(This is Part 1 of a six-part series. See Part 2: Find best successor for your real estate biz; Part 3: How to build a saleable real estate biz; Part 4: 7 ways to beef up your real estate business; Part 5: Putting a price tag on your real estate business and Part 6: Navigating the sale of your real estate business.)
Whether you are a newbie or a seasoned veteran, creating a saleable business will allow you to retire with an income you can live on rather than living below the poverty line if you have to rely on Social Security.
Most agents are so caught up in the day-to-day affairs of their business that they seldom consider what would happen if they had to leave the business unexpectedly. Some agents cannot afford to exit the business because they lack savings and investments. Sadly, if they have a serious illness, they may not have a choice. For example, if you’re female, the risk of having a broken hip is about 20 percent. Of those who break their hips, 27 percent die within one year. Approximately 30 percent of the population will die from heart disease and about 25 percent will die from cancer.
The pivotal question you must ask yourself is this: “What would happen to my business if I am unable to work for an extended period of time?” If your business would continue making money without you, you truly have a business. If you cannot earn money unless you are working, then you have a job rather than a business. No matter what your level of experience is, building a saleable business is the smartest way to protect both you and your family from the disasters associated simply with living.
Are You Ready to Leave Psychologically?
Are you psychologically prepared to stop working? The death rate among people forced to retire at age 65 can be as high as 50 percent during the first year. If you plan to sit around all day and watch television, chances are you won’t live long after you retire. In contrast, people who stay sharp mentally by taking classes, working crosswords, or playing bridge AND who are involved in sports and other activities, are much more likely to make a transition into a comfortable retirement. To prepare for your exit from the business, begin exploring the activities you fantasize about doing in retirement to determine if they are really enough to keep you happy.
Are You Prepared to Transfer Your Business?
While it’s smart to have a retirement plan, it’s even smarter to have a transition or back-up plan in case you have to leave the business earlier than you anticipated. Evaluate your readiness by taking the following quiz. Answer each item as “Yes” or “No.”
1. If you were to die today, do you have the systems and support people in place that would allow your business to continue without you?
2. Have you documented the current contact information for each member of your referral database, including the number of referrals generated?
3. Have you personally contacted members of your referral database at least three times in person in the last year?
4. Have you branded your business with a brand that states the type of clients you serve, words that reference real estate, and the geographical location you serve rather than using your name?
5. Do you regularly generate both buyer and seller leads from your Web site?
6. Can you document your net profit for the last three years and would the documentation stand up to an IRS audit?
7. If a CPA showed up tomorrow morning to check your books, would she find your books in order?
8. Are you psychologically prepared to retire or to gradually phase out your business?
9. Do you have enough money in investments and/or passive income to meet ALL your current financial obligations that are not business related?
10. Do you have sufficient funds or resources to cover any potential health-care costs for both you and your family?
9 or 10 – You are prepared to exit the business with a reliable income.
7 or 8 – You’re well on the road, but you still need to make some adjustments before you are fully prepared to obtain the best possible price for your business.
6 or less – You have quite a bit of work to do in order to prepare for a successful sale of your business.
The next issue to address is what do you have to sell? See next week’s column to learn more.
Bernice Ross, co-owner of Realestatecoach.com, has written a new book, “Waging War on Real Estate’s Discounters,” available online. She can be reached at email@example.com.
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