Getting the right balance

 

I recently predicted that sometime in the next 10 years Lettings will become the equal of Sales if not the most important part of an agency’s business and the recent £48 million MBO of Leaders suggests I’m not the only one to see the value in the rental side of the industry.

Unlike Sales, where the “work in progress”, other than new homes, is no more than three months pipeline, Lettings has the huge benefit of renewal income and it’s this near guarantee of future revenue which is causing such significant business valuations – Leaders is worth £1.1million per office or more significantly around £3,200 per property under management.

I’ve long held the view that Lettings value is found on the balance sheet whereas Sales is much more to do with the P&L account.  Both are important as most business owners will appreciate but I wonder how much time and resources are invested in balance sheet items compared with initiatives to drive immediate profits?

I know from when Jackson Property Services was sold to the Halifax for £25million in 1988 (incidentally also for a figure of around £1million per office) that the value we achieved for the business had much more to do with balance sheet items than the profit, and no, I’m not referring to bricks and mortar – most of our offices were leasehold, and a number of these were quite short. The reason Halifax were so keen to get their chequebook out was the brand they were acquiring – that and the key territory of South East London where no other single business had such penetration and market share. Placing a value on a brand though is very subjective and consequently overlooked by many agencies.  However the Foxtons deal surely confirms how valuable a brand can be and why it is so important to care for it, develop it and invest in it.

In agency, for both sales and lettings, the balance sheet items which will ramp up a company’s value, are brand, market share and people.  Any potential acquirer will pay a premium, sometimes a considerable one, for a business which has these three in place.  That’s why I believe the best agencies are more focussed on maximising their market share and revenue per office than the total number of offices – which would you rather invest in, a business with six offices averaging £1.5million turnover or one with 12 averaging £500,000 each?

We’re working with some of the best estate agencies in the UK with individual offices turning over in excess of £2 million and have seen how significant Lettings has become, and not just financially.  Lettings has much higher regulation and compliance issues which in turn necessitates better trained people and more robust systems.  Also, as Lettings value is in the repeat business, the need for a decent Customer Relationship Management (CRM) programme is essential and whilst this is still yet to be delivered by most of the very best sales agencies it will be sooner rather than later.

At Lettings LIVE on June 15th many of the seminars will be focussing on the balance sheet items such as brand and CRM – places are extremely limited and priority booking will be given to entrants to The Lettings Agency of the Year Awards in association with The Sunday Times – visit www.lettingsawards.co.uk