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True agency value comes from succession plans

True agency value comes from succession plans

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Simon Parker and Matthew Sullivan

Real estate principals who spend most of their time living in the ‘now’ will create little to no value in their business, lowering the prospect of making a sizable profit when the time comes to sell, an industry professional has claimed.

“Like everything, if we want success we must plan and the sooner and more extensively we plan, the better and more successful the outcome,” Rod White, chief operations officer and group trainer at Yong Real Estate, told Real Estate Business.

Mr White’s comments follow a recent Real Estate Business straw poll, which found that just over 58 per cent real estate principals were yet to create a business succession plan.

Mr White, whose company has 10 mostly Queensland-based agency outlets, said a business succession plan is more or less an understanding of what a potential buyer will look at when buying a real estate business.

"When creating a business succession plan, principals need to ask themselves one key question - 'what income producing assets does my company have?'

“The most common one is the rent roll, and there are standards in place for valuing a rent roll. In fact in most cases this is the only value of that real estate business,” Mr White told Real Estate Business.

“But increasingly today it can be other things, such as a well-managed database."

“If it can be shown that the database can generate a consistent number of sales over a period of time then it becomes an asset with a real value,” he continued."

When assessing the company’s assets, be sure to consider yourself and your sales staff, Mr White added.

“The sales component of the business must be grown to the size whereby the current business owner has a mainly management role - even to having a sales manager to look after the day-to-day training and management of the sales team. This then all needs to be rounded off with effective control and management systems.

“At this point the entire business now has a true value.”

John Flood, director of John Flood Estate Agents in Muswellbrook, NSW, said there comes a point in everyone’s career when it is time to move on to new pastures.

“We’re not immortal and you simply can’t go on forever,” Mr Flood told Real Estate Business.

“Once you reach this realisation a succession plan will make sense. When it’s time, get yourself an independent valuer and find a potential buyer.”

Mr Flood believes identifying prospective buyers shouldn’t be a hassle for most principals, as they need only look at their business partners as a starting point.

“The people that work with you, not for you, are often the best people to buy the business. They know how the company operates and you know they will value and appreciation the business you built,” the winner of the Real Estate Institute of NSW (REINSW) best residential agency (medium) award for 2011, said.

“But never give anything away, no matter what your relationship with the potential buyer - they must pay. If you give the business away there is little to value.

“Start off by selling 10 per cent of the business and cut some of the hours you work each week. Once the necessary payments have been made, offer them a larger percentage of the company.”

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