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As the owner of a property management company, have you thought of your own exit strategy yet? Whether you’ve already chosen your path, or you’re still unsure about the best option, it’s worth listening to how Stephanie Gordon did it.
If you don’t know Stephanie Gordon yet, you should. She is the founder and CEO of Gordon Property Management in San Francisco, and she has been a successful business owner and thought leader in the property management industry for decades. In July of 2018, she sold a large part of her company to a trusted team member.
Stephanie joined us on The Property Management Show to talk about how she came to that decision, what the deal looks like, and why she didn’t pick a different exit strategy.
A Different Property Management Exit Strategy
The decision to do this began taking form a few years ago, when Stephanie started to feel burned out. Her company has grown a lot over the years and she knew it was time to start thinking about an exit strategy when she noticed a shift in her attitude. She had always cared about her customers and their properties, but suddenly she didn’t feel excited about adding new doors to her book of business. Things felt different, and she knew something had to change.
After 32 years of operating a property management business, her burnout is understandable.
As a starting point, Stephanie sat down with all of her financials and analyzed the value of her company. She realized she could squeeze through an early retirement if she really wanted to, but she didn’t want to give up the lifestyle that she loved. So, she reluctantly decided to keep running the company and managed to get out of the funk she was in.
Months later, as Stephanie was taking a walk near her Sonoma home, she had a bit of an “aha” moment where she realized the perfect solution: sell part of the business rather than the whole business!
It was a simple exit strategy that would allow her to continue earning income while easing into a better retirement. So, she spoke to a trusted team member if she was interested in buying half of the company. This person’s name was Meghan.
Meghan Guerin has been working with Stephanie for more than 15 years. She knows the company, she knows the business, and she is great leader in the organization. Stephanie always told her in passing that she’d sell her the company when she was ready. This worked for everyone because it kept Meghan at Gordon Property Management and gave her a pretty substantial goal to work towards. It also provided Stephanie with an alternative exit strategy if her children didn’t want to over the business. Selling Gordon Property Management to a stranger was completely out of the question for her.
The opportunity to buy half of the company was great news to Meghan because she would continue to have Stephanie’s support as they transitioned into co-owners and partners.
So, last summer the deal was closed: Stephanie owns 51 percent of Gordon Property Management, and Megan owns 49 percent of Gordon Property Management.
What That One Percent Means: Owning 51 Percent versus 50 Percent of a Company
Every expert Stephanie talked to advised against a straight 50/50 split. If there’s a disagreement, Stephanie has the final say and the majority control. That’s important to her since she’s not ready to give up the business entirely. No one anticipates a situation where Stephanie has to outvote Megan, but if the unthinkable happens – she is prepared and protected.
Getting to the Deal: The People and Concepts that Helped
When Stephanie met Greg Crabtree, the author of Simple Numbers, a few years ago at a retreat hosted by PM Grow in Puerta Vallarta, she began to understand her financial position and her company’s numbers a little better. Greg helped her analyze her income and expenses and reach a better understanding of her bottom line and where the money was really being made at Gordon Property Management. She learned how to see patterns in her financials and what that meant for her company’s value and her financial potential. She could take a clearer look at how her maintenance revenue impacted her income and what she was spending on maintenance staff. It gave her a clear picture and a detailed report.
She consulted with Greg for six months and worked with Danny Craig and Jordan Muela at Profit Coach so she could put together reports and data that reflected everything she needed to know about her company and its financials.
Stephanie said this was fascinating information.
Once she had all the data, she shared it with Meghan. They began to discuss conceptually how the deal would work. They each had a number in mind about what half the company would be worth, and those numbers were pretty close.
This tells you how well Megan knows the business.
How to Fund the Deal and Cover “The Four Ds”
Stephanie loaned Meghan the money to buy her share of the company. It was a 15-year loan that can be paid off in 10 years, but not sooner. You wouldn’t do a 15-year loan if you were selling your business to someone you didn’t know. But, this helps Stephanie to spread some income out over the years, making the deal more favorable from a tax perspective. It’s also an easy loan for Meghan to pay off while enjoying the financial rewards of being a partner in the business.
The loan can also be seen as a 15-year employment agreement. Meghan gets the loan and Stephanie gets the partner. Stephanie will still earn some income even while she slowly exits the business and does a lot less.
One of the things Greg advised her to think about is: what happens after the deal? She can buy Meghan out and Meghan can buy her out. The purchase agreement is pretty detailed about what needs to happen if one party wants to sell their part of the business to the other.
This is important and if you’re creating a deal with anyone to buy part of your company, you want to cover the Four Ds – Divorce, Disagreements, Disability, and Death. The agreement Stephanie and Meghan put into place covers all of these things and it’s been reviewed by two lawyers.
Common Exit Strategies: Selling versus Passing the Business to Your Children
Many property management companies are family businesses, and that makes an exit strategy easy: your company goes to your kids.
But, not all children want to inherit a property management company. Stephanie’s kids grew up while she built her company. They remembered the apartment showings in the evenings and the middle-of-the-night phone calls. They chose other paths.
A lot of property management company owners get attached to the idea of handing off the business. But, if it’s not something your kids want, don’t force it. They won’t pay attention to the business the same way you do. They won’t be excited or passionate about it.
There are other ways.
Meghan was Stephanie’s clear and obvious choice. She was the second person Stephanie ever hired, and they have worked together for a long time. Meghan has been running the day-to-day operations for years, and her experience is invaluable. She has had every job in the company and she’s done everything that the business requires. She has a broker’s license in California, and she passed the exam on the first try. She’s organized, calm, friendly, and really good at sales.
What Stephanie’s Role Looks Like Now
Now, Stephanie is working on the business not in the business. She’s not dealing with any of the day-to-day operations at the company. Instead, she’s focusing on projects and things that she’s wanted to give her attention to for a long time. For example, she’s nearly completed re-writing her property management agreement. She’s working with Andy Moore to implement EOS at Gordon Property Management. This is important because they’re putting together an organization that can run without Stephanie, and Meghan has not replaced herself yet. So – they’re parsing through a decision about who the next hire needs to be.
Without going into the office, Stephanie is taking the company to the next level by paying attention to where the industry is going. She’s following all of the tech and the venture capital money that’s flooding into the industry. There are a lot of new tools to learn, and she’s gathering all the resources that will improve the efficiency of her company and make Meghan’s life easier.
The new ownership structure was announced to the team at a company lunch meeting. No one was particularly surprised. The team has been reporting to Meghan for years, so this didn’t feel like a big deal to anyone.
Then, Stephanie took a four-month sabbatical. She composed an email and sent it to her clients. The brilliance of this email is that it was personal. She told everyone that half the company had been sold to Meghan and that she was going to spend some time relaxing in her garden in Sonoma, playing with her granddaughter in Virginia, and traveling to Italy.
This is excellent customer service. She didn’t want to send an email that said “I sold half the company and now I’m leaving for four months.” Instead, she wanted to share her story. It worked well and she received a lot of warm, supportive, and touching emails from her clients.
Advice for Exiting Your Property Management Company
If you’re working on your own exit strategy, choose a way that works for you. Don’t sell half your business to someone you don’t know and trust. If you have a Meghan in your organization and you can structure a sale this way, you’ve really got something to work towards.
But, it’s not for everyone.
Make sure your employees have a path up in the company, and if you have a shining star – this is a great way to see if there’s a future. Make sure that shining star has everything he or she needs to learn and grow. Give them the gift of time. You’ll need at least a year to establish and reach your financial goals. You’ll need time to figure out what this will look like and what you’ll need to make it happen.
It’s okay to put growth on the back burner while you figure this out. For Gordon Property Management, they’ve been more selective than usual in deciding which new properties to begin managing because this transition needed all of their focus. Then, it was a rough winter in San Francisco will all of the properties flooding at one point or another.
Now, Gordon Property Management is trying to focus on maintenance so they can set themselves up for some new and profitable growth.
If you have any questions for Stephanie – she doesn’t have an office phone anymore. But, you can find her at some of the best property management conferences and mastermind groups. You can also contact us at Fourandhalf for any questions about growing your property management company – or even exiting from it.