Put Our Valuation Expertise To Work
Get A No-Nonsense, Real-World Look At Your Company Value
How Much Is My Business Worth?
You’ve worked long and hard to build a successful company. You’ve spent a lot. You’ve risked a ton. Now it’s time to get rewarded. But what does that process look like? And what are the numbers?
The Art of Valuing A Management Company
Assigning value to a property management company is part art, science, experience and guesswork. There are accepted practices for determining value but no uniform processes for getting there. Subjectivity will always play a role. It’s quite common for two seasoned valuation professionals to reach dramatically different conclusions. The starting point in determining value is net cash flow, or adjusted earnings. We get very granular in preparing your profit and loss statements, balance sheets and cash flow statements for accurate presentation to the marketplace. One of the most important services we provide our seller clients is making sure that buyers, lenders and valuators are convinced the numbers are accurate and verifiable. High confidence leads to better offers and bigger exits.
Our Two Valuation Services
Our Summary Valuation is free of charge and completed internally by our staff. Founder Brian Loring, a Certified Business Broker and Certified Value Builder, signs off on all Summary Valuations. We provide the business owner with an opinion of current value based on submitted financial statements, competition analysis, ease of entry, industry trends, and levels of risk. We also review your responses relating to the 8 key value drivers, which have a substantial impact on the numbers.
The most common standard used in determining
your company’s annual cash flow is Seller’s Discretionary Earnings (SDE). It is the net income of a business when adjusted for the owner’s salary, non-recurring expenses, business perks and other non-cash deductions like depreciation, amortization and interest on business loans. We recently sold a management company with roughly $1.5 Million in revenues and $300K in net income. The profit and loss statement included the owner’s $65,000 salary, business interest of $15,000, and personal auto, travel and life insurance expenses totaling $18,000. With those
costs added back, the company’s SDE was $398,000.
Larger businesses and companies with a management structure (not an owner/operator) typically use EBITDA as the standard. Only interest, taxes, depreciation and amortization expenses are added back to reach the adjusted net income number. Though EBITDA is not an accounting principle, it is the cleanest way to make an apples-to-apples comparison of multiple businesses.
ManageVisors partners with an exceptional national firm, accredited by the American Society of Appraisers, in providing Certified Valuations for a fixed fee. This service takes a more comprehensive approach at understanding all revenue streams and expense items. It will require a minimum of 3 years financial statements and tax returns, detailed industry and competition information, analysis of all properties under management, and many other factors which will lead them to conclude a Fair Market Value for your business.
This service employs all three valuation methodologies – the income, market and asset approach. Property management firms typically have little in the way of tangible assets, other than office equipment and vehicles, so valuations will use the income and market approaches.
Certified Valuations have many important uses. Entrepreneurs often use them as a benchmark for growth. Knowing how much the business is worth today gives them a clearer understanding of how to scale the company to meet their exit needs. It can also provide valuation information for partnership buyouts, legal actions, divorce and family matters and succession planning.
Unique Aspects of Property Management Valuations
Property management companies carry their own unique subset of valuation factors. It’s a little like throwing hundreds of jigsaw puzzle pieces on the table and saying “good luck.” Sorting them out and making sense of the whole picture takes considerable effort. Our industry offers a bunch of ways to drill down and determine company value.
A few quick examples. A property manager who shows consistent growth in the number of properties under management, year-over-year, gets a greater value than one with a stagnant property roster.
Monthly management fees are greater in value than others like leasing, maintenance, inspection, make-ready or setup fees. Why? One of the benchmarks often used by buyers of property management companies is the purchase price as a multiple of management fees. It’s common for buyers to pay a 1.25x multiple or 1.5x multiple of annual management fees, excluding other fees.
Part of the reason is that contract revenues are the highest and most reliable revenue stream. Take two companies grossing $1 Million. The one which books $800K in management fees and $200K in other fees will command a higher price than the one with $500K in management fees and $500K elsewhere. Contract revenue wins out.
How good are you at collecting rents? Are all your tenants making ACH payments? Paypal? Google Pay? Apple Pay? If most of your folks are still sending snail mail checks, that hurts value.
Are you doing 3-way monthly reconciliations? How strong is your accounting? Are you making sure there are no negative balances in owner reserve accounts?
How strong are your management agreements? Do they have strong termination clauses? Do they have clearly-worded assignment provisions so they can be transferred to a new owner?
There are literally dozens of factors that weigh into the valuation. Keep in mind, property management buyers are bright people. There are no “turnip truck” buyers out there. They will see where the value resides in your company, in your market, and in your people.