Estate agency firms 'will last just one generation' warning
Friday 15th February 2013
Most estate agency firms will survive for just one generation.
The warning has come from Adam Walker, a broker who specialises in the sale of estate agency and lettings businesses.
He said: “The reason has nothing to do with the recession in the housing market. It is because of changes in the structure of business partnerships.
“Under a traditional partnership agreement, an incoming partner would invest a fixed sum of money, say £100,000.
“In return, he or she would gain the right to receive a share of the profits. When they wished to leave the partnership they would receive their original £100,000 stake back again, usually from a new incoming partner.
“This partnership model has fallen out of fashion in recent years and most modern partnerships require new partners to buy in at the full market value.
“The value of estate agency businesses and most particularly lettings businesses has increased dramatically over the last 20-30 years so that many partnerships now find that people they would want to take over a partnership simply cannot raise enough money to buy in.”
Walker added: “The single most common reason for businesses being sold is that a senior partner wants to retire and no one can afford to buy them out.
“The best way to avoid this is to ensure that plans for a smooth succession are made at least five years before a partner’s retirement, so that the payments can be structured over a period of time. The only alternative is to incorporate the business and raise money from outside investors.”
He said: “It would be a great shame if the estate agency industry were to go the way of the British motor industry, where hundreds of individual companies were reduced to a handful of major international brands, but there is a real risk that this could happen unless business owners start thinking about their succession plans now.”
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