New York Times best-selling author and award-winning innovation expert Jeremy Gutsche has predicted that by the end of the decade, only 40 percent of the Fortune 500 companies we know today will still exist in a meaningful way. The rest will essentially disappear.
If this trend holds true in the real estate industry, of the 80,000-plus U.S. brokerages currently in business today, only some 32,000 will exist in just a few short years. That’s a lot of brokerages that’ll go out of business or be acquired by other companies.
The industry headlines already support this trend. In recent months, we’ve seen many noteworthy brokerages sell. Four of the largest brokers in the country—Pacific Union, Allen Tate, Long & Foster and Ebby Halliday—were acquired last year. This year, the trend has continued with the recent announcement from Alain Pinel REALTORS®.
The vast majority of brokerages in the country are small to midsize businesses, not the mega brokers mentioned above. If you own one of these businesses, your exit may not be as headline-grabbing, but it’s still a major life event for you and your agents—and one you want to maximize.
If you’re thinking of selling your brokerage, here are three things you should consider immediately to position yourself for the market. Just like homeowners need to stage their homes to maximize value, you need to stage your business.
- Do Not Sign a Long-Term Lease
You want to keep your office space commitments as flexible as possible. Keep the terms short and, when negotiating, try to coincide the lease expiry with your optimal sale date. The potential purchaser will then have the option of keeping your space or merging your office with another location they may already have. This flexibility will give you, as a seller, a stronger negotiating position.
- Keep Vendor Commitments to a Minimum
The fewer long-term vendor commitments you have, the better. Acquisition negotiations can get very bogged down when the seller has multiple vendor contracts that need to be untangled. Ultimately, this usually costs you as the seller. That discount for signing a three-year term may not be worth it if you want to sell in the next one to two years.
- Declutter Your Profit and Loss Statement
When you’re a small business owner, you want to minimize profit to minimize taxes. In this case, it’s common to be generous with the expenses that run through the business. When you’re a seller selling a business that’s often valued based on the bottom line, this strategy can backfire. If you’re looking for a valuation that’s a multiple of your earnings before interest and taxes (EBITA), you want to make the calculation of this number as simple as possible. Long discussions over adding back expenses and exercises of normalizing profit and loss statements only complicate negotiations.
By working on these three areas of your business now, you’ll be making yourself a more attractive seller. Whether your timeline is immediate or in the near future, a little business house cleaning will optimize your curb appeal for potential buyers.
The landscape of the residential real estate brokerage is changing at a faster pace than ever before. Now is the time to make a move to strengthen yourself for the future. If I can help, please let me know.
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.