1 Creating and Selling a Saleable Real Estate Business By Bernice Ross, CEO www.realestatecoach.com, www.luxuryclues.com, In our two sessions you will learn: How prepared you are currently to sell your business. Ten steps you must take to successfully transfer your book of business. Strategies to help you earn money even after you have sold your business. What s Your E-Plan (i.e., How will you exit the business in style?) Personal Readiness 1. If you were to go on a three month around-the-world cruise, would your office continue to make money without you at the helm? 2. Are you psychologically prepared to leave the business? 3. Do you have enough money in investments to meet ALL of your nonbusiness financial obligations? 4. Do you have sufficient funds or resources to cover a catastrophic illness? Agents and Staff 5. Are you regularly upgrading your office by de-hiring non-productive agents and recruiting either new agents or more productive experienced agents? 6. Does your office have minimum production standards? 7. Does your office have low turnover? 8. Is your office one of the top three listing offices in your market area? 9. Do you have at least one agent who is fluent in each of the languages spoken in your service area? Traditional and Web Marketing Systems 10. Do you have a call coordinator or an 800 call capture system to document, track, and convert all telephone leads generated by your print and web advertising?
2 11. Do you use a call center, LeadQual, or some other system to qualify (scrub) web leads and place them in contact with a live agent within 15 minutes or less? 12. Does your company provide your agents with access to a contact management system or some other automated means to stay in regular contact with web leads? 13. Does your real estate branding reference the geographical area and/or the types of clients that you serve? 14. Do you own multiple URLs (web addresses) for each of the geographical niches that you and your agents serve? 15. Does your website provide access to all Multiple Listing Services in the areas where you do business including access to comparable sales information? 16. Do each of your listings have multiple pictures plus a virtual tour on your agents personal website, your company website, your company s national website, as well as other national sites such as Realtor.com? 17. Are you currently using a pay-per-click strategy to generate on-line leads for your company? 18. Are you spending a minimum of 50 percent of your advertising dollars on web marketing? 19. Do you have at least two agents who are blogging in your office? 20. Do you have plans to launch your own blog in 2007? Scoring Financial 21. Would your financial records stand up to an IRS audit? 22. Has your business made a substantial profit for the last five years, AFTER expenses? 19 to 22 Congratulations! You could sell your business today for a handsome profit if you wanted to! 14 to 18 You re well on the road, but a few adjustments can make your business worth considerably more than it is currently. 13 or less You have a fair amount of work to do to obtain the maximum amount for your sale.
3 I. Selling your business will require: A. A verifiable book of business Preparing for Your Sale B. A business plan for maintaining and expanding your market share C. A recruiting and retention plan to continue to grow company income D. An inventory of all tangible assets to be included in the sale E. Appropriate branding F. Systems and procedures G. Stable profits PLUS predictable cash flow H. Accurate transaction tracking so you can verify the value of your book of business. I. Time to phase in Key point: Even if you have a large, sustainable business, most purchasers are looking for an opportunity to grow the business beyond its current size. II. What Do You Have to Sell? A. Your brand, which includes good will. B. Contact information for clients who have done business with you and your agents in the past. C. Tangible assets including your building or long-term office lease, office furniture, and equipment including copiers, fax, computers, phone system, etc. These will require a separate bill of sale different from your business sale. D. Current listings and renewable leases. E. Your website(s) and their history (i.e. longevity) on the web F. Documented systems and procedures including accounting, marketing plans, hiring and de-hiring procedures, independent contractor agreements, etc. G. History of profits and sustainable cash flow
4 III. Ten Steps to Creating a Business You Can Sell Step #1: Quit Your Job and Build Your Business If your income would stop if you stopped working, you have a job, not a business. A business can run without you if it has the right: A. People B. Systems C. Procedures D. Three key roles: entrepreneur or rainmaker, manager, and technician. (Highly recommended reading: Michael Gerber s The E-Myth Revisited) E. Cross train for each role. F. Create a detailed job description for each important role in your company. Step #2: How to identify the best qualified purchaser and the best support staff. A. Rainmaker or purchaser of your business should have a high D and I score on the DISC. B. Should also score high on the Utilitarian factor on the PIAV. C. Support staff should score high on the S and C factors. The best choice is someone who has the I S and C factors above the 50 th Percentile. Step #3: Brand Your Business with a Saleable Brand: A. Three Features: 1. It is memorable 2. It immediately brings the product being sold to mind. 3. It identifies a specific target market. B. Challenges with Using Your Name to Brand Your Business 1. No reference to the real estate industry 2. No reference to where you conduct business 3. If with a national company, your company s brand is normally better known 4. Brand is not as valuable C. What Constitutes a Strong Real Estate Brand? Remember that functions rather than names are easiest to remember. A great brand includes three features: 1. What you do 2. Who you do it with 3. Where you do it
5 Step #4 Get Rich in a Niche A. Owning a niche is one of the best ways to have a marketable practice. B. Recruit agents to fill in the gaps geographically, by profession, by type of property (resort, condo, new construction) and by fluency in other languages. C. Recruit in different age groups because of stylistic differences in communication. D. Hot Niches include boomers, immigrants & minorities, investors, and foreclosures. Step #5: Document Your Existing Book of Business A. Your business has value based only upon what you can legitimately document B. What to Document 1. Your current listing inventory, properties under contract, and closed transactions for the last 5 years. Include contact information for each of the principals as well as the agents involved. 2. Contact information and production history for each of your agents for at least 5 years or from their hire date. 3. Number and quality of leads generated from each of your marketing sources including both traditional and web marketing. 4. Your marketing plan to assist agents in building their businesses. 5. Your recruiting plan to grow your office or to continually upgrade your agents and staff. 6. Websites you own and the traffic they generate
6 Part 2: Preparing for and Closing Your Sale Step #6: Ten Ways to Increase Your Book of Business A. Increase your recruiting efforts, especially of the highly profitable middle range agents. Excellent targets for new agents include IT professionals, teachers, and those with experience in others types of sales. 1. Experienced agent success profile: D and I factors above the 50 th percentile or ISC above the 50 th percentile. (ISC s will succeed more slowly, but will be very consistent.) 2. New Agent high probability hires score above the 50 th percentile on the Real Estate Simulator as well as at the 70 th percentile or higher on the DISC. 3. Staff including transaction coordinators, assistants, receptionists, I,S,C if you can find it. For those doing detailed work, C factor must be above the 50 th percentile. 4. Sources: Recruiting nights, real estate schools, businesses where there have been layoffs, teachers on summer vacation, technology professionals who are in companies who have been downsized. 5. Visit Sunday open houses at least twice a month to support your existing staff and to meet potential recruits. 6. If you are a sophisticated investor, consider creating REITs to recruit top salespeople as well as providing a way to assist them in retirement. B. The SEO (Search Engine Optimization) Dance 1. Minimum of 50 percent of your advertising budget should go to on-line marketing strategies. a. Pay-per-click basics b. Dancing past the competition with Google local ads c. Evaluate costs: http://web-professor.net/tools/bidstats d. Hire a search engine specialist to assist you C. Organic placement free is better 1. Multiple landing pages dedicated to specific market niches that you serve. Achieves more targeted results and only costs the time necessary to custom design the landing pages. 2. Encourage agents to follow the same model for the niches they serve. D. Advertising models reduce your marketing costs substantially 1. Vertical search: Trulia and Oodle
7 2. Advertising model means free postings on multiple websites at no charge for you. The more places your company s listings appear, the more valuable your company will be (i.e. the more sales you will generate.) 3. Free advertising on multiple classified sites at www.postlets.com 4. Free estates MLS, www.uniqueglobalestates.com 5. Foreclosure.com free foreclosure data to post to your site and they pay you for leads you generate! E. Realtor.com strategy multiple pictures and a virtual tour F. Seller s address as the URL (AgencyLogic.com or GoDaddy.com) G. Cable television advertising highly targeted 1. Advertise on cable television with customizable template commercials for as little as $2.00-$12.00 per spot. Visit: www.spotrunner.com 2. Where to advertise: new real estate shows, golf channel, anywhere that Home Depot or Lowe s advertises, or that luxury cars or platinum credit cards advertise. H. Convert more website leads with on-line coupons www.baton.com 1. Create coupon books for agents to use for prospecting or as a closing gift from your firm to your clients. I. Build on-line communities 1. Recruiting blog to attract agents 2. Agent blogs for specific niches: see Bloggingsystems.com or Typepad.com. Use your blog to promote other services you and your agents offer. a. Have agents contribute observations, neighborhood tidbits, etc. b. Search engines rank sites with blogs higher because of repeat traffic c. RSS (really simple syndication) 3. Broker and agent communities at www.point2agent.com (free or fee) J. Generate and convert more leads from traditional marketing 1. 800 Call Capture (IVR) systems 2. 5 X 100 mailing program 3. 24-7 on-line open houses (use print advertising to drive website traffic) K. Generate and convert more web leads 1. Web 2.0 is lead conversion, not just lead generation 2. Right now traditional business vs. web incubation business 3. Call center
8 4. Call center alternatives: LeadQual.com, RealPing.com 5. Incubation systems: MyHomeManagementClub.com; Point2Agent.com Step #7: Systems Increase the Value of Your Business A. Use a virtual assistant to personalize responses and be available at odd hours. (New research web business hours are 7:00 PM to 2:00 AM) www.ivaa.org or www.revanetwork.com. B. Create a Procedures Manual that documents what you do, how you market, how transactions are handled, who handles what functions, etc. C. Create a recruiting manual to document how you attract both new and experienced agents. D. Use a transaction coordinator and a transaction tracking platform. E. Consider going paperless with tablet PCs F. Implement a stay-in-touch program for all closed transactions, regardless of whether the listing or buying agent stays with your company. G. Increase agent accountability (and protect your assets) with a post close agent evaluation form. Audio or videos would be even better. Step #8: Document Your Financials: You can only be paid on what you can document. A. Maximize Your Business Assets 1. Determine your net business profit (income less all business expenses) over the last 3 years based upon your 1040 or business tax return. 2. You can legitimately add back in depreciation, lease payments, conference attendance, etc. Ask your tax professional for assistance 3. You must have accurate data on transactions closed, listings taken, conversion rates, cost per sale, etc. Numbers are critical! 4. Don t confuse gross sales with bottom line net profit. a. Profits Are Not Enough. You must also be able to show your business has a positive, consistent cash flow. B. Can You Withstand a Full Audit on Your Books and Records? 1. Your buyer s CPA will audit your books and all supporting documents including checks, receipts, and credit card statements. Step #9: Determine Your Price A. What s Your Business Worth According to BusinessTown.com? 1. 2 to 3 times profit if you have an established business with good market position, strong competition, and heavy dependence on your skills or your purchaser s skills for success.
9 2. 4 times profit if you have strong systems, market dominance, and low dependence on you to be profitable. 3. One times your profit if you are a sole practitioner selling to another sole practitioner. 4. Whatever you can get if you sell to someone who really wants your business or who is uneducated about how businesses are valued. Step #10: Review Sale Requirements and Tax Consequences with Your Tax Attorney or CPA A. Models for Selling Your Business 1. All cash up front you exit the business upon sale 2. Installment sale with a fixed price you may exit or phase out of the business. 3. Installment sale with a referral based model. 4. Family transfer 5. Franchisor buys back franchise 6. You sell to new franchisee with franchisor s approval B. Issues to Consider 1. Entity or Asset Sale? 2. Will the sale be all money upfront or an installment sale? 3. When is the best time to take the income? 4. How will a default be handled? 5. What assets will you keep bill of sale and insurance issues. 6. Will you work during the transition? Independent contractor agreement and life insurance on buyer. 7. Will you have to sign a non-compete? (If a franchise, check for noncompete language in your franchise agreement.) 8. How will you make the transition without having a major exodus by agents and staff? 9. How will you notify past and existing clients of the sale? C. Legal Issues 1. Responsibility for any pending litigation 2. Responsibility for litigation that originated prior to the sale but filed after the sale. 3. Will you retain or sell website URL s that are currently in your name. At this time, no clear cut way to determine value.
10 Step #11: Pitfalls to Avoid A. The right work ethic? B. Run a credit and a background check on your purchaser. Secure purchase against their house or other tangible asset. C. Is the buyer a culture match for your client base? D. Have an attorney draft and review all documents. E. Encourage buyer not to use their personal name in the branding. F. Protect any staff staying on after the sale. This gives your client list consistency and makes for a smooth transition. G. To protect your payout, consider participating in the transition and/or securing your debt against tangible assets such as property. IV. Continue to Use Real Estate as a Passive Income Source A. Maintain your contacts with other brokers, agents, and past clients to keep relocation leads flowing to you. B. Stay active in any lead generation companies to which you belong. C. Carry the financing for your children s real estate purchases. D. Purchase an income property or REIT. E. Become active in AARP and generate referral fees from business you refer. F. You ve spent your career talking about real estate keep doing it and continue to make referrals! V. Begin Your Personal Preparation: Not Just Financially Independent Get Bullet Proof Now A. Pay off mortgage, cars, and credit cards. B. Purchase long-term care insurance to protect your assets if you become seriously ill. C. You can use a reverse mortgage to supplement your income if necessary.
11 Resources from Today s Session 1. To subscribe to our FREE NEWSLETTER, order a copy of Waging War on Real Estate s Discounters or Who s the Best Person to Sell My House, to hire a real estate coach, or to order our Audio CD Scripts Library with over 220 real estate scripts on audio CD, visit www.realestatecoach.com. For an audio CD coaching program, order our Coach Your Real Estate Like Crazy program. 2. To learn more about working with luxury properties and to be in the know with what s in and what s out in the luxury market, visit our blog at www.luxuryclues.com. 3. To read a detailed article on how to use Call Capture in your business or to order a call capture system, visit: http://www.realestatecoach.com/marketing/proquest.html 4. For an automated lead follow up system with current consumer based information, visit http://www.realestatecoach.com/marketing/36touch.html to learn more about My Home Management Club. 5. Resources for virtual assistants: www.revanetwork.com, www.ivaa.org, or www.bestagentbusiness.com. 6. For a system that lets website visitors call your phone automatically from your website and lets you show them virtual tours directed through your cell phone, http://realestatecoach.com/marketing/realping.html 7. To order a branded website using the seller s address as the URL visit http://www.realestatecoach.com/marketing/agencylogic.html or create your own template and register it at www.godaddy.com. 8. FREE multiple listing service for million dollar listings: www.uniqueglobalestates.com 9. To produce a television commercial use www.spotrunner.com or to produce a web movie go to www.turnhere.com or www.inmanstories.com. 10. To participate in the National Listing Service, publish your listings on multiple international websites, plus to create a website that actually converts leads and supplies drip marketing, visit: http://agent.point2.com/selfreg/realestatecoachselfreg.asp 11. Go to www.postlets.com for free Trulia, Oodle, and other classified postings. 12. For condo resales as well as new subdivisions, visit www.uscondex.com 13. For a list of the Eight Listing Questions, or to download two articles on how to convert more FSBOs and expireds into signed business, visit www.realestatecoach.com/handout 14. For expired listing leads including tracking of FSBO and call capture leads, plus mail merge program, visit http://www.realestatecoach.com/marketing/redx.html. 15. To value your business, www.businesstown.com 16. For two free articles on how to use Who s the Best Person to Sell Your House? to convert more FSBOs and expireds into signed business, visit: http://www.realestatecoach.com/download/fsbolistings.pdf http://www.realestatecoach.com/download/expiredlistings.pdf
12 17. Go to http://web-professor.net/tools/bidstats/ for assistance with pay-per-click advertising.