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MFAA Prosper : Mortgage and Finance Brief 07
legal provisions in place, making sensible insurance provisions and ensuring your accounts are in good order. Think about retiring before you even start Your best bet is to start thinking about retirement before you even start your business, suggests Kristy Sheppard, spokesperson for Mortgage Choice. "Succession planning ideally starts from day one of a business (franchise or otherwise) commencing operations and it is all about building a valuable, saleable asset," she says. Having the knowledge, skills and tools to get your business into shape early in the cycle is critical, she adds. "Successful succession takes a lot of planning and savvy business owners will be continually appraising their operations to ensure the business is attractive to modern-day business owners, many of whom are relatively young and often vary in their approach to and perception of a practical, potential business." If you're a franchisee in one of the major aggregators, chances are that you can access the company's resources to help formulate your retirement or succession planning options. But ideally, using your own advisers up front allows you to tailor an exit strategy that will suit your particular circumstance. Do your research on tax advantages "You need to have agreements and insurances in place from the very start, so that if a partner in the business dies, there's adequate insurance to buy them out, or if a relationship breaks down, there are appropriate exit options," says Stephen Moulton, who is a partner in the legal division of PriceWaterhouseCoopers Australia. Franchisees should also check whether consent will be easily forthcoming should they choose to sell a trail book outside the franchise, he adds. These are things that will dictate your exit strategy from the start. It's important to get advice from your lawyer and accountant before starting your business -- because the business structure you choose to set up with can also greatly impact the amount of tax you pay when you exit the business, says Moulton. "Right from the start you should be thinking about what your key objectives will be when you sell the business," he says. Typically, a mortgage broker will either sell the whole business, or will sell the major asset of the business, generally the trail book. Most mortgage brokers are set up as Pty Ltd companies, he adds; but that's not always the best option depending on what you want to do when you exit. "For example, if your business operates through a trust and you sell the assets of the trust, provided you've held those assets for more than 12 months, you only have to pay Capital Gains Tax (CGT) on 50% of the gain," he explains. Assuming you started with nothing and built up a million dollar asset, your CGT at the top marginal “Right from the start you should be thinking about what your key objectives will be when you sell the business.” Victoria-based Peter Catramados and his business partner had a succession plan in place for quite a while before selling the business five years ago. They had invested in the business, built it up and hired a general manager, and planned to make themselves redundant. "It might be a cliché, but the key really is to be working on the business rather than in the business," he says. "Our loan book was worth around $1 billion in the end, with more than 25 staff -- we were also a mortgage manager as well as a broker." When developing a succession plan, Catramados says, you have to think -- if we are the business, then what is it that we are selling? "If you have an excellent database, and well-trained staff and you have invested in the business with technology and training, and built a business up with good systems and procedures, then it is going to be worth far more than one or two times the annual trail," he says. "It's important to really know your business and understand your clients. Do you know where your business comes from? Do you have a lot of self- employed or low-doc loans? Do you have lots of first-home buyers? "It's not only important to understand the busines s -- it's important to understand what those clients bring you, too. Sometimes a high net-worth client can mean less dollars to you than a first-home buyer. "If you are going to get value from the sale of your business, then you have to build the value into the business. "The best time to look at selling is when you are in a growth phase. You need to leave something on the table for the person coming in to build on." * Catramados now has restarted in the industry and is a director of Premuim Lending Group based in Melbourne. Vince Camilleri owns a Mortgage Choice franchise in Altona, Victoria, and until last year he had a built-in succession plan -- his three sons worked full- time in the business. But then each of Case studies: Successful successions PriceWaterhouseCooper's Stephen Moulton: "Right from the start you should be thinking about what your key objectives will be when you exit the business." 40 | Mortgage & Finance brief BackOffice
Mortgage and Finance Brief 06
Mortgage and Finance Brief 08