Why independent business valuations are essential in a rent roll transition

Before you can sell a real estate business or its rent roll, you need to know how much it’s worth. Find out why an independent valuation makes sense.

Thinking of selling your rent roll? There are a lot of steps involved in preparing for sale, finding the right buyer, negotiating terms and organising the handover.

For many real estate businesses, a rent roll sale can be an excellent exit strategy. However, to ensure you achieve the sale price and terms you are hoping for, there needs to be careful planning and preparation involved.

First, you need to have an idea of the timeline and outcomes you are hoping for. With a vision of exactly what you want to achieve, it will be easier to take the steps to get there.

One of your other early steps is to have a valuation. If possible, this should be done independently.

Why have a business valuation before selling your rent roll

Having a full business valuation can let you know exactly where your business stands financially and what it is worth.

Should you be looking to sell your rent roll but still keep your agency, having your business valued will show you a clearer picture of what you’ll have left once it is sold. You’ll also have an idea of how you will be placed to borrow to fund your next business steps, should this be on your agenda.

Working with a valuer to put a price on your business and your rent roll will also help you make clearer plans for the future, based on realistic expectations.

Why have an independent valuation

Having your business valued from within can cause problems. If you use someone who is already involved with your business, they are likely to carry bias.

Even your accountant, while not employed by you on a full-time basis, will give a different valuation from someone who is completely independent. This is because the method (EBITA) that accountants adopt can be different to a business valuation with a specialty industry like real estate or rent rolls. What’s more, accountants don’t have access to data relating to other comparable rent roll sales so they will find it difficult to benchmark what your business is really worth.

As a business owner, you may believe you have a clear idea of how much your business is worth based on your total assets minus your total liabilities. However, there is a lot more to it.

When you work with an independent valuer, they will look at projected growth, comparable market sales and future potential, as well as the longer term value of your client base. Then there are less tangible elements such as goodwill and business reputation.

Instead of having an idea from your own mind or from your accountant how much your business is worth, the services of an independent valuer will provide a figure based on the current market. With a realistic figure in mind, you will find it easier to sell.

Finally, an independent valuer will tell it to you straight, including the good, the bad and the ugly. They will go through your finances and business operations with a fine-toothed comb, uncovering elements which may impact the value. This gives you the opportunity to rectify them before you go ahead with a sale.

What to look for in an independent business valuer

Like property valuation, business valuation gives you an idea of your business’s value. And like property valuation, having a valuation won’t always be spot on. However, if you use the services of a professional, it should give you an idea of a maximum and minimum to expect.

When choosing a business valuer, try to find someone who specialises in your industry. They will be able to give a more accurate price based on their insider knowledge. If possible, they should have provided similar services to your peers over the past six to twelve months so their knowledge and contacts are current.

If you wish to sell your rent roll or agency as an ongoing concern, you should also work with a valuer who has experience in this area.

Check your valuer’s qualifications and if they are members of a professional valuation body. Ask them what they will take into account; it should be more than black and white numbers.

Finally, your independent real estate agency valuer should be someone you feel comfortable working with. If you don’t enjoy interacting with them, you will be less trustful of the figure they put forward to you.

With an idea of what your business and rent roll are worth, you’ll be able to take the next steps for a successful sale and a smoother transition to the next period of your life.

BDH Solutions have been buying and selling rent rolls for over 30 years. Keep up with our latest listings here.