Keep your real estate business viable in a down market!

23 April 2020

A big question facing many Real Estate business owners now is how to keep their business afloat in this uncertain time.

Put simply it is essential that when revenue declines, we need to ensure costs are reduced.

Unfortunately, most Real Estate businesses owners are very generous in growing resources and costs as a business grows but very slow and reluctant to reduce costs when the market pulls back. Whether it’s a sense of loyalty to people or the legislative difficulties associated with restructuring, Real Estate business are traditionally very slow to match and manage costs in line with a declining revenue.

Failure to act quickly and reduce costs in line with revenue reductions, will see some Real Estate business fail and collapse over the upcoming period due to cashflow pressure.

Outside of current covid-19 times, Real Estate is a cyclical business with peaks and troughs over a property cycle. This fact alone means all Real Estate business owners should be structuring their business in a manner that gives the owner the ability to keep costs “Variable” and be able to match costs to revenue as it goes up and down.

Real Estate as an industry has the advantage that the key selling cost of an Agents commission is a “Variable” cost in that if there is no revenue there is no corresponding cost. If only we could keep all costs variable, we could guarantee profitability under any cyclical up or down market and particularly we could ensure our business survives in an unexpected crisis such as covid-19.

Unfortunately, landlords, utility companies and banks will not accept being paid on a variable basis so its impossible to have all costs on a variable basis. However the more that are variable, the more control the business owner has and the greater the probability the business will remain viable in all market conditions.

Put simply business owners can de-risk the business and guarantee profitability or at least viability in any market conditions by ensuring as many costs as possible are structured on a variable basis as opposed to being on a fixed basis.

The largest cost for most Real Estate businesses after agents selling commission is wages. To make meaningful structural changes to a Real Estate business it is essential that wages costs are linked to revenue so that when revenue falls so do the wages. This is only logical because if revenue is lower there is less administration work to do.

The most efficient way of “matching” wages cost to revenue is to have support staff on flexible contracts or outsourcing. Outsourcing for Real estate companies is a great alternative as the process of selling a property from listing to processing the completed contract is a consistent routine task easily systemised.

Outsourcing your administration tasks can not only turn your administration costs into a variable cost thereby safeguarding the future of your business it can also result in significant cost savings.

Disclaimer:This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

If you would like to know more about outsourcing or making more of your cost’s variable CLICK HERE to leave a message and one of our real estate experts will contact, you.

Stay in touch. Please do not hesitate to contact your client advisor.

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