Too many insurance brokers are putting off succession plan until it’s too late because they don’t want to acknowledge the ‘morbid reality’ of their own mortality, according to a succession advice expert.
A new report by strategic advice firm Succession Plus shows that despite Australia’s ageing population of Baby Boomers, just under half of brokers don’t have a succession plan in place. And of those who haven’t yet implemented one, 52% say it’s because they don’t see it as a priority.
“People don’t like talking about the fact that they’re about to retire – they attach it to their mortality and health issues. So it becomes quite a morbid topic, even though it doesn’t necessarily need to be,” says Succession Plus CEO Craig West.
Another key finding in the Business Succession & Exit Planning Whitepaper – Insurance Broking is that of a sample of 12 mergers and acquisitions that took place between June 2013 and April 2015, the average EBITDA multiple for deals was 8.8.
“Historically, if you went back 10 years, multiples of 8.8 were unheard of – and there was even one (in August 2013) at 11.4,” says West.
While the multiples are high, West says a solid preparation plan to sell has never been more important for broking businesses.
“You’re not selling a small news agency or cafe business to a mum and dad. These buyers are typically a little bit more fussy,” West says.
“You’re selling these businesses to professional investors in listed companies. They know what they’re doing and they know what they’re looking for.”
Another key finding was that Employee Share Plans are becoming an increasingly popular way to retain key personnel, and thus help secure management succession, within Australian business.
“An employee share plan allows me to lock in key employees, but also to incentivise them,” says West.
Adds the report: “A company that pays bonuses or commissions to individuals for monthly or quarterly results encourages employees to focus on short term individual results, and not on the longer term business strategy.
“If the reward is capped, staff may hold and roll over sales from one period to the next rather than doing more than is necessary to achieve each bonus.
“According to a large-scale University of Pennsylvania study, 66% of businesses reported improved morale as a result of employee share ownership, 36% report higher productivity, 33% have reduced labour turnover and 23% report improved profitability.”