By George Heos

After working 30 or 40 years to build your brokerage, you’ll want to leverage the equity you have created to sell it at the right price and to the people you want.

As you begin to think about spending more time on the golf course or whatever your choice of leisure, questions will arise. How do you prepare your business for sale?  How much is your business worth? Who are your prospective buyers? Who are the buyers that will make the transition to new ownership as smooth as possible?

As someone who has put a lifetime into building your brokerage, you’ll want to consider your options carefully. For business owners who already have an exit plan, answers to the questions above should come readily. For those who don’t have a plan in place, several key points should help you to establish an exit plan and to maximize your selling price:

1. Present a clear picture of your company’s financials.  Preparing for a sale is different from your year-end financials prepared for taxation purposes. In selling, you need to prepare an accurate reflection of the business. This involves taking out costs, and in some cases, adding them in.

For example, the seller may not have previously included his salary in the company’s financials. Conversely, some expenses will come out, such as vehicles or business trips. The purchaser will look for two to four years of history on the business to understand where it is within its lifecycle. Is the business growing? Has it plateaued or is it declining? All this will affect the price.

2. How much is your business worth? As a rule of thumb, a mature business is worth three to four times its cash flow.  For example, if a business makes $100,000 per year, it is worth $300,000 to $400,000. Keep in mind that values can vary greatly, particularly if there is a competitor interested in purchasing. A business is always worth more to a competitor when economies of scale can be leveraged and when a nearby competitor wants to grow.  Instead of having two offices at which to pay rent, utilities, furnish and administer, the business can be consolidated by a competitor under one roof.

3. Who are the prospective buyers? The operating models of various brokerages can be starkly different. When you think of prospective buyers, you want to look for a fit in order to maximize the value to the buyer. Conversely, in some cases, you may want to consider whether your business model can be transformed to be more synonymous to the buyers’ culture and operating model.

4. Decide what your role will be in the transition. If you are planning to sell your business and simply hand over the keys, that will have some impact on your selling price. Your agents play a huge part in the value of your brokerage, so retention of your agents is important to the value. While agents believe in the power of the brand and the benefit of tools and services in terms of helping them to build their business, your involvement will also play a critical role. As an owner, how long you decide to stay with the business, working with the new owner to ensure a successful transition, will have a positive impact on agent retention and the value of your business. In many cases, owners plan to stay with the new ownership for one to two years.

George Heos

5. Where do you find advice and assistance to get the deal done?  There are a lot of owners who have built and run very successful businesses, but they may never have acquired another company or have sold a business.  Companies like the one I work for, Royal LePage, help brokerages within our network who want to grow, and are capable of growing, to do so. We support these companies from both a financial and operational perspective to make growth an option.

While each situation for a change of ownership is unique, there are considerations and a process to get everyone where they want to go. Seeking out the right advice and negotiation expertise, from those with a track record for growth, is a smart first step in exiting your business.

George Heos is senior vice-president, network development at Royal LePage, where he has contributed to make Royal LePage Canada’s fastest growing real estate brand since joining the company in 2011.  [email protected]  416-510-5827