If you don’t have a business succession strategy or legacy plan, your likely exit will be to sell. Middleton Elite Coaching can guide you through the exit planning steps you can take now to help you sell your brokerage for top dollar in the future.
Exit Planning: 5 Things to Consider When Building A Brokerage To Sell
The value you place on your business may account for the years of hard work and dedication you put into building it. The value placed on your business by others may only account for your sweat equity if it brought high-value pieces for your business. We recommend considering these five things for creating a highly-valued and sought-after business to sell.
1. What is the valuation of your business based on?
Regardless of your brokerage model, you’ll need to prove it to be a valuable one. The valuation of your business will likely be a 2-5X multiple of your EBITDA (earnings before interest, taxes, depreciation, and amortization), determined by the following factors:
- Trailing Profit & Overall Financial Performance
- Normalized Cash Flow
- Company Dollar
- Metrics
- Business Opportunities
- Additional Value
We’ve outlined how your brokerage will be evaluated in each area and the steps you can take to prepare. Connect with our team to learn more about increasing your profits and obtaining the highest business valuation possible.
Trailing Profit & Overall Financial Performance:
Prepare to show 12 months of production, expenses, and growth & attrition. Prioritize profitability—the EBDITA multiple changes based on profitability and brokerage size. Valuation begins with the larger of either the company dollar or gross margin.
Normalized Cash Flow:
Your business will be valued for the amount of cash flow after adjustments are normalized over 1 year. The valuation will consider the owner’s impact on the business: salary, insurance, personal items, and non-recurring expenses such as capital improvements or terminated leases. It will also consider new wages and any team member or agent roster transition.
Company Dollar:
Create an “In and Out” report for your agent roster, including company dollars lost and gained. Middleton Elite Coaching has a framework for this report. Connect with us to learn more.
Metrics:
Understand your buyer versus seller business metrics, average sales prices and commission averages for each, and company dollar retained.
We work with our Clients using a proprietary system for measuring the performance of these metrics and making adjustments to keep them growing in the right direction. We can help your brokerage in the same way.
Business Opportunities:
Do you have core services such as mortgage, title, insurance, or property management? Consider the additional value of these ancillary businesses when determining whether to include them in the sale of the brokerage business. Would they be more valuable to the brokerage sale or to retain for your cash flow?
Additional Value:
Your brokerage valuation can increase with additional high-value pieces such as vendor contracts, coaching and training, technology, and systems. If the return on investment of these pieces can be measured, it is essential to include this information.
Middleton Elite Coaching can help you explore creative ways to add value to your brokerage model.
2. Growth and Scale for Marketability
Recruiting top talent is the best way to build a highly-desired brokerage. Great companies attract great people. This requires an effective recruiting model, a strong value proposition, attracting the right talent levels, and having systems and tools to help your agents reach their desired levels of success with your company.
Become an attractor
Attraction happens with engagement. The foundation of becoming an attractor is establishing rapport and lowering an agent’s guard about being recruited by you. Your success depends on the candidate liking you, trusting you, and believing you can help them reach the next level.
How would you answer this question from your ideal agent, “What’s in it for me?”.
Use the points below to communicate like an attractor in your marketing and in recruiting conversations.
- Clarify your value proposition – what value do you offer?
- What your brokerage stands for
- Where your brokerage is going
- The environment your brokerage offers
- The benefits of aligning with your company
Attracting through mergers and acquisitions is another way to add top talent to your firm. One strategy to consider is to explore your local MLS. Of all independent brokerages and medium and large teams, who in your MLS shares your core values and has slowed production? These businesses could be considering an exit strategy now, creating an opportunity for you to build for the future.
Top talent can bring you production. Production can make you more profitable. Profitability can make you marketable. Marketability can be your golden ticket to exit.
3. The Keys to a Successful Transition
A successful transition after acquisition includes getting the key brokerage members excited about future changes. This requires transparency, trust, vulnerability, and an open-door policy. The best transitions are those without immediate drastic changes that may threaten the culture of the brokerage office. We have three simple keys to a successful transition that, when followed, yield the highest adoption process through acquisition.
- Don’t tell anyone until you tell everyone. Keep the deal under wraps until you are ready to make it public. Information being shared too soon can potentially harm the deal. Closed-door conversations with some but not all brokerage agents can also affect the transition and threaten the adoption process of future changes. Be transparent in all communication to avoid making anyone feel betrayed.
- Understand the office culture. It can boost agent morale when the brokerage owners are invested in understanding and upholding the positive aspects of the current office culture. The agents bought into the environment, so protecting it will go a long way in building their trust in you.
- Don’t change anything in the first 12 months. It will take time and effort to earn the business of the agents transitioning. Making changes of any magnitude immediately following the acquisition can affect an agent’s buy-in to new leadership and the impacts that follow.
4. Top Growth Lessons from the Field
Middleton Elite Coaching attended a fantastic M&A session at the 2023 RealTrends Gathering of Eagles in Austin, TX. We heard real estate brokerage owners and industry experts sharing the lessons they learned during mergers and acquisitions. You can discuss these top 10 lessons from the field with your coach or mentor.
- Brokers will join you and leave you over the leadership.
- Understand your VIP list.
- Don’t buy on a Profit and Loss – buy on culture.
- Be the organization- know the operation and systems.
- Be ready to look at different strategies; it has to be a win-win!
- Hire a coach to help you with operational, systems, and P&L-adjusted EBDITA; minor adjustments have a massive impact.
- Prospecting is sales. Have a list, talk to people, and use geofencing, blocking, and tackling. As an industry rule, prospects have to tell you no 8 times before they’ll talk to you.
- Discuss what opportunities exist for collaboration and partnerships.
- Always speak to a business attorney and an accountant.
- Understand the expectations before you sign.
Connect with these growth-minded entrepreneurs who have built a high-value brokerage to sell. Ask what you can do now to build your brokerage to sell in the future and who you should enlist to help. Hint: Middleton Elite Coaching can help!
5. Three Keys to Brokerage Success
The Three Keys to Brokerage Success are straightforward.
- Recruit talent through attraction.
- Develop the talent you recruit.
- Continue to support the talent you develop.
That’s it! Your brokerage success begins and ends with talent. Your investment of time and resources to coach, train, develop, and support the agents in your brokerage will be attractive to top talent and help you build for the future.
Final Thought
If you were asked to provide a valuation of your brokerage based on the 5 things to consider, would your valuation be attractive? Are you ready to give these aspects of your brokerage the time and focus required to grow and scale? It’s not too late to get started on an action plan for increased profits. Middleton Elite Coaching can guide you to exit with the highest valuation for your brokerage.
Be Elite!
Debbie, Bill, & The MEC Team
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