Attend any conference in the industry, live or virtual, and you’ll inevitably see a session on the schedule with a topic about succession planning for your brokerage business. I’ve sat in on many of them. Heck, I’ve even taught a few. The thing I notice time and again is that most brokers hear about succession planning, but very few do anything about it.
Why? Because succession planning often feels like biting off more than you can chew. And, if you’ve never sold a company before (which most haven’t), it’s a daunting mountain to climb. So, let’s break the process down into manageable pieces.
If you’re currently thinking about how it might be time to work on an exit strategy for your brokerage, then your timing is on point. It’s acquisition season in our industry, and you can open almost any news outlet and read about a company merging or being acquired by another. So, let’s dive into how you can get out of brokerage ownership and move into the next chapter of your career and life.
A Solid Valuation
Most brokers have invested an enormous amount of time, energy, heart, soul and money into growing a brokerage over the course of many years. Because of that massive investment, it’s inevitably a difficult decision to sell your company or turn it over to someone else to run. With an emotionally-charged decision like this, it’s easy to have higher than realistic expectations about what your company is worth. Think about all the homeowners out there who think their homes are worth more than market value. It’s important to start your journey toward selling your company with a valuation.
Find an expert in the industry who is savvy in brokerage valuations. There are so many people out there, myself included, who do this day in and day out. Going through the process to get an accurate number for what the fair market value is for your company will also help solidify whether or not you’re ready to sell. You’ll need to gather necessary financial documents for a valuation, which you’ll also need down the road when you find a buyer. If your valuation isn’t at the level you expected, meet with a business coach or brokerage sales expert to determine how you can get your company to the next level of profitability and prepare for a future acquisition.
Take an Outsider’s Look at Your Company
Once you’ve got a solid valuation of your company, it’s time to take a step back and look at your business as if you’re an outsider. Think about the following aspects of your company:
– Office Space. What’s your square-foot-per-agent ratio? Do you have effective desk occupancy? Are your locations in desirable areas and on par with the competition? Do you own or lease space?
– Recruiting and Retention. Are you growing and keeping great agents?
– Overhead. Are you committed to costly long-term contracts with vendors?
– Employees. Are you over- or under-staffed? Are your employees effectively managed and allocated for company needs? Do you overpay for staff roles based on market value?
– Ancillary Services. Do you own ancillary companies? Are you interested in keeping them or selling them? Are your ancillary companies profitable? What’s your capture rate?
These are some aspects of the business you’ll want to dissect and think about as it relates to how appealing your company is for acquisition. It’s rare that something is insurmountable, but it’s best to know what you’re working with before a prospective buyer calls attention to something you may not have thought through completely.
Finding the Right Buyer
Deciding to sell your company is one thing. Finding the right buyer to acquire your pride and joy is another. There may not be a Match.com for people looking to sell or acquire solid real estate companies, but there are some steps you can take to find the right match for your company.
Whether you run a traditional GCI-based model or a flat-fee model (also known as 100% or transaction-based) like HomeSmart, there are others out there operating similarly. It’s easiest when brokerage companies with comparable models merge, since agents are used to being charged a certain way. That said, you can still cross-pollinate brokerage models in an acquisition when you do so strategically.
If you’re in the market to sell, it’s also a good idea to start at national real estate conferences. You’ll meet a lot of new people and get to talk to those from outside your market about what’s working in theirs. It’s also a great opportunity to connect with national franchisors (most of whom, myself included, are always looking for acquisition opportunities).
Helpful hint: Remember the valuation you had done? Chances are the person who did it for you knows plenty of companies looking to acquire a brokerage like yours.
Timing Is Everything
Above all else, timing is the most important factor. Selling a brokerage isn’t the exit strategy for everyone, but it’s a great option for a lot of successful operators. Taking steps like these will help you determine the right scenario for your succession plan.
Bryan Brooks is senior vice president of franchise sales at HomeSmart International and regularly facilitates mergers and acquisitions for brokerages nationwide.
