Appraising the market value of your business
Understanding the various components that will help maximise your sale price is clearly important when contemplating the possible sale of an estate agency business that has quite often taken many years to build.
Prime office locations, an established track record of trading, and a sizeable rental & management portfolio are all highly relevant to achieving significant demand, and consequently, a good sale price for your business. However, in my experience it is the business owners who plan for their future, nurturing their businesses over several years – seeing them as not just an asset, but also an investment that more commonly enjoy the more successful sale outcomes.
Estate agency businesses in general terms have nominal asset value unless the sellers have ownership of their premises. Consequently, they more commonly valued on a) the quantum of their annual residual income, b) the desirability of their office locations, and c) their profits, market share and perceived “goodwill”. So, more often than not, a combination of “sector benchmarking” and/or a “multiplier of profits” are the most common methods employed by brokers like us who specialise in selling businesses in the UK estate agency sector.
a) Sector Benchmarking In simple terms, this means using the comparable sale prices achieved of other similar sized businesses sold as a market indicator. This method can be helpful in terms of applying an accepted (although often variable) sector multiplier to establish the value of a rental & management portfolio for example. Whilst, this method is seldom definitive in itself as good/bad timing, competition, and “buyer need” can all be contributory in deviating from the trend.
b) Multiplier of net profits More commonly used throughout all business sectors as a means of establishing the value or worth of a business. A reliable method for established businesses with consistent pre-tax profits, less reliable for start ups or more speculative ventures with volatile profits.
Lastly, it is important to recognise three things when thinking of selling your business; 1) Like sellers, buyers come in all shapes and sizes with different objectives and different motivations – so as a result may not all reach the same conclusion re value when assessing the offer that they choose to make, 2) You can seldom be too prepared prior to selling – buyers nearly always prefer tidy well managed businesses when contemplating a takeover, 3) The selling process can be intensive, time consuming and at times, stressful – so choose advisors you feel you can work with and trust by talking through your individual issues/concerns prior to proceeding to sell.