Avoiding the wrong kind of cost cutting

Avoiding the wrong kind of cost cutting

Since the Brexit vote and the resulting downturn in the housing market, much of my consultancy work has involved helping clients to reduce costs, says Adam Walker, but we have to avoid chopping the critical elements of the business!

When things are going well, it is all too easy to let costs increase and a fresh pair of eyes can be very helpful when it comes to deciding what expenditure is essential and what is not. However, it is possible to cut expenditure too deeply and the consequences can be very serious. On the residential sales side of the business, it is essential to retain enough staff to be proactive. If you are trying to run with too small a team, you will find that one member of staff is out doing valuations, one is out doing viewings and nobody is available to phone applicants in a proactive way in order to encourage viewings. In a slow market, this is absolutely essential as a phone call is much more likely to achieve a viewing and a sale than just sending out emails.

One mistake is to cut back on secretarial and admin support that will make the sales team much less productive.

Another common mistake is to cut back on admin and secretarial support that will make the sales team much less productive. A negotiator who is responsible for bringing in, say, £120,000 of fee income every year is earning the equivalent of about £65 per hour of revenue for the company. So why would you want to stop them doing that in order to do their own typing which could be done for less than one quarter of this amount?

IMPROVING PRODUCTIVITY

An excellent way to increase the productivity of the sales negotiators can be to use dedicated viewing staff that are paid per appointment – or one of the commercial outsourced viewing providers. Most secretarial work, such as typing and filing, can also be outsourced to people working from home and this can lead to a huge improvement in the negotiators’ productivity.

The financial benefit of these measures can be very easily quantified. A reactive understaffed residential sales agent might sell 50 per cent of the properties that they take on. A really proactive one might sell 70 per cent.

On a business that banks £500,000 per annum, this could be an extra £200,000 of revenue – enough to pay for a lot of extra staff!

On the lettings side of the business, understaffing will cause different problems but they can be just as detrimental to your business. A very common mistake is to understaff the property management department. If you ask your property manager to look after too many properties, they will become reactive and will spend a high proportion of their time firefighting.

It is all too easy to put off dealing with a leaky gutter until the day when water starts to pour into the flat downstairs. Thus, a job that should have taken ten minutes and cost the landlord £100 becomes an emergency that takes all day to deal with and costs the landlords £1,000. If problems like this start to happen on a regular basis, your landlords will become frustrated by the unnecessary costs of a reactive maintenance regime and may leave you. If this happens, the cost of making a property manager look after 10 per cent more properties could be the total loss of 10 per cent of their portfolio.

Elsewhere in the business, slow or reactive service can so easily cost you landlords. A reactive renewals department will fail to achieve decent rent rises for your landlords which will make them more likely to defect to another letting agent or even to sell their property due to poor returns.

A reactive rent arrears service will cause bad debts to sky rocket. Again, this will have an appalling impact on the relationship with your landlords.

AND FINALLY…

The final area where I see businesses cutting too deeply is in their accounting and financial management functions. In order to run a business properly, it is essential to have up to date management information.

You need a business plan with financial targets at the beginning of every year. You then need to monitor your performance against the plan every month. You need to calculate your key performance indicators every month. Perhaps most importantly of all, you need management accounts at least once a quarter and preferably every month. Without this information, you will just be shooting in the dark.

In a tough market, it is easier to save a pound than to earn one but don’t make the mistake that is made by so many businesses of trying to save £1,000 only to find that it costs you £10,000 of lost profit.

Adam Walker is a business transfer agent and management consultant who has specialised in the property sector for more than twenty-five years. www.adamjwalker.co.uk

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