There are many potential buyers for a property management business. It’s an industry where many businesses grow by acquiring other companies in the industry. The recurring revenues also make the business attractive to individuals looking for a business to buy. But, property management companies don’t all sell for the same price. Here are some tips on what you can do to increase the selling price of your business.
Recurring Revenue Streams – Recurring revenue streams from ongoing clients is a feature that makes property management companies desirable. A recurring revenue is one that is received every month. This revenue stream can be created from ongoing maintenance as well as financial management. Providing landscaping maintenance, property watch, or snowplowing are ways to add more recurring revenues.
No Customer Concentration – If you have one, or a few, clients that contribute a large part of your revenue, it increases the risk of your business. Losing that customer, or customers, would affect the revenues and income significantly. The less risky your business is, the more valuable it is.
Assumable Contracts – When your business is sold, the buyer would like to make the transition as seamless as possible. They do not want to go to all of your customers and ask them to sign new contracts. For many clients, it would raise the issue of whether to continue with the business or find a new property management company. You can avoid this problem by making your contracts assumable.
Employees are Important – There are a number of employee issues that can affect the sale price. How good are your employees? Will they stay after the sale? Is there an employee that can take over the owner’s management responsibilities? Are there non-compete, or non-solicitation, agreements in place?
Focus on Owner’s Cash Flow – Owner’s cash flow is all the income and benefits to one working owner. This includes the owner’s salary, discretionary benefits, and the net income of the business. Interest expense is also added to this since a business is normally sold free and clear of debts. Although it takes revenue to generate income, that revenue has to be profitable. Most buyers for your business, strategic or individuals, will focus more on the owner’s cash flow than the top line revenue or number of doors under contract.
Desirable Customer Base – There are a number of factors that make a customer base more desirable. First and foremost is that the margins are good and the clients pay on time. Other factors are that the properties being managed are desirable. That means that they are better quality properties that command higher rents and will not suffer significantly in an economic downturn.
Financials are Good – This can mean a lot of things. They should be up to date – no more than a month or two old. Buyers want to see how the business is doing now. Lenders will also require financials that are recent. The financials also need to be clear and consistent. Any discretionary benefits that the owner is taking should be easy to prove.
Sales and Marketing – Growing sales, from marketing and sales programs, can be a plus in a sale. Growing businesses command a higher price. Be sure your website is up-to-date and attractive. It is best to have the sales process not depend on the owner – who would leave after a sale of the business.
Use a Business Broker — Using a business broker to sell a property management business is a good idea. More buyers for a business results in more, and better, offers and a higher selling price. There are many potential strategic buyers, as well as individuals, looking for a property management business to buy. A good business broker will reach them. A business broker is more able to deal with multiple buyers for the business. Business brokers are also familiar with selling a business and know what buyer demands are reasonable and which are not. Using a business broker leaves you free to do what you do best – manage your property management business so its value stays high.
