Real estate business owners. What is your ground zero?
15 April 2020
Covid-19 has the potential to change the Real Estate market as we know it.
What will happen post lockdown is a complete crystal ball exercise. Looking at the economists views, the likelihood of a recession seems inevitable.
What does this mean for Real Estate businesses?
Some consensus is emerging that prices will drop. As a result, vendors that don’t have to sell will put off selling and the amount of stock coming to the market could reduce dramatically.
Conversely buyers could be scarce if they have concerns over job security or finance becomes difficult because of concerns from banks.
As a result, volumes of transactions in the industry could be down drastically with some owners expecting volumes to be down as much as 30% of from recent volumes.
If volumes do drop by significant levels some Real Estate businesses will fail. Accordingly, there is a lot of fear and anxiety about what the future holds. Can your business remain profitable with a 30% drop in Revenue?
To prepare for this unknown future we are working with many business owners to work out their Ground Zero.
What is GROUND ZERO?
It is the lowest level of costs that you can run your business at, expressed as a number of sales that need to be made in a month.
How do you calculate your GROUND ZERO?
Take your Profit & Loss Statement for the last 12 months and go through it line by line and put your expenses into one of two buckets Fixed or Discretionary
Fixed costs are costs you cannot eliminate from the business. Discretionary costs are costs that you choose to incur, or you could choose to cut out of your business.
Our work over the last few weeks has shown us that when this exercise is done with a strict, disciplined approach the costs that can be eliminated in the event of a severe recession are material and significant. As a consequence, the Ground Zero level of sales required to keep the business sustainable and profitable in many cases is a low easily achievable number.
The fear and anxiety of what the future holds can be eliminated. Control of the future can sit with the business owner and not the uncertainties of the market when there is clarity over what can be done to keep the business viable and profitable.
Real Estate businesses can be, and should be profitable in any market conditions including a recession.
If you would like help to work out your Ground Zero contact us and we will be happy to give you one hour of complementary support to guide you through the process.
Take control of the future of your business. Work out your Ground Zero today.
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.
Stay in touch. Please do not hesitate to contact your client advisor.