With the large number of absentee owners in Southwest Florida, property management has become a thriving, in-demand industry. Property management businesses naturally attract a lot of interest from investors due to their relatively simple profit model and growth potential. Buyers also gravitate towards companies that get most of their revenue from long-term contracts and recurring revenue, and this industry fits the bill. To sell a property management company successfully, you must understand what buyers are looking for and how to increase the value of the business leading up to the sale.
Finding a Buyer for Your Property Management Business
Real estate agents are one type of potential buyer for a property management company. When they are considering expanding their own investments, property management is a very desirable option due to low overhead costs. Agents also have connections to contractors and other service workers they can call upon when needed, as well as the necessary knowledge to maintain and improve the value of a given property.
Other property management firms will also show interest in buying your business. Purchasing another competing company gives them an opportunity to grow very quickly. By buying another property management business they can add contracts much faster than through direct advertising and marketing campaigns. When dealing with a competitor though, you must show added discretion before sharing details about your business with them. Often times, competitors will use knowledge about the sale of your company to scare off customers or employees, and may not be serious about buying it.
Increasing the Value of Your Property Management Business
Property management companies with certain attributes will attract more buyers, and subsequently a higher asking price than others. As with any type of industry, buyers show more interest in businesses that are easy to take over. For starters, the company’s branding and reputation play a big role in determining its value. Nurture relationships with your clients and maintain a strong web presence with great reviews. Buyers will research your online reputation and will be willing to pay more the better it is.
The quality of your property portfolio will also help determine the value of your company. If you manage a lot of high-quality properties in great condition, there will be less potential risk for the buyer. Location also plays a big factor in the value of your portfolio. The more properties in desirable neighborhoods, the less risk. Fewer risk factors will result in more demand and a higher price.
The relationships you have built up over time while running your company also matter a lot to buyers. Potential investors will pay a premium for a smoother transition. Your clients, contractors and numerous other connections could help them to see a path to ownership where there are fewer hiccups after the acquisition.
Having a comprehensive operating manual for your property management company will also help new owners transition seamlessly. Documenting your procedures will help reduce training time and allow new owners to focus more on revenue-generating activities. This adds more value to your business and will help you get higher offers.
If your company has an in-house maintenance staff, it could add a lot of value to it. Right now it can be difficult to find contractors and service professionals to do work in a timely fashion because many of them are just backed up. Even having a small maintenance department could provide a big boost to efficiency and growth. It would make your property management business more attractive to both prospective clients and buyers.
Calculating the Value of Your Property Management Business
The EBITDA and SDE are the formulas most commonly used to calculate the value for property management companies. EBITDA, or “earnings before interest, taxes, depreciation, and amortization”, adds some expenses back into the total earnings. The SDE, or “seller’s discretionary earnings”, measures the value of a business based on the earnings generated from it by the owner. It is almost the same as EBITDA, but with the owner’s salary added back into the earnings. The final calculations take either 2 to 4 times the SDE, or 5 to 7 times the EBITDA, if it is a larger company and the owner is more hands-off.
Some people based the value of a property management company on the number of properties they manage, but this is an unreliable method, because it doesn’t consider several variables. One company could manage a large number of B or C level properties in mediocre condition or in rough areas. Another could manage much smaller number of high-quality properties in a highly desirable area. In this situation, the quality of the property will matter much more than the quantity. You could also have a lot of high-quality properties, but your company is underperforming, or not charging enough. In this scenario, buyers may pay for the potential of your property management business, just based on the quality of the portfolio.
Preparing to Sell a Property Management Business
One of the first big steps in preparing to sell is getting your company’s financial statements in order. You should already be maintaining solid, up-to-date bookkeeping, but if you are not, it’s time to get your financials organized. Being prepared to supply financial documents at a moment’s notice gives the buyer an impression of a well-run business. Conversely, many deals have fallen apart or lost momentum because sellers had incomplete books or were simply too slow to supply them. You must also keep up with your receivables. If you are behind on collecting property management fees from your customers, or you have a lot of clients who are slow to pay you, it could present a big risk factor to buyers. A new owner will need predictable, stable cash flow to run the business, so make sure you are collecting on time.
It’s never too late to grow your network, and having good connections is important in property management. Attend programs and homeowner’s conferences to meet new property owners or connect with your town’s Chamber of Commerce. You can look into joining local chapters of the National Association of Residential Property Managers (NARPM), Building Owners and Managers Association International (BOMA), or other professional groups for property managers. You can also attend events for realtors. Bringing an established network to a potential buyer will show how well connected your business is and could help you to boost your asking price.
Continue to grow your business while you are selling it. This will demonstrate to buyers that you have a good growth plan and the company has room to keep growing. You need to continue operating the business while it is for sale anyways, so why not grow it? Running a business while simultaneously trying to sell it can be difficult. Instead of spreading yourself thin and risk making a costly mistake, consider hiring a business broker to take you through the process. A broker can confidentially market your business, prequalify buyers, negotiate offers and contract terms, all while you continue to run and grow your company. The services they offer result in smoother, faster and more profitable sales.
When selling a property management company, you must have a strategic plan. Find out what your business is worth and how you can add value to it. Consult with a business broker who is familiar with your industry and can provide an accurate valuation and some tips to attract more buyers. Continue to grow your network and your business while you get ready to sell and you will increase demand for your business, stand out from your competitors and maximize your profit from the sale.
If you are considering selling a property management company in Fort Myers, Naples, Sarasota, or any of the surrounding areas, call CIBB to help you through the process. We have over 35 years of working with property management business owners in Southwest Florida to sell their companies profitably. We have a large list of potential buyers who are already looking for profitable businesses and may already have a match for yours. Our process begins with a free, no obligation consultation and business valuation. Contact us so we can help you get the process started.
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