This article discusses the relative importance of contract tenure versus business longevity in determining the value of a strata management business.
Question: What has more financial weight – a building that’s been managed for 20 years coming to the end of its contract or a building with a newly signed three-year contract?
Answer: Both are important, but in terms of valuation, the contract tenure is slightly more important than the 20 years.
When you go through these transactions, the acquirers look at contracts. You’re transferring a relationship, but the comfort factor is the contract tenures. A three-year contract tenure is very attractive for any purchaser.
The fact that you’ve managed a client for 20 years is a qualitative factor in your favour. It shows you have longevity and have built up goodwill.
Both are important, but in terms of valuation, the contract tenure is slightly more important than the 20 year management term.
David Lin Strata Business Brokers E: david@stratabusinessbrokers.com.au P: 1300 917 848 OR 0434 820 823
This post appears in the September 2024 edition of The NSW Strata Magazine.
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