Selling your Real Estate Brokerage Part 1: Gather your paperwork

So you want to sell your real estate brokerage?

The first thing to do is gather the appropriate paperwork. 

Photo by Lauren Mancke on Unsplash

Think about all the people you've helped to sell their house during the decades you've been a Real Estate Broker. The transactions that go the most smoothly are those sellers who are prepared. They have a list of all the repairs and upgrades they've ever done to the property, perhaps including photos and copies of permits. They have copies of their mortgage statement, their monthly utility and maintenance bills, and yearly tax payments at the ready. They understand and accept the need for staging and cosmetic repairs in order to sell for the highest price. 

It's the same when selling your Real Estate Brokerage... you want to be a prepared seller. 

That means you need to gather the past three years of the following paperwork, have it scanned as .pdf files and ready to email to a potential buyer:

• Profit and Loss Statements (also called Income Statement). If you are selling partway through a year or fiscal year, you also want to be prepared with a current year's P&L to date, and for each quarter that has passed in the current year. 
• Balance Sheet
• Cash Flow Statement. Many companies, especially small ones, don't have a cash flow statement as a matter of course, so while tempting to blow off, it's actually one of the most important pieces of paper when it comes to calculating company value. Don't skip it! 
• Tax Returns

You'll also want to have the following paperwork prepared to send: 

• Commission schedules for Independent Contractors hanging their license at your firm, detailed information on employee salaries, benefits provided and job descriptions. 
• If you are conducting Property Management - Itemized Rent Roll and copies of current PM agreements.
• List of assets being sold 

Be ready with a Non-Disclosure Agreement. Most buyers will not offer to sign a Non-Disclosure, so if you don't want everyone in your community to know you're selling (and all the financial details of your company!) it's best to have a Non-Disclosure Agreement ready for any and all potential buyers to sign, before you send them your financial paperwork. It's a simple form, and you can find templates online at websites like Rocket Lawyer.

Understand exactly what it is that you're selling. Is your brokerage an LLC, or incorporated as an S or C-corp? If you own a C-corp then most likely you want to sell the company as an entity (aka a stock sale) to avoid double taxation and because known and unknown liabilities associated with the company remain with the entity. If your brokerage is a Partnership, LLC or S-corp, you'll likely want to sell the company assets (instead of the entity) also for tax reasons*. Understand that most buyers prefer an asset acquisition, protecting them from assuming your liabilities, and allowing them to acquire only the assets they want.  *Please consult your tax professional!

Know the ins and outs of a Letter of Intent. It's most likely that a potential buyer will first send you a LOI - a Letter of Intent. This is a document that outlines the terms and conditions and price under which someone might be willing to purchase your Brokerage. Notice the word, "might." This document is not a binding, final sales agreement, but operates more like going into escrow, where the buyer then does their due diligence. Final price, terms, and closing date may still be negotiated further, depending on the results of the buyer's due diligence. Be aware that most LOIs contain a clause stating you may not "shop" your Brokerage to another potential buyer at the same time.

Yes, paperwork can be "boring" - but it's critically important that you have it ready to share and send. Not dissimilar to a seller who puts time and money into staging their home, making obvious repairs and small, impactful upgrades to garner the highest price, how quickly you share it and how organized your paperwork says volumes about how you run your business, and will impact what it's "worth" to a buyer. 

In Part 2, we'll discuss knowing your EBITDA, which is possibly the biggest determining factor in the price a buyer will pay for your Real Estate Brokerage.