Is your business finance ready?

Succession Planning Conference panelist on financing your succession plan

Joe Micallef, CEO of FIRST Insurance Funding of Canada will speak at the 5th annual Succession Planning Conference, hosted by Canadian Insurance Top Broker. Micallef will explain how understanding what a finance company is looking for can help owners realize their succession plans. The Conference takes place on October 11 at the Royal York Hotel in Toronto. As a sneak preview, we asked Micallef about key challenges facing owners when developing their succession plans. 

What are some of the key steps brokers need to keep in mind when they are planning to make their brokerage “finance ready”?

Sometimes, I liken this to selling your home.  If you want to get a high price for your house, you want to make it look good―but at the end of the day, you have to be aware that the buyer is most likely going to obtain financing. A lot of people don’t have half a million to a million dollars to buy a place in cash. So therefore, banks today are seriously assessing the values of these places. They’re looking for the things that can ensure their security is going to be sound, and want to see that the house is going to be around for the next ten years. The bank is lending this person a lot of money to buy this place and they just want to make sure it doesn’t fall down and that it’s got a solid foundation. It’s the same thing with a business.

Read: Planning your succession? What do your producer contracts look like?

The successor, whoever it may be, even if it’s another business buying the business, is likely to get financing. Therefore, it’s important that the business owner gets the business ready for sale and ensures that they’re thinking about what a bank would be looking for if it was going to lend against this business. Consider the components of a loan application. Talk to your own bank manager. “If I were to borrow against this business, what would you be looking for? What are the key considerations?”

Getting your business finance ready means you’re giving that successor the best possible chance of obtaining financing, which means that it’s going to give your business a greater value.

What are some of the most common obstacles that brokers face when they try to get their business finance ready?

One of the obstacles is business structure. How is your business structured? Is it structured in a way that it is readily saleable? Perhaps you could sell down some shares in your business? Or, are you just the guy that’s owned this business for the last 20 years―you own all the shares, so it doesn’t make it an attractive proposition for a bank to provide financing because there’s so much reliance on you as the sole owner. How have you structured the business so a bank can say, “If Bob left tomorrow, this business could absolutely survive?”

The other obstacle is the concentration risk. Do the majority of your clients love you, the owner, and as a result, if you were to leave, is there a high risk that you wouldn’t be able to retain them? How well spread out are your clients across your top producers in the business? How many insurance carriers are you using in your business?

In developing a succession plan, it’s critical that business owners seek the advice of experts to help them obtain the true value, but in doing so, don’t forget about the value that a finance company can provide. Even though you know you’re not going to need a finance company because you’re selling the business, by engaging a finance company or considering what a finance company is going to look at, you can ensure that you’re making your business finance ready for a potential buyer. Therefore, it’s just going to make it easier for you to ultimately realize your succession plan.

Read: Coverage of the 2011 Succession Planning Conference 

What can delegates expect from your session? 

Delegates can expect to look at succession from a different viewpoint, with respect to understanding how a finance company can ensure that your succession plans are realized. I think most businesses know that they need a succession plan today; they know that they need to enlist expert advice from their accountant, lawyers, or consultants, such as Eric Walker. In many instances, succession plans, in order to be realized, require some form of financing.

If you’re not thinking about what a finance company may need, it could actually impede the realization of the final plan.

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