Running a professional service business like Finance Broking can be challenging. As an owner, you may need to wear multiple hats and make growth decisions about the business. As a sole operator, you may get weighed down by admin and fulfilment and lose traction on sales.
For both business owners and sole operators, it is important to be aware of your strengths, preferences and the gaps that may need filling.
Your Strengths and Preferences
We are all different. In the context of business, you need to “know thyself”. For example:
✓ Are you great at Sales but not so strong in managing customers?
✓ Do you struggle to get new Sales opportunities?
✓ Does your business have an active Marketing Plan?
✓ Do you think there is a difference between Sales and Marketing?
✓ What are your customers saying about you? Do you know?
✓ Do you know what the key drivers in your business are?
✓ Can you analyse the performance of the business?
These questions can assist you to make an objective view of where you and your business sit right now, and whether you see any opportunities to define, refine or change it.
Your Role in the Business
Business owners often have responsibility for a variety of operational and strategic roles in a business. Sometimes, you may make decisions depending on the different capacity that you find yourself in at the time, rather than on a strategic big picture.
The roles and responsibilities in each area can sometimes be in conflict.
For example, what if maximising shareholder return means exiting a long-term referral relationship, exiting a long-term customer or exiting a geographical market?
Most Finance Brokers do not have a Board of Directors or hold Shareholder meetings, which is an understandable reality. However, be mindful that you will need to think and act in multiple hats along the business journey.
Reaching Capacity - The Single Owner Cap
A common challenge for growing finance broking businesses is what we call the “Single Owner Cap”.
This refers to the inability for a single owner to grow beyond a certain size, and is an understandable reality as the volume of clients and loans increases and causes corresponding servicing and loan run-off.
The manner and structure in which the business earns income is a contributing factor. It is worth understanding the research on Business Stages, such as the model from Harvard Business School, which looks at five succinct stages and the traits of each as below:
For Finance Broking Practices, the journey might look like this:
▪ Stage 1 & 2 of starting and building a business is often the easiest in terms of growth (not distracted by client maintenance/management, etc.)
▪ Reaching “Success” (Stage 3) but unable to achieve “Take Off” (Stage 4) due to market saturation, and having squeezed operational tasks and costs as far as possible (many Broking businesses stop growing here). The MCP Referral Hub can assist here.
▪ Bridging the gap to Take Off but then cannot build leverage in managing or attracting new clients at a rate that drives growth without the owner's continued contribution.
The Power of Leverage
Leverage is a "lever" that can either allow a business to stay small and not be at all solely reliant on the owner, or to build a system for its growth.
The best businesses are the ones that “do it often, do it well”. Repeatable processes that are supported by great marketing & sales programs, systems, strong internal culture and customer service, but that don’t unduly rely on individual expertise or gatekeeping at an operational level.
There can be great leverage opportunities in these types of organisations. Whatever the owners’ motivation, the business will be more saleable if it operates without undue reliance on the owner and there is opportunity for leverage.
Succession Planning for Finance Brokers
“Your business is always for sale”. That should be the mindset of the owner, whether it is a current reality or not, because at some point you will have an involuntary or voluntary exit from your business.
It is rare that Business Owners have a clear and documented exit strategy. While understandable in some instances, it is not a smart approach.
There is no exact science on this point, and the optimal exit time for each owner will vary based on a number of factors. One optimal time may be before you hit the Single Owner Cap, especially if you do not wish to grow the business, or have tried and decided that it's not you.
It is important that as a business owner, you seek advice to work through your options for when the business ends. This plan can be fluid, but it should be revisited annually at least.
Effective Succession Planning will align with other related objectives such as:
▪ Asset Protection
▪ Estate Planning
▪ Taxation Planning.
For many Finance Broking Practices, the business is the owner's biggest asset outside of property interests. The risk of waiting too long before exiting is that many of the key referral relationships can become stale, and the loans too aged, leaving no value to the business beyond the recurring trailing commission.
MCP has experience assisting Finance Broking businesses with fulfilment support, exit strategies and succession planning, such as valuing and selling your loan book. Contact us for a confidential conversation.
Contact MCP
1300 510 816 or your Finance Partner
enquiry@mcpfinancial.com.au