In a recent article, we compared exit planning to getting your home ready to sell. This was a helpful perspective from the seller side, but today we want to look at exit planning from the perspective of a potential buyer. I'm going to tell you the story of two rental houses, and the difference that intentional action can make from the buyer's perspective. I promise this will relate to business exit planning.
At the risk of oversimplifying things, our local rental real estate market toggles between two ends of a continuum. At one end, is the proverbial Chip and Joanna Gaines “fixer upper”, in desperate need of a good demo day and an overhaul. The roof leaks, the kitchen is from 3 decades ago, energy efficiency was never a thought, and it would do a lot better without the mouse infestation.
At the other end of the spectrum is the sleek, chic, turnkey, rental-ready property, set to start earning you money in the first few weeks after you close on the house. Coming out of COVID, before interest rates went into the stratosphere, my wife and I were fortunate enough to find this type of property. We had had been looking for a short term rental to own and potentially manage, that required very little up front labor. We found a cabin near a lake that had been recently remodeled. This seller had done everything. They remodeled the kitchen, they finished the basement which nearly doubled the usable square footage, they added a deck, the improved the insulation, and they even landscaped the surroundings.
But they didn't stop there. They fully furnished the house, listed it on a short-term rental site, and began building a pattern of positive cash flow. The renovations were beautiful, but renting it out and being able to test those renovations in the marketplace demonstrated the effectiveness of all their work.
It's not too different in exit planning.
Business buyers sometimes like to see updated facilities, policies, and workforce readiness: In our case, we were looking for a remodeled kitchen.
Business buyers might like to see expanded services to profitable markets, seeing that you can pick the “low hanging fruit” in your industry: In our case, we appreciated the finished basement.
Business buyers might appreciate seeing an acquisition of an adjacent or complimentary firm, something that might help with market share: In our case, we appreciated the addition of the deck.
Business buyers might appreciate your efforts to optimize for tax efficiency. In our case, we appreciated the updated insulation.
Business buyers might appreciate demonstrable improvements in your marketing and sales: In our case, we appreciated the updated landscaping.
As is the case with rental real estate, there are a number of business improvements that can increase your likelihood of a successful exit. These are just a few, and I’m sure we’ll cover more in future articles. But for now, what is one thing that you can do this quarter to positively impact your business’s value and future exit potential?
As always, if this has been helpful to you, please Feel free to pass this or any of our other articles along to others you think could benefit from reading. See you tomorrow!
Any opinions are those of The Weddle Team and not necessarily those of Raymond James Financial Services, Inc., or of Raymond James. The information contained in this presentation does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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