It’s never too early to start planning for the day when you want to exit your own real estate business.
Take a look around at any group of Principals and you’ll find that most are over the age of 50. Not only does this pose a major challenge for the real estate industry in terms of who will succeed these seasoned professionals, but the scenario also suggests that many are leaving their exit too late.
Much too late.
All too often we see Principals and owners who have delayed their exit and have only a rent roll to sell. It’s one of the biggest tragedies. These Principals are completely reliant on the market conditions at the time of sale to maximize their value.
While it’s true that an ever-increasing number of younger people wish to potentially own their own business and could step into the departing Principal’s shoes, the young bloods are all too often deterred by a combination of the following:
- A lack of personal capital
- Limited access to equity
- The fear of a large, long-term bank loan.
Our research shows that these three stumbling blocks explain why most aspiring sales people are reluctant to make the leap into business ownership.
So what are the options for the departing Principal?
Let’s look at what the forward thinking, progressive Principals and owners are doing to address the challenges.
For a start, they are not running their business as a real estate agency. They are running it as a business that provides real estate services.
With this in mind, many owners use a combination of the following 10 business principles to put them in a strong position to attract the right personnel and move forward:
- Structuring their agency to maximize profit and build goodwill, just like any other business.
- Setting up the company accounts to differentiate each department’s profitability.
- Not treating their business like their personal bank account.
- Keeping their personal remuneration commensurate within normal business guidelines and protocols.
- Structuring the business for monthly management/board meetings with agendas and minutes recorded.
- Documenting quarterly reviews of business performance based on actual versus budget.
- Scheduling annual planning days with key personnel, accountants and external consultants to set the next year’s business plan.
- Identifying future equity partners and helping develop them for promotion.
- Working with their accountants on a structured buy-in program or Management Buy Out Agreement (MBO) for shares/equity in the business for all future participants.
- Structuring the buy-in or MBO by way of cash injection to purchase shareholding, with shareholding allotted by achieving KPI and additional profit for the business.
If you think you may be playing catch-up when it comes to your exit strategy, or are keen to know if you’re on track, you can contact us for an obligation-free chat with one of our advisors.