AGAINST A backdrop of increasing market consolidation, multiple office strategies are gaining momentum as businesses focus on acquisition opportunities or look to gain a competitive advantage through a greater footprint and brand presence.
While a multiple office business model can help to realise economies of scale, increasing negotiating power with suppliers or further maximising marketing campaigns, it doesn’t always lead to increased profitability. Effectively, bigger may not always be better.
A multiple office strategy is a significant shift towards a more complex business model, signalling considerable change not only in terms of operations and reporting, but management and staff. Before embarking on such changes, it pays to take a close look at the opportunities and challenges to define if it is a suitable for your business.
Implementing a multiple office model often means a large initial investment, whether it is an acquisition of an established business or expanding your existing business to new locations. Your business operations and systems need to ‘speak’ to each other across offices, and you need to focus on your team, ensuring your culture, service proposition and competitive edge remains consistent, supporting both the brand you have worked hard to build and the client experience.
First and foremost, you need to understand your funding requirements. When considering a multiple office strategy, talk to your bank as a first step.
This will help to identify the various costs involved, including those that are upfront versus those that will be ongoing. The conversation should also consider debt funding versus cash flow funding, ensuring you get the right balance for your business.
Securing funding is critical, but an appropriate payback period also needs to be identified – how long will it take for your business in its new form to break even and to turn to profitability? Understanding this helps to identify any speed bumps and make necessary changes along the way, ensuring you keep your business on track.
Another key area for consideration is the role of the principal. In a multiple office strategy, a sole principal often finds that he or she has to step back from the sales side of the business to take on more of a general manager role. The roles of general manager and sales director are very different, with two very different skill sets.
As a principal, you need to recognise your skill set, understand where you best add value to your business and, if necessary, be prepared to hire new team members with different specialist skills who can help to ensure the success of your expanded business.
Another question that is often raised is whether it is necessary to offer equity to staff, ensuring there is a shareholder in every office location. While this can form part of a staged succession plan, and it means that every location has someone on the ground with a vested interest, driving performance, it can also potentially complicate the business management and decision making process, and will dilute ownership and profit share.
While there are a variety of considerations at play, ultimately the fundamentals remain the same both for a single and a multiple office business. Each location should have a separate cost centre to ensure transparency and effective financial and business management, and as with any business, it is important to recognise when things are not going to plan and to be prepared to make changes.
Multiple office business models are gaining momentum and can be a great strategy for growth, but market share does not automatically translate into increased profitability – in some cases, even lowering profit margin.
National head of real estate segment
Macquarie Relationship Banking