Branching out
For ambitious agents, there are shortcuts to fast business growth – but they take investment and commitment, as David Callaghan explains.
So the options are to acquire an existing business, to take on a franchise, or to reverse your existing business into a franchise.
To give you an idea of what these options entail, we asked the practitioners in business transfer and franchising how they operate.
Growth though acquisition
Let’s start with how you might expand an existing agency business in the traditional way. Peter Nicholls from Ideology Consulting says that businesses looking to expand should reflect on a few key points to consider the right path for them.
It is vital that you acquire a business that represents the same market sector in which your existing business operates, in order to retain the clients and income stream. Peter Nicholls Ideology.
Cold starts are cheaper but they are also a ‘slow burn’ in terms of client goodwill and turnover, as the set-up costs are don’t require the upfront investment. But access to the local market is slower, he says. By contrast, the acquisition of a business, or portfolio, gives a new venture automatic access to local clients and accelerates the process of becoming established in a new area. And most importantly, it has an instant revenue stream.
“It is vital that you acquire a business that represents the same market sector in which your existing business operates, that is lower, mid-market or upper market, in order to retain the clients (and income stream) that you are in effect purchasing when you buy an opposing business’s client roster,” he says.
“At this moment rental and property management income is valued highly as it qualifies as residual income (continuous annually,) as opposed to transactional [one off] income. So, expect to pay a multiple of 1.75-2 x annual lettings and property management income and only 0.5-0.75 times annual sales turnover income (averaged over 3-5 years),” Nicholls says.
A buying company will always pay more when they make a strategic purchase as opposed to a portfolio purchase. The best deals are always when it makes sense, when the acquisition represents forward progress for both buyer and seller, he adds.
Marc Daniels at business transfer agents Addisons says, “There are millions of different factors – eg do you have the money? You must have the funds in place. We insist on written proof,” he says.
One of the most important elements is the terms of payment – how much to put down initially? But also, it’s important to know whether the business is profitable, how long the lease is, and is it a match with the existing business, he says.
Staffing issues are a really big consideration. For example, one business had a £100,000 retirement liability. It may be that the wage bill needs to be reduced. Marc Daniels, Addisons.
“Staffing issues are a really big consideration. For example, one business had a £100,000 retirement liability. It may be that the wage bill needs to be reduced,” Daniels explains. “Sometimes it takes a couple of years to turn a business around, and that needs to be factored in.”
Growing the customer base
Tracy Bradley of business transfer agency Haversley believes expansion helps with reaching new customers and brings with it the ability to access new talent pools; with diverse backgrounds and new perspectives. “To create a business expansion strategy,” she says, “it’s vital to set goals, and plan how to get there. The costs and risks involved in expanding need to be understood.”
A smart business acquisition can create economies of scale and help expose you to a new audience. It is also likely to improve your profitability more quickly than self-expansion. Tracy Bradley MD, Haversley.
“A trusted team is a crucial element, and they need to be included in drawing up plans,” she adds. “Put reporting systems in place – decide how and when you will measure progress before you start the expansion.”
Then, before taking the plunge, there are some difficult questions to be asked. Is there a consistent, sustainable increase in profits and good cash flow? Has demand increased and is it possible to capitalise on this?
“I believe that a smart business acquisition can create economies of scale and help expose you to a new audience. It is also likely to improve your profitability more quickly than self-expansion,” says Bradley.
Franchising – building on success
Adopting a franchise can achieve the same aims, but through an entirely different approach, without the need for brand-building and with expert growth management support on hand.
Nick Neill, Managing Director at Ewemove, says, “The big consideration for us is to see that our prospects are truly ambitious and believe in what we do at EweMove. Giving the right people the tools to maximise the scalability of the business is the best way for us as a network to grow and develop.”
“Acquisitions at branch level are something we promote and encourage. Many of our agents have successfully acquired competitor agents or their portfolios,” he says.
Acquisitions at branch level are something we promote and encourage. Many of our agents have successfully acquired competitor agents or their portfolios. Nick Neill, Ewemove.
But there are different and ongoing costs associated with franchising than the upfront and possibly one-off capital requirement of a takeover. Tim Stephens, director of Humberts, says costs vary depending on size of office, location etc., but a budget of circa £75 per sq ft for a standard level refurbishment (lighting, decorations, flooring etc) to include fixtures and fittings such as signage, displays, soft seating, desking, staff seating, storage and so on, should be considered.
Franchisees have opened with budgets of circa £15-£20k. One recently-opened office brought in just under £5m of sales in their first half year and this increased to £8m the following year. Tim Stephens, Humberts.
“New start-ups may wish to work from home initially until cash flow picks up,” says Stephens. “Franchisees have opened with budgets of circa £15-£20k. One recently opened office brought in just under £5million of sales in their first half year and this increased to £8million in the same period the following year. This success has continued into 2022 with further growth of 74% for the Q2-Q3 period, with a total value of £15.6m brought to market so far this year.” So given the right market conditions, a franchise can be a springboard to success.
Differing models
Lucy Britton at Winkworth says a royalty fee for a franchise with Winkworth is 8 per cent of gross receipts. “We have entry level business sales up to £1.5m, we also have a succession planning model that can help facilitate a management buy-out over a period of time,” she says. “We have a few funding options depending on each individual situation.”
Nicholas Faulkner, director at Century 21 UK, says the company offers three models available to meet an individual franchisees’ needs. “Our Max model is designed for franchisees who want a high street presence and provides discounted rates with selected third-party suppliers. Both our Max and Flex model include a five-year territory agreement. Our Solo model is designed for experienced agents and offers the opportunity to work remotely on a self-employed basis using the Century 21 UK brand,” he says.
Our Solo model is designed for experienced agents and offers the opportunity to work remotely on a self-employed basis using the Century 21 UK brand. Nick Faulkner, Century 21.
Century 21 advise Max agents that they will need over £100k to cover their premises costs, set up costs and running costs for the first year. Solo agents are advised to have £2.5k as a set-up cost and will need access to approximately £30k as an annual running cost.
Self-employed ‘brokerage’
Ben Littlewood at Moveli says brokerages, unlike franchises, don’t charge a large lump sum to get set up. Moveli is a brokerage that operates in the mid-upper market across London and in prime spots across the country. The cost of joining a brokerage (or self-employed model) is usually split into a monthly ’subscription fee’ which can vary between around £150-£1,000 a month plus a split on the commission on any deals that you might do, he says. This can vary greatly from the agent keeping between 40 per cent to as much as 95 per cent. However, the higher commission models usually charge a higher subscription fee.
We’ve had some impressive success stories, including an agent who went from earning £60k pa on the high street in a job he hated, to banking over £380k in a year. Ben Littlewood, Moveli.
In the UK, however, brokerage models are fairly new, only a few years old. As a result, commissions offered to agents transitioning to their platforms was around 80 per cent to entice agents from the high street over to the new way of working. Now, it seems that the commission on average has lowered to around 70 per cent for the agent and 30 per cent for the brokerage.
Plus, the other cost to budget for is the lack of earnings in the first six months of switching to a brokerage.
“At Moveli we’ve had some impressive success stories,” says Ben Littlewood, “Including an agent who went from earning £60k pa on the high street in a job he hated, to banking over £380k in a year. Others include a new starter who listed over 26 sales in his first 9 months and a recent agent who just joined has already banked over £85k in her first two months as a broker.”
CASE STUDY – WINKWORTH
Winkworth has continued its expansion plans in the East of England with the opening of a new office in Eaton in the suburbs of Norwich – the fourth Winkworth office in East Anglia in four years for franchisee Jamie Moore. It will be co-owned by Jamie Moore and his business partner Kylee Cates. The launch of Eaton follows the opening of the Hellesdon office last year, Poringland, five miles south of Norwich, in 2018 and Southwold on the Suffolk coast in 2019.
Winkworth Eaton will cover the majority of Norwich, including Newmarket Road, the most sought-after road in Norwich, the renowned Golden Triangle, and the highly desirable locations of Cringleford and Eaton.
Jamie and Kylee have taken over a former hairdressers shop to start the new business. Kylee said, “Eaton and the surrounding suburbs are extremely sought after, and are growing at a fast pace.”
Jamie adds, “Eaton is the perfect fit for our other two offices in Norwich, and a big boost for the Winkworth brand in the city.”
Winkworth CEO Dominic Agace says: “Jamie Moore and Kylee are shining examples of how ambitious franchisees can build a highly successful business and see future expansion in an area they know exceptionally well.”
CASE STUDY – EWEMOVE
“We’re now in a really strong position to keep on pushing our business. The plan is to purchase another territory and take over all of Northampton. Of course, like with all businesses when owners look to expand, there is a period of hard work, but we know it’ll pay dividends. EweMove HQ, or ‘The Sheep Pen’, appreciates our position as being the experts within our respective territories.
“It’s in the last six months where we’ve realised how big the business has become and that we’re working seven days a week! We’ve got to a point where the business is very successful and going well, and to continue that growth and maintain our excellent service standards we need to bring more people in.
“EweMove has a solution for us. Franchisees can run an associate model, where we can take somebody on who can benefit from a high commission-based salary which is very low-risk to the business. In this capacity, we’ve already completed 10 property sales in the area that our new Associate is responsible for. If this associate model continues to work well for us and our growing team, the plan is to take another associate on and ultimately step back a bit.”
“I want to grow and nurture my EweMove franchise, that’s for sure. That means that I will be acquiring another territory and therefore another business.”
