Most people hear “succession planning” and instantly equate it with retirement.
Let me tell you why it’s SO much more than that.
Yes, you want to know the end game for your business. Where you want to end up will guide many of the decisions you make today. Some call this a visioning process. With a clear end in mind, you can design a plan to get there. It may be a 15-year plan or a five-year plan. And a great coach will help you work backwards to develop the one-year plan and even the monthly, weekly, and daily activities to get you there.
What you might not have considered is that a succession plan ties directly to some agents’ GROWTH plan. If you’re wanting to stay in real estate and grow exponentially faster, you might look at acquiring the business of someone who does have their eyes on retirement.
Whether you’re thinking about selling or considering a buyout, the elements of succession planning are relevant.
The top three questions we coaches get asked are:
- What is considered the asset?
- How do I figure out what it’s worth?
- How do we make the transition with the client base and the market?
What IS the Asset?
A real estate business, in terms of its salability, boils down primarily to the core database of past clients and referring sphere of influence. It may also include a geographic farm, depending on the length and quality of the farming effort. What is NOT part of the asset, generally speaking, are leads you’ve been paying directly to obtain – like paid Zillow and REALTOR.com leads, or pay-per-click sources. Your building, equipment, and furnishings are also not part of the asset. And your staff are not part of the asset, in terms of an asset that can be valued and sold.
How do you VALUE it?
There are layers to valuing the asset. Starting with a five- to seven-year annualized average, many additional factors must be taken into consideration that might decrease that annualized value. As referenced in the definition of the asset, reviewing the source of business might uncover portions of the business that need to be removed from the overall value. If 75% of your business comes from repeat and referral business, then you may be looking to reduce that annualized value to 75% of its original number.
The type and length of payout also impacts value. Most buyers put a percentage down and pay out in two to three years. Some may not have the upfront money and so agree to pay out over a longer period of time for a higher total price than the value. And in rare cases, the buyer pays up front and the seller might be willing to take a fraction of the annualized value.
In addition, how WELL that database has been kept in communication with plays a huge role in whether or not the value can be expected to continue.
What is the TRANSITION plan?
There are multiple considerations to how a business transitions. It’s important to consider how the market perceives the transition, as it can impact the viability of the asset (the database) continuing to produce for the new owner. The initial announcement, the direct contact with the past clients being acquired, the ongoing marketing, the appearance of the selling agent in future marketing and at client appreciation events, all need to be taken into consideration.
There are plenty of other fine details that must be considered. Proper legal documents; non-compete clause; what happens if either party doesn’t hold up their end of the agreement; what role the seller will take on, if any, on the acquiring team. And many sellers have no idea what they’re going to do with themselves if they’re not in the day-to-day chaos of the business anymore.
Seek the help of a professional who has been through the process and can help you examine your specific situation: agents in growth mode, that means you too. If done right, you could be helping more than one agent who’s ready to be done realize some value from their years of hard work.
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Helping real estate professionals improve their business and personal lives is my focus. I realize the importance of not only sharpening the saw on real estate business techniques and strategies, but also of finding the ultimate direction for YOUR best life.