Strategic Exit

Systems = Value

I was recently approached by an owner of an HOA management company whom wants to sell his business.

He has a pretty sizable operation - 14,000 units under management. He wanted $2.2M for the business. Here's why it's NOT worth that price.

1. The owner says he's intimately involved in every aspect of the business (but wants to disappear the day after the sale's complete!). Not good.

2. His Director of Operations (who's supposed to be running the business) is underpaid and has only been around for a few months. He'll bolt when the new owner takes over.

3. Employees are underdeveloped. The staff has very few continuing education designations. Significant time & money will be required to develop the staff.

4. The company's price per unit is well beneath the market average (think $4.00 vs. $7.50). This is bad for several reasons, mostly because owning a business that loses money sucks!

5. Huge chunks of revenue aren't profitable - e.g., they do $800,000 a year in payroll services for their customers and stated that they don't make a dime from it. Yikes!

6. Systems are outdated. Their accounting software isn't even being maintained by the manufacturer any longer and their web site presence is straight out of 1998. Ouch!

In summary, here's what makes HOA management companies valuable -

1. Systems

2. People

3. Recurring revenue (with appropriate profits)