By Julie Adamen

During the past several months I have had the pleasure of addressing groups of management company CEOs about various subjects. Once we start rolling almost always the subject of an exit strategy comes up, and the reasons are obvious - at 46 I’m usually the youngest person – sometimes by far – in the room.  And I’m struck by the fact that so many of our CEOs seem not to have a plan for exit. So let’s take a look at some basic tenets of exit planning (for the sake of this article, we’ll assume the exit strategy to be selling your firm to a third party, as that is the most common exit in our industry at this point).

Step 1:  Start with an Exit Timeline

Depending upon several factors, including but not limited your (the owner’s) age, how long you want to work or are going to be able to work, and the current and potential profitability of your company, you need to put together an exit plan with a target date – 1 year, 5 years, 10 years – whatever works for your situation. The setting of this timeline will give you the basic framework on which to prepare and build your exit strategy.

Step 2: Prepare for sale by understanding a fundamental of business

PROFIT, not GROSS REVENUE, is what will drive the selling price of your management company.

This simple business fact seems to come as a shock to many company owners with whom I speak, they seem to think that the number of contracts and “good will” – whatever that is – in the community take the place of a healthy profit margin. Nope. I often have the sad task of informing owners that they would have been better off financially being a large scale manager these past 20 years than an owner of a marginally profitable management firm. Smaller buyers looking to run your company will only look on your firm as buying themselves a job – not a business.

Step 3: Perform a business review of your company

It’s painful, but if you want not to be caught with your proverbial pants down when and if you decide to sell, you need to make a full financial and operational review of your company. Drill it down to each account, and if you aren’t making money, get rid of the account or raise its fee. Is some internal process not working? Then it’s probably costing you money in your time and lost productivity. Jettison it or find something in its place that will work.

Once the initial pain of the first review is over, you’ll find you can actually fix areas within your firm that have needed fixing for a long time. But you can’t do it once and stop there, especially if you have a long term (5-10 year) exit plan.  I know of one company owner who went through this exercise, ended up getting rid of about 1/3 of the company’s accounts and turned a higher profit.  Make a cursory review at least twice per year, and an in depth review yearly.

Step 3A: Clean up the books

Theoretically, it is possible that some business owners (I’m told) may be running personal expenses through their businesses. These theoretical owners should be able to discern what not a business expense is and be able to withdraw those expenses from the business quickly and easily. You will be showing a strong set of books to a buyer.

Step 4: Continue the upward trend of profitability by making good business decisions

Bid accounts high enough to make a profit, and give periodic review for increases in rates to your standing clients, like every other business in the world does to cover rising business costs. Become more business efficient. See if there are ways to save money or make money through the use of third party contracts, technology or ancillary services. Make sure you are keeping up with your competitors in terms of employee remuneration.  Lastly, review the current management contract your firm is using. You may wish to change (add) some very specific things for new clients – like early cancellation fees, better hourly rates for specific tasks or employees, automatic periodic increases – maybe even offer a menu-style contract.

Step 6: Stop Managing Accounts

If you, as the owner, are managing accounts, start extricating yourself from doing so. If you want to sell, and especially of you want a short term exit, you need to be less “important” to specific clients. This new freedom will provide you the time to get more accounts, and do steps 1 through 5. You will then be a business owner instead of a property manager with associates.

So, what’s my business worth?

Depend, depends, depends. But for the most part that old adage of “4-5 months gross contracts” is dead for good companies. Seems our industry has been discovered as the cash cow it is and the potential it has in terms of a captive client base for additional goods and services. There is no strict formula, but   let’s talk about some factors that go in to determining the worth of your firm.

Growth?  This is a plus for your company if you can show a good growth pattern over the last 5 years.

Ancillary Services. If you company provides landscaping, maintenance, financial; services, or collections services your value may be higher.

Structure. Have 30 accounts, 28 of them 50 units or less and 2 of them 1000 units plus? That can actually drive the price of your business down – too much riding on just a couple of accounts, especially for smaller buyers.

Turnover. Savvy buyers know that staff retention means dollars in their pockets. A lot of turnover means instability and costs money. You may not have a line item in your financials for it, but you should.

Location. If you are in a “hot” market, the worth of your firm will reflect that fact. Florida, Texas, California, Arizona, Nevada, Virginia… Just to name a few. And there is location with in location. If your office and accounts are in an area of numerous upscale communities that is plus plus.

Our management firm owners are aging (no, really!) and although some have embraced preparing for retirement by implementing a short or long term exit plan, the vast majority of owners are either in the dark, in denial, or think they are too busy to think about an exit. Each one of these “non exit strategies” leaves company owners vulnerable to spending their golden years managing a portfolio of 25 year old condominiums or pushing a shopping cart. Let’s get real, face what we must face, and strive to make our management firms thriving financial assets of value to potential buyers. You will have pride and financial reward from selling a profitable company.