As a real estate business owner, one of the things you might have considered as you get towards the end of your career is how to sell your real estate business. It could be time to move on, retire, or explore new endeavors. Wherever the case may be, you have many options when it comes to selling your real estate business.
Selling a business is a lot different than selling a property. If you want to maximize your profits, there are a few models to consider and a few precautions you should take.
Cash Up Front
In this model, you will exit the business at the time of the sale while reaping the benefits of getting a handful of cash when you leave. However, it really reduces your list of potential buyers, as most won’t be able to offer cash. This will probably eat into your profits because negotiations become tougher. You might also face higher taxes from a cash sale because you get everything in a lump sum that will affect your capital in a single tax year.
Fixed Price with Installments
If you are worried about tax, and not in dire straits requiring cash now, this model allows you to exit or phase-out of the business while having access to some funds in smaller amounts over a set period. This is especially attractive, as it will offer tax advantages because you receive your profits over a few years. The biggest downside to this option is the collection of funds is dependent on you finding a real estate professional who knows how to run the business. If you don’t, they could ruin your business and you will never see your payments. Because you can phase yourself out, you can negotiate terms that keep you involved for as long as your installments are due, allowing you to keep an eye on things until your money is collected in full.
In most cases, there are usually some serious tax advantages to taking an installment sale with the payments spread out over time. On the other hand, if the new owner runs your former business into the ground, those future payments may never happen.
You can also consider a referral-based installment that also provides referral income from past clients you choose to refer to the new owner.
This is a popular choice if you are retiring and want to pass on the gauntlet so to speak. If your kids are in the real estate business and want to take over the reins, and more importantly have the skills to be successful real estate business owners, this is an option to consider. You can choose to out and out transfer the business, sell it, remain partially involved, or come up with terms you both agree to.
Sell to a Franchise
Selling to a Franchise can be a great option if you’re looking for someone to assist you in the sale of your business. A good idea is to approach your franchisor and ask them to assist, as they could very well have a list of people looking to buy an established franchise which can make the process easier for you. If you don’t own a franchise but want to leverage your success to entice a franchisor to consider your business, you can look at opportunities for mergers and other offers that might be very lucrative for you.
Finding the Right Buyer
When you decide to sell, you want to find the right buyer. Start with your contacts in the industry quietly to start some conversations with real estate agents and brokers considering real estate ownership as a career or growth option. Basically, you also want to ensure it is a good fit and you won’t lose out by selling to a high-risk buyer.
Some things to look for include:
- A strong work ethic that will maintain the integrity and success of the business
- The experience to expand your business
- Someone who shares the same culture as you to suit your clients and your agents
- An excellent credit score to avoid issues with installments or potential for bankruptcy
These are just a few things to consider when finding a buyer.
It’s always smart to get the advice of an attorney on all matters related to the sale of your business.
If you’re interested in learning more about your options, we would love to set up a call with you. Our Franchise Sales team are experts when it comes to real estate business planning. Contact us today.