Editor’s note: This is the first in a five-part series.
No matter what your age or experience level is, creating a real estate business that you can sell is simply smart business. A profitable business can generate income for you now as well as provide an additional source of revenue when you retire or leave the business.
According to the National Association of Realtors, the median age of Realtors is 56. This means that within 10 years, half of today’s Realtors would normally be considering retirement. While many have successful businesses, few are in a position to sell their business for a profit.
Having a salable business can be the difference between retiring with an income you can live on vs. relying on Social Security and living beneath the poverty line.
While retirement may seem to be far in the distance if you are younger, the pivotal question you must ask yourself is: "What would happen to my business if I were unable to work for an extended period of time?" Having an exit plan is critical no matter how old you are or how long you have been in the business.
What do you have to sell?
Tangible assets include the building or long-term lease that houses your office, office furniture, copiers, fax machines, computers and phone systems. In most states, these will require a separate bill of sale separate from your business sale. Sadly, with the exception of the building, these other tangible assets will probably have little value in today’s increasingly mobile world.
Assets that definitely enhance the value of your business include your current listings, properties under contract, renewable leases, and your referral network — provided it regularly generates closed business for you.
The value of the intangible assets is much more difficult to determine. This includes current client lists and the revenue that they can possibly generate for the new owner. A well-trained support staff, well-documented systems, a procedures manual, and a strong Web and social media presence also increase the worth of your business.
Additional items that are difficult to price include the good will associated with your brand, the value of your website, the history of your website or blog on the Web, as well as the value of your social media presence.
For broker-owners, other intangible but highly valuable assets include documented systems and procedures, including accounting, marketing plans, hiring and firing procedures, independent contractor agreements, etc. Also important is your balance sheet showing your history of profits plus a sustainable cash flow.
Begin upgrading your business by fully documenting your current assets. Much of this is simply good business, yet very few agents and brokers have any idea about the worth of their tangible and intangible assets.
How to document the value of your business
You can sell only what you can document. Here are some suggestions on how to handle this task.
1. Agent processes and systems
There are several easy ways to accomplish this goal. For agents, it’s smart to document the steps you take to generate leads as well as the various steps that you take to close transactions. Many companies already have a transaction checklist that can be useful to an agent purchasing your business.
If you do not have a transaction checklist, you can create one easily by jotting down each step you take from the time you start working with a buyer or seller to close. Use your smart phone, iPad or even a small notebook — whatever is easiest for you. A different alternative is to hire a virtual assistant to handle this task for you.
2. A client relationship management (CRM) system is a must
Your buyer will expect accurate contact information for each of your past clients, current leads and the members of your referral database. Include their names, addresses, phone, email, and any relevant social media groups.
Your business will be worth more if you can also document the value of each client. In other words, how many transactions they have closed with you, the number of referrals each individual has made to your business including the frequency, the price range of the referrals, and the dates that the referral was made.
The larger your list is of clients who refer business to you, the more valuable your business will be at the time you decide to sell.
As an additional bonus, tracking gives you a snapshot of your strengths and weaknesses at this moment in time. Maximize the worth of your business now by expanding on those areas where your strengths are greatest.
3. Track transaction types
What is the mix of your business? Is your business primarily based in a specific geographical area and a specific price range? Do you specialize in a market niche such as relocation, short sales or probate? It’s important to know the types of transactions, as well as how many transactions each client has closed with you — including the dates and sales prices.
A strong, well-documented referral database and client list greatly enhances the net worth of your business, both now and when you are ready to sell.
A key part in having a successful business both today and when you are ready to sell is to have the correct branding. See Part 2 of this series on how to brand your business today to sell it tomorrow.