‘Take the pulse’ of your business before you sell! (Published in Principal Issue 05 March 2011)

By the time most real estate businesses or rent rolls are sold – it is already too late!

Failure to conduct a proper analysis or “health check” of the business and the major asset (the rent roll) prior to embarking on a sales campaign exposes the vendor to a range of unnecessary but potentially very costly risks.

In many instances, vendors simply do not allow sufficient lead in time to adequately prepare their business or rent roll asset for sale.

By taking the pulse of the business well prior to sale, prudent vendors are not only able to potentially enhance value but are also able to mitigate potential loss and risk.

Too often financial information provided by vendors is out dated or does not reflect current market circumstances. Boom time results from the current market will be lost and apparent value may be diminished if year to date figures are omitted. Historic financial data, which has generally been prepared for taxation purposes, should be updated by a qualified accountant and adjusted for owner related expenses. These may include owners’ additional superannuation payments and a range of other vendor related expenses which should be ‘added back’ to maximise profits and business value.

Financial projections must be accurate to avoid over or understatement of value on sale and rent roll assets must be readily verifiable as they will generally be subject to rigorous scrutiny during due diligence.

A full audit of rental management authorities should be conducted to “flush out” those that are missing, incorrectly completed or not signed, may potentially be in an outdated or non compliant format (i.e. silent on GST and/or privacy provisions) and those which are not capable of assignment/transfer to a potential purchaser.

Commissions and fees should reflect industry best practice to maximise value on sale. All fees being charged should be cross checked against the most current and valid rental management authority held for each respective landlord to ensure fee accuracy and agent entitlement.

Staff files should be reviewed periodically and must at all times comply with relevant business licensing and HR requirements.

Accounting systems and procedures should be designed to maximise efficiency and embrace the latest cost saving technologies.

A comprehensive ‘rent roll data check’ should also be undertaken well prior to sale.  Business intelligence tools such as RollGauge can greatly assist vendors with this task by way of extracting core rent roll metrics and performing diagnostic checks on rent roll data.

When a full diagnostic analysis of the business assets has been completed, a realistic valuation of the business can then be obtained.

The purpose of the valuation is to gauge the industry’s appetite for and the marketability of the assets on offer and to determine a likely value accordingly.

A professional valuation of the business is particular useful if a merger or an internal sale to staff or another shareholder is being considered.

A valuation also provides an excellent platform for measuring the added value of business improvement possibilities emerging from the business health check already undertaken.

Whether for simple asset realisation, merger, or for sale of equity, or alternatively an owner’s exit or succession planning; the first stage of the sale process is to become ‘sale ready’ via a full diagnostic analysis and valuation of the business and or rent roll assets.

An objective decision can then be made by a business owner whether  to move forward and sell the business or alternatively; not proceed with a sale before appropriate business improvement & value enhancement strategies identified via the business ‘health check’ have been implemented.

When a business has been made ‘sale ready’ then the next stage of the process is the confidential presentation of the business information to a short list of pre – qualified, compatible buyers.

The careful preparation of a comprehensive summary of business information which accurately presents the business and assets in the most favourable light, will provide not only, a solid platform for subsequent negotiations in terms of value appreciation and enhancement, but also will expedite sale negotiations.

An experienced business sales consultant will anticipate the key metrics of a potential buyer’s questions and will articulate appropriate answers on the owner’s behalf in the Business Information Summary at the outset.

The negotiation phase in the sale of a business is a critical point in the sale process.

Real estate agents understand the vital importance of a third party intermediary in protecting the respective negotiating positions of both parties. The universe for the sale and purchase of estate agency and rent roll assets is a very, ‘closed’ community where the most likely buyer at the highest price is generally a close competitor.

Utmost discretion and the most rigorous confidentiality processes are paramount in protecting the buyers and sellers positions.

Experienced business brokers will have stringent confidentiality procedures and protocols, to protect all parties’ interests.

A good broker is skilled in managing the inherent conflict in ensuring the strictest confidentiality on the one hand, whilst at the same time maintaining maximum competitive tension between prospective purchasers.

To ensure negotiations crystallize within a finite time frame, the sale process should set a deadline for performance. Sale by ‘expression of interest’ or by ‘tender’ are common methods used in the sale of businesses or business assets.

Another important step in the sale / negotiation phase is the qualification of potential buyers. The capability of a purchaser to fund an acquisition is a vital first step in this process, particularly in the current economic environment in which appropriate funding is not easy to obtain. An experienced business broker will have the skill to obtain answers to these difficult questions and will probably have a ‘stable’ of referral sources that may assist purchaser’s fund an acquisition.

The intermediation of offers and counter proposals and an ability to ‘build bridges to agreement’ demands a very high level broking capability; and this is particularly the case in the estate agency sector, where both buyers and sellers are also trained negotiators.

For estate agency assets, negotiations rotate not only around price, but also the transfer, transition and retention of clients and staff is equally important in relation to the ultimate financial outcome for both buyers and sellers.

Identifying the ‘right’ buyer is vital to the successful sale of estate agency assets and rent rolls. The ‘right’ buyer is not only a party that can pay an acceptable price, but is also that party with the most compatible culture and ability to transition the business, assets and staff with a minimum of loss.


John Higginbotham is Principal Consultant and Managing Director at – The Collins Street Consultancy Group Pty Ltd which is a specialist business intermediation consultancy.

Joe Galati is the Managing Director at Global Rent Roll Services which provides diagnostic solutions, and business broking and consulting services to the real estate industry.

Search


 

Archives

 

Categories

 

RSS Feed