There is a demand for successful property businesses but you don’t have to do go it alone if you want to find a buyer. Because there are specialist consultants to help you achieve your dreams of retirement – or maybe just a change of scenery.

I spoke to several consultants about preparing to sell and to some of the UK’s fastest growing agency businesses to hear about what they look for in an acquisition.

Forward planning

Agents often tell clients that getting the best price for a house takes time. To maximise its value, they may need to redecorate, de-clutter, change the layout or even build an extension. Exactly the same is true when selling a business and the actions that you take during the one to five years prior to a sale can transform the value of your company.

So where do you start?

Get some good advice. Mike Bunning specialises in lettings business transfers. He founded The Haversley Group in 2007 when he returned to the UK after a 30-year career in estate agency in California. Mike says that an honest valuation is “a great way to expand your horizons – it is never to soon to start making plans for your future.”

Adam Walker, of Adam J Walker & Associates, who has specialised in the property sector for 25 years, agrees, “A business review by an external consultant can be an excellent way to identify strategies to achieve your goals and the report can also be included with the business marketing pack so that potential buyers can see how the profits can be improved further.

A business review by an external consultant can be an excellent way to identify strategies to achieve your goals. Adam Walker, Adam J Walker & Associates

“The first step should be to improve your profits. Start by taking a good hard look at every item of expenditure. There will nearly always be something that you can cut or reduce and every pound of extra profit will add several pounds to your sale price.

In addition to reducing costs, try to defer major items of expenditure. You would not expect to get a higher price for a car because you have just replaced the exhaust pipe and similarly you are unlikely to recover the cost of a new website or an office re-fit.”

“A wise man fixes the roof before the rain comes,” says Andrew Montgomery at Montgomery consultants, compliance specialists who focus on letting agents. “It is the best advice I can give anyone thinking of selling their company, either now or later.

The preparation work that you carry out, weeks, months or years in advance, can pay you dividends. Not only will you have a less painful process, but you can actually bank the advantage.”

John Hards, Managing Director, Countrywide Residential Lettings, says, “We have various key requirements which outline whether a seller’s business will benefit from the Countrywide Group.

“These include a seller being prepared with good accounts information, including up-to-date income records and trends, they also must have adequate Professional Indemnity Insurance going forward for their own peace of mind.”

Team ready? Kit ready?

You also need to consider ways to make your business attractive to buyers. The Haversley Group says that they have, “Over 2500 qualified buyers looking for attractive acquisitions.”

“With lettings, there is a great deal more that can be done to make your business more attractive to potential buyers, “ says Adam Walker. “One of the most important things is to convert as much of your income as possible into recurring income. This means converting let-only clients into management or rent collection clients. Your purchaser is buying a future income and the future income from a managed property is much more certain. This is why the buyer will pay more for it.

“Most buyers will also be very interested in the calibre of your staff. They will be impressed if the business has a capable and longstanding team and they may be put off by poor performing staff or people that are facing disciplinary proceedings. You will do well to look after your best workforce and terminate the contracts of any troublesome staff even if it costs money to do this.”

Equally important, says Peter Fuller, Lettings Managing Director at Romans, is retaining the good staff, “A business is built by people, so it’s important that the transition is seamless not only for the customers, but also the staff that have made a key contribution to the business, in many cases over a number of years.”

John Hards agrees, ”This is an emotional decision for the owner and the staff involved. Sellers always worry about their staff, but they must appreciate that we are equally keen to keep their staff as they are already valued and experienced team members.

DOES everything work?

“As specialists in due diligence audits and systems risk management in this industry, we are constantly surprised at how many companies, believing that they are legally compliant and with robust systems, discover that they are actually financially vulnerable,” says Andrew Montgomery.

“From all major documents and tenant and purchaser data, to property files and client accounts, including an accurate audit trail, there are things that you should take into consideration. The important part is that you have systems for everything and that you monitor regularly. However, most internal audits tend to suffer from selective blindness. At Board level, when appointing internal audit teams it is preferable to choose the most experienced staff, giving them a few tasks at a time with a pre-designated sample pattern, reporting weekly and keeping all audit data.

“Professionally, I would always advise an external audit. Look at it like a health check. Self-diagnosis is never objective enough.”

Paul Weller, CEO, Leaders, says that they only consider good quality businesses for acquisition, which meet the following criteria:

• The business must have been established for a significant period of time and have built long-term goodwill with its client base.
• A significant proportion of the client base must be fully managed – the business must not be overly dependent on income that is not maintainable, such as from a single dominant client.
• Client accounts must be properly reconciled and deposits properly protected.
• All documents relating to all tenancies must be in place and easily accessible. Tenancy Agreements and Terms of Business must be well drawn, contain no unfair terms and conditions and have been signed by all appropriate parties.
• All documentation must be readily available to respond to due diligence enquiries in a timely manner.Adam Walker adds, “A set of audited accounts for a period that ended 12 months ago is simply not sufficient. One of my greatest frustrations as a broker is trying to sell a business for an owner who cannot provide me with the latest management information. You will need your accountant to do this but the cost will be recouped many times over in the sale price.

Marc Daniels at Addisons, says, “It’s absolutely vital to have documented income streams, with a breakdown of fees, staff lists, ongoing liabilities and pipeline business.”

THE OFFICE

Your buyer may not want to take over the lease on your premises. Even if they do want the premises, many buyers will not take on a lease of longer than five years without a break clause. It may be a mistake therefore to sign up to a new lease immediately prior to a sale. If you own the freehold, you will need to create a new lease for the buyer but this can be done after a sale is agreed.

sealing the deal

“Prospective buyers will need to know whether you are prepared to stay on with the business after the sale and, if so, for how long,” says Adam. “You will need to decide this in advance as it will influence which buyers the business is offered to. Some will not look at a business unless the owner agrees to stay on for at least three years. Some will want you to leave immediately. Even if you do decide to stay on, you need to bear in mind that some good buyers are not necessarily good employers.

Sellers always worry about their staff, but we are equally keen to keep their staff as they are already valued and experienced team members. John Hards, Managing Director, Countrywide Residential Lettings

“Some purchasers will pay 90 per cent of the agreed price on completion. Other buyers, particularly if they are buying a sales business, will only pay half the money up front with the balance paid one to three years later, depending upon the performance of the business over this period. You might get a far higher price by agreeing to a ‘earn out’, but there is of course a risk that you will not receive some or all of the second payment. Again, you will need to take a decision on this before the business is offered for sale, as it will impact upon which buyers are approached.”

David Brown, Commercial Director, LSL Property Services says there are several ways to exit your business. “Due to the diversity of businesses, their ownership structures and varying income streams, there is no ‘one size fits all’ approach. Some partnerships or limited companies have one or two Partners/Directors that look to exit on day one but have remaining owners who want to continue to run the business.

“In this instance we can offer support and investment for typically three to five years to assist them. When the owners choose to leave the business we’ll make a second payment which directly relates to the success achieved in the intervening period – so business owners have a real incentive to stay on and drive future growth.”

Peter Fuller at Romans adds, “We have a diverse approach to integrating businesses into the Romans Group and successful in merging portfolios into existing offices or using the purchase to enter new markets and locations; four of our branches were established through acquisitions.”

Collecting the prize

“Getting your timing right is crucial but much now depends on the new UK Government and the world economic climate,” says Marc Daniels.

“Overseas investors are pushing up property prices, creating higher fees and rents leading to higher revenues for agents.

“But this is turn means more agents chasing income and reducing fees – so eventually income and their profits fall and they have a less valuable company to sell.

“At the moment the demand for agencies is buoyant but even after selling agencies for 30 years it is impossible to predict how the market will perform with so many factors contributing to the business values.”

The last word goes to Adam Walker, “2007 was great for selling an estate agency business but then in 2008 businesses were selling for almost nothing.

“The timing of your sale will be a crucial factor in achieving the best price. History tells us that it is usually better to sell a little too early than a little too late and I can testify to the truth of this from my own experience.

“Almost every week I speak to someone who needs to sell their business urgently because they have had a heart attack, have fallen out with their business partner or have got into financial difficulties. It’s very difficult to achieve the best price under fire sale conditions but these business owners do not have a choice. You, however, do, and by acting now to prepare your business for sale, you can make a huge difference to the price that you achieve.”

Contacts:

• www.adamjwalker.co.uk
• www.addisons.co.uk
• www.countrywide.co.uk
• www.lslps.co.uk
• www.leaders.co.uk
• www.montgomeryconsultants.uk
• www.romans.co.uk
• www.thehaversleygroup.com