-service, the “price has come right down”.
Despite the hard work brokers pour into their business, many of the older sellers in particular do not have clients on an automated systems, use CRM, or have organised back office data, Tynan said.
However, “a lot of people do like buying smaller books because it goes straight to the bottom line profit,” he said.
While Tynan said many mortgage brokers sell their books through aggregators, he has had an increase in brokers looking to buy financial planning and accounting books.
He said this is a growing trend – like the Yellow Brick Road model – and it makes sense for the consumer to have all financial needs of mortgage broking, financial advice, accounting, and financial law under one roof.
“We have a very narrow focus with all our professional services, but it makes sense to have them all in one spot. It’s pretty easy to work together, put the ‘one stop shop’ under one roof.”
However, it is important the consumer does not suffer from accumulating services into such a one stop shop.
Mortgage brokers have been “aggressively” looking for financial planning and accounting books, but many do not have an understanding of what licenses and qualifications are involved, Tynan said.
Connect screens businesses and people coming to buy and sell, to make sure they know what they know the realities of the market and that any acquisition will not be detrimental to their clients.
“Buying books is a good thing but it’s important to know who’s who in the zoo, and get to grips with structure and licensing requirements,” Tynan said.
He recently recommended to a mortgage broker who came to him wanting to buy financial planning books to enter a joint venture with a planning business which was looking to move into mortgages.
“In this way the consumer is protected and getting the best advice. The two businesses have entered into what looks to be a successful joint enterprise, with the option to merge further down the track,” Tynan said.
The practices most in demand are well run and efficiently-administered enterprises with solid, sustainable revenue streams supporting a carefully considered target market.
Tynan offers the following advice to those looking to sell:
1. Be realistic when it comes to price
2. Understand that valuation methods are changing
3. Sustainability of income is important

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