Thriving In Smaller Markets
Are you considering selling your coworking space? Even if a potential sale is years in your future, it’s time to take the steps that will help raise the valuation of your space and maximize the amount you and your investors will take home. Outside of general real estate brokerages, coworking marketplaces are few and far between. This makes it rather difficult to gauge the value of a fully operational space that’s ready for a sale or acquisition. However there are a few things coworking owners and operators can implement in the interest of a future sale. Here is a list of actionable items that will make you more attractive to coworking investors.
1. Show growth. Don’t be afraid to spend on marketing.
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.
2. Make sure you have the option to renew your lease at a favorable rate.
Buyers love stability. The longer the lease the more time a buyer has to recoup their money and the more comfortable they are paying a higher price, the more they are willing to pay for it. For example, imagine you had less than 3 years left on the lease for your coworking space without an option to renew. For a potential buyer, this brings a lot of uncertainty into the future of the business with a relocation or a drastic change in rent. The buyer will want to recoup their purchase price plus a profit in those three years, drastically lowering your valuation.
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 giving the buyer to relocate the coworking space to another place nearby if they wish.
3. Control your costs
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. This will increase your monthly cash flow, increasing your profitability, and have a multiplying effect on your sales price.
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!
4. Get your books in order
When a buyer purchases a coworking space, they want to be confident in their purchase. The more confident they are, the more they are comfortable paying. We recommend at least three years of financial reports on an annual or monthly basis. 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.
5. Get mentioned in the media
Getting mentioned in the media helps elevate the brand, increases your organic (non-paid) marketing, and validates your business to outsiders. Being written up in a local newspaper, blog about remote workers, or being in a listical online helps strengthen your brand and your following. Besides the fact that it might also increase your sales (see point 1), it also is a validator of your concept and the power of your brand which is also considered in determining the value of a coworking space.
6. Boost your social media presence and email list
Social media is one of the first things that a potential buyer of a coworking space will check out. You should expect potential buyers to lurk on your Instagram and Facebook, and they’ve likely subscribed to your email list. It’s a natural way to publicly evaluate a space with ease. We recommend you start posting regularly and with a defined strategy that represents your brand so that buyers understand what your space is about and if it would be a good fit.
7. Have strong processes
It is difficult taking over a company from someone that has run their businesses, their way. You develop processes that make sense to you, but are confusing when explaining it to others. 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.
If you are thinking about selling your coworking space or plan to in the future then it’s never too early to start to act on these steps to increase your valuation. Simply listing a fully operational (and still growing) coworking space can be a confusing process in terms of communicating it’s worth to brokers and agents. In order to approach the situation from a strong negotiating position, you might try contacting a coworking consultant or listing a space on a coworking marketplace after completing the above steps.
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