Appraising the market value of your business
Understanding the various components that will help you maximise your sale price, is important when you are contemplating the sale of your estate agency or property services business.
Prime office locations, an established track record of trading and a sizeable rental & Management portfolio are all highly relevant to achieving both a good price and a successful sale – with timing and competition also critical.
Estate agency businesses in general have nominal asset value (unless commercial premises are owned and included in the sale) so are largely valued on their residual income, the value of their office locations and client goodwill. So a combination of “Sector benchmarking” and a “Multiplier of profits” are the most common methods employed by specialist brokers like us when appraising businesses in the estate agency or property services sector.
1. Sector Benchmarking – In simple terms, this means using the comparable sale values of other similar sized businesses sold as a market indicator. This method can be helpful in terms of applying an accepted sector multiplier to establish the value of a rental and management portfolio for example, although can never be relied on as being definitive – as timing, competition and the location of the business sold can all be contributory in “bucking” the industry trend.
2. A Multiplier of Net Profits – This is one of the most commonly used formulae for appraising the worth of an established business. Usually, it is the last three trading years’ net profits that are then subject to a common multiplier for the industry or sector. This method is much more straightforward for established businesses with consistent profits – but when profits are inconsistent – an average of the last 3-5 years profits is more commonly used.
Lastly, you should also understand that not all buyers take the same view when assessing the value of your business – as larger independent or corporate buyers are more likely to have the ability to achieve instant economies of scale should they acquire your business, and are more likely to pay a higher price as a result. Whereas a company similar in size to the business being sold, may take an understandably harder line during price negotiations – as they are unable to achieve the same instant cost savings as the larger firms.
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