Do you know how much your brokerage is worth, and what you’re expecting to get for your company? You may think you know, but how do you get a better understanding of where your company sits today? Without a clear picture of your brokerage’s current finances, having a realistic idea of what this looks like is no easy task.
HomeSmart International is currently in acquisition mode, and, as a result, I’ve been speaking to brokerage owners from across the country—many of whom are looking for an exit strategy. Selling a company is an emotional decision, and it’s very common for an owner to have unrealistic expectations about their company’s worth, sometimes inhibiting a deal from ever happening.
Here are a few tips to help you better know what your business could potentially be worth if you opened it up to buyers.
Is Your P&L in Order?
One of the biggest challenges I’ve found is with dirty P&Ls (profit and loss statements). By dirty, I mean line items are lumped together and ill-defined. The chart of accounts needs to be a detailed line-by-line inventory of all the money leaving and entering the company. You can’t just have revenue, expenses and miscellaneous.
Commission income should be included as a revenue line item, but what all goes into that? There should be sales commission income and each type of fee you collect. What do referrals bring in? As far as expenses go, there’s commission expense to the agents, but are your rental and referral costs listed separately? Under miscellaneous, do you have all of your technology costs broken out? How do E&O and TI (tenant improvements) fit in? Also, what are you paying yourself?
These are just a few examples, but the chart of accounts should have everything in your brokerage clearly defined and listed. If you can’t look at your current P&L and easily identify these items, how do you think your buyer is going to be able to do it?
Be Willing to Listen
Connect with someone in the industry who is an expert in brokerage valuations and listen to what they have to say about your company. Companies are typically valued by their EBITA (earnings before interest taxes and amortization) and a multiplier of that. And if you think it’s 10 times your EBITA, guess again.
There are always negotiations, but if you think your company is worth $3 million and the valuation comes back at $1.5 million, then you probably need to reset your expectations. Knowing the numbers can help you make much better decisions for the future of your brokerage, but you need to remain open to an objective perspective on the financial state of your company.
Your business is an asset. Cleaning up your financials and having a solid plan and goals in place is essential for you to get the most for your business.
If you have any questions or concerns about your P&L, EBITA or your company’s valuation, I’m here to help.
Bryan Brooks is the senior vice president of Franchise Sales for HomeSmart International, responsible for spearheading the company’s domestic and international franchise growth initiatives including mergers, acquisitions, roll-ins and conversion opportunities. You can contact Bryan directly at BBrooks@hsmove.com. For more information about HomeSmart International, please visit HomeSmart.com/Franchising.