Trail Book Valuation: What Your Business Is Worth

Key takeaways

• Valuation = annual trail x a multiple reflecting expected durability.
• Run-off rate is the single largest driver of the multiple.
• Clean CRM data and documented client relationships raise the price.
• Aggregator agreements govern whether and how you can sell.

How is a trail book valued?

The mechanics are simple; the judgement is in the multiple. A buyer is purchasing a stream of monthly payments that will shrink as loans amortise and disappear as clients refinance, sell or pay out. So the question is how long that stream survives.

Multiples move with market conditions, funding costs and buyer appetite, and there is no single published figure that stays accurate. What is stable is what moves the multiple.

Why does run-off matter so much?

Because it is the discount rate on everything. A book losing a small percentage of trail each year is worth substantially more than one losing a large percentage, even if both produce identical income today.

Run-off has two components. Amortisation is unavoidable - balances fall, so trail falls. Attrition is not: clients refinance away, and how many do is a function of whether anyone has spoken to them.

That makes the annual review call an asset-building activity as well as a lead-generation one. A book where every client has been contacted in the last twelve months has demonstrably lower attrition than one nobody has touched since settlement, and a buyer conducting due diligence will see the difference in the trail history.

What should you do before selling?

Start two to three years out. Most of what raises a multiple takes time.

1. Clean the CRM. Complete contact details, current loan details, documented review history. A buyer discounts what they cannot verify.
2. Reduce run-off. Systematic annual reviews, and repricing rather than losing clients to competitors.
3. Transfer relationships to the business, not to you personally. If clients only know one broker, the book is worth less when that broker leaves.
4. Fix compliance gaps. Incomplete files on best interests duty documentation are a due diligence problem and a price reduction.
5. Read your aggregator agreement. It governs whether the book can be sold, to whom, whether the aggregator has pre-emptive rights, and what happens to trail on transfer. This is the first thing to check, not the last.
6. Get tax advice. The structure of the sale affects the tax outcome materially, including any small business CGT concessions that may apply.

Also understand what you are selling. Trail rights, client relationships, and the business itself can be sold separately, and a sale structured as an asset transfer of trail rights alone is a different transaction - commercially and legally - from selling the business. Get legal advice on which one you are doing.

Frequently asked questions

What multiple do trail books sell for?

Multiples vary with market conditions, funding costs and buyer appetite, so any specific figure dates quickly. What consistently drives the multiple is expected durability - run-off rate, book seasoning, loan mix and the quality of your records.

What is run-off?

The rate at which trail income declines, through loans amortising and through clients refinancing, selling or paying out. It is the single largest driver of what a book is worth, because it determines how long the income stream survives.

Can I sell my trail book?

It depends on your aggregator agreement, which governs whether trail rights can be transferred, to whom, and whether the aggregator has pre-emptive rights. Read it before planning a sale.

How do I increase what my book is worth?

Reduce run-off through systematic annual reviews, keep CRM data clean and complete, ensure client relationships sit with the business rather than one individual, and close any compliance documentation gaps. Start two to three years before you intend to sell.

Related reading

• 16,000 Brokers, One Borrower Pool
• Comparison Rate Disclosure in Advertising
• Cost Per Funded Deal: The Metro Broker Maths

Sources

• Review of mortgage broker remuneration — ASIC
• Small business CGT concessions — Australian Taxation Office