One of the factors brokers consider when deciding to accept a listing is how much work a seller is willing to put in before going to market. Creating a well-organized, easy-to-understand package adds value for buyers and helps the deal move faster and more smoothly.
Here’s what I tell both sellers and buyers:
Take the time (or get help) to put your books in order and organize your financials. Your broker will give you a list of documents you’ll need to have ready for lenders and buyers: tax returns, P&Ls, and specific data about your properties, such as turnover and vacancy rates. They’ll also advise you to remove any personal expenses from the business ledgers so a buyer can get a true picture of cash flow and profitability.
The objective is to create a package of documents that clearly demonstrates your performance as an owner and your financial position, along with trends over the past three years or so. Has your revenue been flat, or shown a significant increase or decrease over that time? Has the vacancy rate improved or declined? We work with lenders to ensure they agree with the company’s valuation before we list it. They need to confirm that your cash flow will service the buyer’s debt and still be profitable. The less work a lender has to do to decipher your data, the quicker they will pre-approve your company for SBA or traditional financing.
On the buyer’s side, we also request detailed information on their performance as a property management firm and their financial position. We vet them to ensure they’re serious about an acquisition and ask for proof of funds to confirm they can make a competitive offer. Their willingness to work with us to get their data organized and their responsiveness affect how we rate them as buyers. A top-tier buyer will be ready, willing, and able to fill in any gaps and provide the information we need.
Do your research. On the seller’s side, that means going back through your records to familiarize yourself with details about specific upgrades, tenant or owner issues, or trends in expenses or revenues. Get prepared to explain issues when the buyer asks (and they will) without becoming defensive or making statements you might have to amend later. Buyers will buy a company with issues, but they will walk away from a seller they feel hasn’t been transparent or honest with them.
For a seller, doing research means being able to articulate clearly what you’re hoping to gain from the acquisition. It might require getting up to speed on the specifics of the market, the types of properties, and the tenant profiles of the companies you’re considering offering to. It’s challenging to transition to a new industry, so if your business ownership experience is in another industry, make sure you’re familiar with the terms, metrics, and challenges of property management. You’ll need them to ask the important questions and determine if this is a good fit for you.
Brokers earn their commissions by helping sellers and buyers put their best foot forward. We know that most owners don’t have the expertise, experience, or time to screen buyers and evaluate offers. “For Sale By Owner” almost always signals someone who will not get top dollar for their company, if they get any serious offers at all.
We also know that time kills all deals. One of the most important reasons to complete the pre-qualification process is that it makes diligence, negotiations, and closing much easier, quicker, and less stressful for both parties. Prequalification can cut weeks, even months, off the time it takes to close a deal, meaning the owner can meet their goals for exiting the business and the buyer can make a top-dollar offer because they have all the information they need to decide to buy.