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Will your Agency be worth a few dollars or a few million?

By Wayne Hughes,
11 February 2019 | 1 minute read
2019 02 10

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As an Agency Principal, where you direct your focus can make a BIG difference.

I recently had a very enlightening phone call. I was talking to a principal about her business and she mentioned they had a rent roll of approximately 200 properties. They had been in business for over 20 years.

After the call ended it suddenly hit me. After 20 years they had built a business with a rent roll value of about $750,000. By contrast one of the Agencies in our community started with no rent roll just 5 years ago and now has one with an approximate value of $2,500,000 and still growing rapidly.

Both had worked as hard as each other but the difference was focus and strategy. The difference in the end result was astounding.

Capital vs Revenue

To appreciate this difference you need to understand the distinction between Capital and Revenue.

Most agency Principals are not accountants and they never get taught these elements.  Revenue is measured on a Profit & Loss statement and capital value sits on your Balance Sheet. Revenue or income is the money you generate as a result of your trading activities. It is sales commissions and property management fees. Capital value is what you would sell the “revenue making machine“ for.  If you could buy a machine that gave you $1 every day for the rest of your life you would be crazy not to pay a hundred dollars for it.

In an Agency the operating departments and teams create the revenue and the rent roll is the store of the capital value.

Incidentally the equation is much more complicated than portrayed here because you don’t get the capital value in cash until you sell, but you may have to pay cash to build it.

Background as a Sales Agent

The vast majority of Agency Principals have come from a sales background which makes them ideally suited to hunting the property sales and revenue required to build a business. It often also means that they see sales as by far the dominant objective of an agency. While this is true it is not necessarily the whole truth. The desire to sell more property and get a larger team to sell even more property can mask an opportunity to build significant wealth in other areas of the business.

The quick cashflow fix

 Particularly in the current environment Agencies need cash. The quickest way to generate it is to sell another property or two. So that is where a lot of Principal focus is right now. It is completely understandable but you can probably have your cake and eat it too by also spending a small amount of focus on the capital value in your business at the same time.

Having a strategy and a plan

It doesn’t happen by itself. Just leaving your property management department to grow probably will not create an outcome as good as if you have a strategy and a plan. The strategy is about where you want to get to, your direction and longer term destination. The plan is a more detailed formulation of “how” you will get there. It is important to integrate the financial implications into the planning process. Unless your Agency is particularly well funded a simple decision to hire a person who will concentrate on rent roll growth may put a severe strain on the cashflow. 

Focus equals dedicated time

In most instances things drift on without change purely because there is no thinking directed towards the plans and next moves required to execute them. This is a cycle that is easily broken.

The simple secret is to set a meeting with yourself. Set the agenda to be the topic of growing the Agency capital value. Thinking and actions will follow. If you conclude you do not know how to achieve such growth consult someone who can give guidance. (feel free to call us for a chat).

Control your future

Just the reading of this short article could have a major difference on your wealth five years from now. Before you leave to rush back to the activity of the day, just consider if you should set that focus meeting in your diary… and then continue to have a great day.

Visit our website or call 0419707022 to discuss a new future for your Agency

Will your Agency be worth a few dollars or a few million?
2019 02 10
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