How did your firm perform financially in 2024? As your books closed, most would look immediately to the bottom line for how much profit or cash flow was generated. It is always good to have positive cash flow, but is that the best way to track progress as a firm owner? Success can be tracked by many different Key Performance Indicators (KPIs) or measures including; profit, number of agents, market share, sales volume, or even money in the bank. When consulting with firms we recommend using KPIs critical to the health of your business. The one measurement that there is no substitute for and that overarches all others is your firm’s value.

There are many reasons for determining the firm’s value: 

  1. Benchmarking your growth and initiatives 
  2. Accountability for ownership and management
  3. Business & succession planning
  4. Accurate Personal Net Worth statements (for all sorts of borrowing)
  5. Annual Bank loan requirements (most large loans require this)
  6. Potential addition of a minority partner (s) or an investor 
  7. Insurance purposes- (i.e. key man insurance)
  8. Estate planning

We believe the most important reason is using the value as the critical benchmark and reference point. Taking liberty altering an old adage, “If you do not know what the value of your firm was, or is now, how can you know where you are going, or how you are going to get there?” Knowing the value of your firm is the key component of creating your Succession Plan and exit strategy which are must haves for a well-run real estate business. 

pricevalueFor many, your company may be your largest single asset. Although profit generated is obviously important, growth in value of your company is the single most important indicator of success. Without consistent valuations, how can you determine if your business plan was effective? A valuation will show if your time was spent wisely, if new initiatives worked, or if investments made were beneficial, or even accretive. 

Reviewing your bottom line is important but financial statements rarely reflect the true earnings of the company. Finding your firm’s value is not as easy as looking at your profit and multiplying it by the mysterious “market multiple”. In the hundreds of valuations we have performed, each one required different (but similar) adjustments to normalize the earnings. Most real estate firms are run as life-style companies and are wisely operated to reduce taxes.  

Valuations review the financials as if a third-party owned and managed the company, not yourselves. As examples, an adjustment might be made to increase the expenses if the owner has not taken compensation for managing the company, or profit is increased, if the owner has distributed excess compensation over the market comparison. There are literally dozens of potential adjustments we make regularly. 

Valuations can be performed internally. We recommend getting at least your first one done professionally to better understand the process. Professional valuations are not a large expense but will yield returns many times over.  Strive to start your year with a solid foundation.

Our M&A Team at WAV Group consists of experts who have assisted in closing transactions with purchase prices totaling over $1.4 Billion and performed hundreds of valuations on firms of all sizes. 

Click here to request a confidential consultation.