Selling Your Mortgage Broking Business? Follow These 7 Steps

Ask any Mortgage Broker what their business is worth, and most will quote a multiple of trial as the value of the business they have spent years of their life building. Usually, this multiple is two to four times the annual trail paid on the outstanding loan book, net of clawbacks.

When probed about this valuation, they often respond, “I heard this from another broker who sold his book” or “My book is high quality, so it’s worth a higher multiple.”

It’s clear to me that with an aging demographic of pioneering Mortgage Brokers, it’s time to dig deeper. 

Selling a mortgage broking business is no easy undertaking and requires extensive planning and execution.

Owners must take several crucial steps to maximise the business’s value and ensure a smooth transition. If not, all the hard work they put into building their book and earnestly helping their clients might be in vain.

This article is your essential guide to successfully selling your mortgage broking business.

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1. Know Your Value: Conduct a Thorough Independent Business Valuation

The first step to prepare for the sale of your mortgage broking business is to conduct a comprehensive business valuation. This process goes beyond crunching numbers—it involves a thorough examination of the company’s financial performance, market position, and future growth potential. Engaging an independent business valuation expert can give you an accurate and unbiased estimate of what the business is truly worth. Key factors to consider include:

• Revenue and Profit Trends: Analyse the historical financial statements to understand your revenue patterns and profitability.
• Client Base: Evaluate the size and quality of your client base, including repeat business and client retention rates and client demographics.
• Loan Book Quality: Determine your book runoff rate, clawbacks, aging and loan purpose mix, to name a few.
• Market Conditions: Consider the current state of the mortgage market and economic factors that could impact your sale.

2. Streamline Your Financial Records

Prospective buyers will scrutinise the business’s financial health, so it’s crucial to have clear and accurate financial records. Organise and update all financial documents, including:

• Commission Statements, Profit & Loss Statements and Balance Sheets: Ensure these are up-to-date and accurately reflect your business’s financial status.
• Tax Returns: Have the last few years of your tax returns readily available.
• Cash Flow Statements: Provide a detailed picture of the business’s cash flow.

3. Enhance Operational Efficiency

To make your business more attractive to potential buyers, it’s essential to streamline your business processes and ensure they are as effective and efficient as possible. Focus on these key areas:

• Technology and Systems: Invest in the latest technology and software that streamline operations and improve client service. 
• Staff Training: Ensure all employees are well-trained and capable of maintaining business operations during the transition. If you have zero to minimal staff, document all processes clearly, detailing roles and responsibilities for your potential buyers.
• Client Management: Implement a robust client management system to ensure smooth communication and service delivery. Prospective buyers will want to know how frequently clients’ loans are reviewed, client retention rates, any complaints on file, and ideally, customer satisfaction scores that demonstrate client loyalty.

4. Strengthen & Expand Your Client Base

A strong and loyal client base is one of the most valuable assets for a mortgage broking business. To enhance relationships with existing clients and draw in new ones, consider implementing the following strategies:

• Client Retention Programs: Develop programs that reward loyal clients and encourage repeat business. This could include annual reviews, periodic pricing evaluations, or Home Equity reviews using property reports. Remember, online property portals may not have up-to-date information on renovations or improvements made by homeowners—but you do, or should.
• Marketing Initiatives: Invest in targeted marketing efforts to expand your client base and boost brand awareness. Consider leveraging AI agents to enhance these processes.
• Client Feedback: Regularly solicit feedback from your clients and act on it to continually improve your services and build trust.

5. Avoid Pitfalls: Ensure Legal and Regulatory Compliance

Making sure your business complies with all legal and regulatory requirements is crucial. Review and address any compliance issues, such as:

• Licensing and Certifications: Ensure all necessary licenses and certifications are current and in good standing. Are your CPD points up to date? How about your PI insurance?
• Lender Accreditations: Your accreditations should ideally align with your aggregator’s panel. A limited number of accreditations might raise concerns with potential buyers, so be prepared.
• Aggregator Contract: Thoroughly review your contract to understand what approvals are needed to execute a sale.
• Compliance Reviews: Be ready to share the results of any file audits and compliance reports. Buyers don’t want any nasty surprises!

6. Prepare for Due Diligence

Prospective buyers will conduct rigorous due diligence before finalising a purchase. Be prepared by organising all necessary documents and information, including:

• Operational Manuals: Provide detailed manuals outlining your business processes and procedures.
• Client Records: Ensure all client contact details and records are up-to-date and easily accessible in your CRM systems.
• Employee Information: Compile information on staff roles, salaries, and employment contracts.

7. Seek Professional Advice for a Smooth Sale

Conclusion

Preparing your mortgage broking business for sale involves a series of strategic steps designed to increase its value and appeal to potential buyers. By following the steps above, you not only facilitate a smoother transaction but maximise the return on investment for you —the business owner—after all, this is your nest egg.

If you’re looking to discuss this topic a little further, please contact Sam Boer at [email protected]. Alternatively, Empower Wealth releases regular content on property, finance and money so if you’re keen to keep in touch, subscribe to our newsletter via the form below.