How to prepare your coworking business for a sale
The most important thing you can do to ensure a profitable business sale is to ensure your business has healthy, transparent business metrics and a clear path for the future owners to assume control of the business and make profit from the sale.
Most coworking owners we talk to have a pretty good understanding of what it takes to advertise their space – take incredible pictures, establish a brand identity, focus on your community’s strengths and so on. As you plan to list your coworking business for sale, those skills will come in handy as you create a listing on DenSwap’s marketplace. But that’s only the first step – you need to be able to sell your business, not just your space. Your books and business information should paint a clear picture of your business’s performance in the past and a narrative on where the business is heading and how it’ll fit into a buyer’s plan for the future. With that in mind, there are six things you absolutely must consider as you prepare your business for a future sale:
Get your books in order
By far, this is the biggest item on the list. Make sure you have clear, itemized P&Ls. We recommend at least three years of financial reports on an annual or monthly basis. If you don’t have good books, get started now – we recommend using a bookkeeper or accountant to help generate these reports, or at least have software like Quickbooks or Xero to generate them for you. You won’t be able to list your business on DenSwap without good documentation.
The more confident buyers are in your numbers, the less risk your business presents to their investment and the higher your valuation will be. Having a high amount of expense categorization (i.e., separating “Operations” into categories like “Coffee” “Furniture Repair/Replacement” “Print & Copy” “Conference Room Hospitality”) also allows buyers to review your expenses in greater detail, look for potential optimizations, and have greater confidence in the business.
Clarify your lease
Your lease terms are the biggest dealbreaker during the due diligence period. If the lease contract and liability can’t be transferred to the new buyer, it’s going to be significantly harder to sell your business. Make sure you have complete paperwork of your terms, know what your renewal options are, and discuss a possible handover with your landlord. Know the terms and status of your deposit and have a plan to transfer the value to the new purchaser.
It’s recommended that you talk to your landlord about adding an option to renew your lease, if you don’t have one already, to your agreement once you are thinking about selling. This gives you the flexibility to stay put for longer or gives the buyer to relocate the coworking space to another place nearby if they wish.
Don’t take your eye off the ball! Growth is an important aspect of valuation. A consistently increasing membership base is one of – if not the – best way to boost your valuation. You are not only bettering your annual profitability (the strongest measure of value), but you are also indicating to the buyer that there is more growth potential in the future. If you are in growth mode then your annual profit multiple goes up, further compounding the value of each additional member you add.
Review your current budget and cut off extra costs – this will increase your monthly cash flow, thereby increasing your profitability, and have a multiplying effect on your sales price.. As an owner, you might have valued the convenience of buying coffee off the shelf over setting up a deal with a local roaster. There are a lot of little purchases that add up to hundreds of dollars each month, but if you are looking to sell your coworking space then it’s time to put more effort into lowering your cost.
For example, say you found $250 in monthly savings by buying paper and ink on Amazon instead of Office Depot down the street, and by renegotiating a new price with the cleaner. That $250 in monthly savings is worth $3,000 in annual savings. If you sell your space at 2.5x multiple of annual profit, then this simple change will increase the value of your space by $7,500 ($3,000 x 2.5 = $7,500). You did all of this just by examining your cost and lowering your monthly expenses by $250!
Get all of the information out of your head and onto paper. Create clear, defined practices that employees (and future buyers) can easily understand and follow through. There’s no room for “secret sauce” when you sell your business – your expertise and the steps you took to make your coworking space a success is a big part of the sale.
New buyers need your guidebook to continue your success. If a buyer doesn’t have confidence that they can steer the ship, they’re essentially buying the assets of the business, not the business itself. Buyers want to be able to take over the operations without disrupting your community or how they do things. If you are thinking about selling your coworking space then it is recommended you use some space management software, write down everything you do, and have a training manual created. The more you automate on the backend and write things down the easier it is for someone to step into your place while continuing the business you created.
Have a plan
Know where you’re going and what you want out of a sale. Everyone wants multiple full-price offers in the first few weeks, but in most cases a business sells differently than residential real estate does. Are you open to extending seller financing, where the purchase price is paid over time, or will you accept a full cash offer at a discount? Will you sell to investment funds and real estate portfolios, or will you only sell to a like-minded local entrepreneur? What happens if the Due Diligence phase finds problems in the business, and the buyer adjusts their offer price?
These are all real scenarios the DenSwap team has dealt with, and you’re likely to come across one or more of these questions as you sell your business as well. We’re on hand to talk you through your options and advise you until you understand your options and are perfectly comfortable moving forward.
Chase that payoff.
Most coworking owners will need to put in some elbow grease to prepare the space for sale. It’s tough work, but if you can pull it off you’ll be in better shape than most. If you want top dollar for the business you’ve spent years on, spend the time to get your space in top condition.