With the economy finally recovering, now is a great time to sit down and figure out what your property management business is worth. Whether you plan on selling or not, it’s always good to have a clear, accurate and up-to-date picture of your company’s value. If you’ve never done a business valuation, this task can seem overwhelming. Here’s a step-by-step guide that should make the process a lot less cumbersome.
Add up your assets.
If you’re not familiar, the term asset applies to anything and everything that your company owns. In addition to the properties you own, this will also include things like your buildings and equipment.
Assess profitability.
Are you currently turning a profit? If so, what is your profit margin? Obviously, the higher this number, the better. Note: the average is 20%. If your PM is below this, you may need to investigate why and make some operational changes.
Determine your debt-to-income ratio.
Your debt-to-income ratio compares the amount of money coming in with the amount of money your business owes. A decent debt-to-income ratio is around 4%. If you are 6% or higher, you are carrying too much debt. This is important, because it can make it difficult to find a lender should you need to in the near future.
Calculate your overhead.
What kinds of expenses is your property management business incurring on a monthly or annual basis? This would include things like office space and equipment rental, staffing costs, software licensing fees, etc. If you discover this is a little on the high side, it could be a good opportunity to look for areas to save.
Evaluate your growth potential.
What does the future of your company potentially look like? Are there additional properties you’d like to add to your portfolio, or different niches you’d like to expand into? Could you add more services to your current offering or possibly raise your rates to increase cash flow and fund growth?
Conduct an industry comparison.
How does your property management business stack up against your competition? What are the benchmarks for your particular rental market, particularly in comparison to other companies your size? Use reputable sources of data to measure where your company stands and identify additional areas of opportunity.
Having a good idea of the value of your property management business will not only help in terms of securing funding, but it’ll also put you in a much stronger position if and when the time comes to sell. The steps above should provide you with a solid foundation to work with.
