Every broker should be planning ahead for the day when they retire and their company sails smoothly into a new dawn
I have often said that, when it comes to business continuity, we independent brokers work in a remarkably privileged sector. Where else can you be reasonably confident that your customer will walk through the door every 12 months, looking to buy much the same product?
Imagine how much easier life would be for M&S if it knew that someone would come in off the street on the same day every year and buy an identical dress to last year’s – and all their customers would repeat their purchases annually.
Of course, we live in a highly competitive environment, so real life isn’t quite as easy as that.
Nevertheless, a broker with robust relationships with their community and a dedicated approach to service can probably plan ahead with more confidence than virtually any other business.
This is precisely why I believe that transparent and robust succession planning can be such an attractive option to our profession and can take the business to another level.
If you own an item, say a car, you take care of it. You keep it clean, top up with fuel and don’t drive too fast over the bumps. It’s much the same if you own a company: the distribution of equity to key young executives creates highly incentivised and reliable employees – but it can go much further than that.
At Brett & Randall (a Brokerbility company), we have eight individual shareholders who have bought into the business at a level with which they are comfortable, partly through raising money from personal equity (remortgages, for example), and partly through salary sacrifice. They view their shareholding as a commitment to their futures. As a result, very few of our staff leave to work for other brokers.
The crux of proper succession planning is that every shareholder understands the value of their holding both now and into the future, say three, five or 10 years hence.
The transparency of this vision is important. It means that, for instance, depending on performance, major shareholders can set a clear exit value at an appropriate and agreed time, confident that they will achieve the expected price and that the business will continue in safe hands.
At the same time, junior employees can plot the graph of their future interest in the business without getting hung up on percentages. If the business is going to grow considerably, they know value will accrue.
Fairness is clearly central to this process, and one effective route lies in issuing ‘B’ shares to new shareholders admitted to the business at moments of transformational change.
This enables the business and its staff members to set a value on day one: employees consequently benefit from growth from the moment they begin to make their impact, and management can assess value accurately, as and when trigger points occur.
Clearly defined exit values and the propagation of fairness all round also allows us a very light touch on due diligence, and the transparent process appeals to lenders and bankers too. They understand the business and where it’s going, and that’s reflected in better terms.
I have often witnessed major shareholders hanging on to their business until the point came that they were forced to sell to an external buyer, realising maybe only 50%-60% of the value.
Many have also subsequently watched their life’s work dwindle away, through lack of synergy with the consolidator.
This outcome can easily be avoided through active succession planning. No one is born a managing director or a chairman, and the best buyers of a business are its incumbent ‘children’. That realisation immediately opens up a different ethos, one that encourages fairness all round and continuity of the values that you have been responsible for establishing. IT
Ashwin Mistry is chairman of Brokerbility