In recent months the estate agency sector has been battling a string of challenges including a ‘cost of doing business’ crisis which comprises a deadly cocktail of rising interest rates, higher energy bills and record-high inflation.

Without the financial fuel and resources to withstand the current economic climate, estate agencies can buckle under the weight of the current financial climate.

What happens if an estate agency finds itself unable to settle the score with creditors as it’s out of cash and prospects?

Road to recovery

The first avenue will always be the same – exploring the likelihood of successfully rescuing an estate agency.

Whether this is through a cash injection, consolidating debts into an affordable payment plan with creditors through a Company Voluntary Arrangement (CVA) or spreading tax payments as part of a Time to Pay Arrangement (TTP), the possibility of rescuing a business must be explored fully.

Tightening existing operational and financial structures can help streamline a business to maximise profitability and cash flow while overheads are set to increase in the form of higher energy bills and interest rates.

Rising interest rates are a particularly sore point for the housing market as while the cost of borrowing increases, so do overheads for landlords, investors, tenants, and house hunters.

Although this may slow down sales, it helps correct the supply and demand imbalance brought on by the pandemic which artificially induced the number of potential buyers on the lookout to secure a property.

Ultimate goal

If recovery is not possible, disposing of company assets or the business must be considered to generate cash to satisfy creditors, protect jobs and subsequently livelihoods.

The company administration or ‘pre-pack’ administration route may be considered to preserve value, the customer base, and the workforce. Pre-pack differs from standard administration as a buyer is often lined up to purchase the insolvent company’s assets.

Company administration is a formal route during which an insolvency practitioner is appointed to rescue the profitable components of a business, as seen recently with former estate agency, Humberts, which was bought out of administration.

The road to recovery is determined by numerous factors, such as asset value, cash flow and liabilities, and therefore differs for every agency in distress, although the end goal is always the same- reaching long-term viability.

Jon Munnery is an insolvency expert at UK Liquidators, part of Begbies Traynor Group.