Brexit. On reflection, many of us may have wondered why we had this referendum, why the vote was ‘LEAVE’ not ‘REMAIN’. It’s too late now. Brexit has had a dramatic impact on the value and saleability of estate agency and letting businesses. In the ten days after Brexit, every single one of my sales in progress fell through and nearly all the regular buyers announced that they had withdrawn from the market. Now, however, the market is finally beginning to recover. So is this a good time to be considering buying or selling a business?
THE PRICE IS DOWN
Prices for good managed letting businesses have fallen by around 25 per cent from their peak. This might put you off selling yours, but it should not do so.
No-one knows whether prices will recover or fall further and you could drive yourself mad by trying to pick exactly the right moment to sell. You can’t allow yourself to think this way. The question to ask yourself should be, “If I sell my business now for £X, will I be able to move on to the next phase in my life?” If the answer is “Yes”, you should sell. If not, you will need to wait.
Prices for let-only businesses have fallen further and if your business operates on this basis, it might well be worth trying to convert your landlords to full or part-managed contracts before you sell. It will take at least twelve to eighteen months to do this but buyers will pay more for recurring income so it could be well worth doing.
If you own a sales-only business, you may have no choice but to wait for the market to recover. There is, currently, almost no market at the moment for sales-only businesses and you will almost certainly do better if you wait for the market to recover.
If you are unwilling or are unable to continue running the business yourself, you might consider putting a manager in to run it for you until the buyers return.
For buyers though, Brexit has created some real good opportunities. The returns that you can expect to achieve on your capital have improved significantly and the amount of the purchase price that can be deferred has increased which improves the return on capital still further.
GO BUY THE BOOK
One of the best of these opportunities right now is buying a portfolio of properties. Buying a good quality lettings book within your existing area is a very safe way to invest your money as £100,000 of turnover should generate around £50,000 of pure profit.
However, buying a let-only letting business is far more risky as it is harder to predict the future income of the business. It all depends on how long each tenant remains in their property.
You also need to be careful about compliance problems, which tend to be more prevalent in let-only businesses than in fully managed ones.
Buying another business that is well established and successful in a new geographic area is a little more risky but if it is a well-established profitable business, then the risk to reward ratio can be quite tempting at the moment.
GO FOR BROKE
Sales-only businesses are an absolute bargain right now. However, it could be said to be purely for the bold, the brave or the truly bonkers. If you have the courage to do the opposite to what everyone else is doing, then there are opportunities to pick up well-established businesses for significantly less than the cost of a cold start.
It is, of course, tempting to wait to see if prices fall any lower but my personal opinion is that they are unlikely to do so. Brexit, the tenant fee ban, the impact of the online agents and the weakness in the economy have all been factored in to prices already. My advice therefore would be to jump in now.
The business sales market is very much like the housing market. Recessions come and go, and prices go up and down.
However, fortune favours the brave and people who had the courage to buy a property during one of the downturns of 1973, 1980, 1992 or 2008 have enjoyed tremendous returns on their investments. So if you are thinking of expanding your business, now might be the perfect time to do so.
Adam Walker is a management consultant, business sales agent and trainer who has worked in the property sector for more than twenty-five years. www.adamjwalker.co.uk