Preparing Your Business for Sale
Often when an owner rings me to sell, it is because they have to sell. The reasons can vary from health reasons to financial reasons or other personal situations, but in most circumstances little time has been put into preparing the business for sale.
Usually our entire commitment has been to function as best as possible and simply survive, there’s been no time to think about the last resort of having to sell.
However, preparing the business has so many benefits including financially through a higher sales price, a faster process to settlement, better management of the retention process and an improved customer relationship for your clients with the new owner.
One of the most common questions I am asked is “Do we need to provide a profit and loss to the buyer?” If you are selling the business, in other words, a buyer is taking on the expenses of the business such as leases, equipment, staff and/or their wages plus other business running costs, they will insist on a P&L to ensure its viability. You may be prepared to take no payment for the business and be happy just to accept rent roll value but a buyer will still need an accurate P&L report. The buyer’s solicitor, accountant and bank manager will insist upon it even if the buyer doesn’t.
In the case of selling only a rent roll, a profit and loss is not required.
Discussing the potential sale of your business with your accountant, solicitor and bank manager is probably wise as they all have an interest in the process. When speaking with your accountant ask them to complete a profit and loss for the purpose of sale. Your accountant will strip out personal expenses including director’s wages, director’s vehicle costs and any personal expenses. These costs are variable depending on the owner and are not normally considered as part of the profit and loss for sale purposes.
In real estate agency sales, the primary value considered by a buyer is sales staff, the database and the businesses profitability. Fitouts, location and furniture are not normally considered to hold significant value from a buyer’s perspective. The buyer will be looking for established, experienced, performing sales people preferably on a commission only employment basis. The buyer will also recognise a database system which maintains and nurtures clients into repeat and referral business as valuable. And most of all, a business which shows it generates consistent profits over a period of time obviously is of genuine interest to any buyer.
A business in which the Principal generates a high level of the income will provide some concern to a buyer. When that owner sells and leaves at settlement, how will it affect the business?
The rent roll holds most value in a real estate business in most circumstances. Many Principals in real estate agencies however have little understanding of the Property Management department, therefore consider focusing on these key elements of your portfolio in preparing to sell.
- Increase your managements. Follow up all previous appraisals and any other opportunities to increase your portfolio.
- Focus on arrears. High arrears levels can directly affect the rent roll multiplier.
- Increase your average management fee. There are several ways to do this, contact us for more information.
- Ensure all periodical inspections are completed.
- Ensure all bonds receipts are in place.
- Ensure files are in order.
- Ensure all PAMD appointments are binding
- Identify the appointments with a valid assignment condition completed.
Contact Real Estate Agency Sales today to discuss selling your agency or rent roll on 3266 4242 or email sales@reas.com.au
Article written by Kevin Hockey July 2011
Please note – This article is not meant to be considered as advice and all information should be carefully considered before being acted upon. This information should be considered in conjunction with your own specific circumstances.
