I am sure that many of you will have taken a good look
at your costs by now. I thought it might help to show
you the sort of areas that I would be looking at.
Personal expenditure
The business should only pay for business related
expenditure. Some of you may have been tempted to
pay for personal expenditure through the business.
If the spend has not been treated correctly for tax
purposes you could end up with an extra tax bill. This
is the last thing you want.
In this market you really don’t want to put additional
pressure on the business. You should be making the
personal economies to leave more in the business.
Personal expenditure also sends the wrong signal to
staff. You need to hurt if they’re hurting and you need
to be seen to do so!
The business model
You first need to look at your business model. Is your
business model still right in this market? If it is not
appropriate then you must make the changes. The
changes will dictate in broad terms the area of cost
savings (or increased expenditure).
Business related costs
You need to go through these on a line by line basis.
Fat will have accumulated in the good years. You
almost need to pretend that you are starting a new
business. Do you remember how lean and mean you
were in those days. When looking at costs the mindset
you need to maintain is that “£1 spent by the business
is £1 less for me”. It really does focus the mind!
Remember there are no sacred cows.
Staff costs
Generally, staff are the most significant overhead cost. You
need to sort out the drivers from the passengers. Sadly there
is no room for passengers. You should reassure key staff
as to their future as far as you can. No one can perform
to their best if they work in fear. If you can make staff costs
more variable than fixed in nature that must help.
Advertising
Again this for most agents is a significant cost. I grant
that some advertising spend is necessary but a lot is
spent by rote without a great deal of thought. There
may be scope for agents to cut their spend provided
they make the advertising different and bold.
All I see is page after page of barely differentiated press
advertising. There must scope for local “coordinated
bargaining” with local newspapers.
Stock
It stands to reason that the cost of having 200 properties
on your books is greater than having 100. It may make
you feel better but it will cost you more. If you only had
100 properties that you had carefully “scored” before you
took them on your conversion rate would be far better.
The sellers should be motivated, the property priced
to sell and the fee respectable. If it ‘aint don’t take
it on. A number of agents now run a similar system.
With less stock staff could be more focused. You may
even have less staff. Your advertising and related
costs would be lower. Remember “stock is vanity,
profits sanity”!
The biggest word in the English language is “no”.
It will take real courage to devise a scoring system
and stick to it. If you do it properly your “stock turn”
will improve and by being able to shrink related
overheads you will make more money.
Interest costs
These can be reduced by paying suppliers a little later
(Ed: but don’t be too mean, you need suppliers too!)
and ensuring your debtors pay on the nail. Working
capital management is something I will return to in
the future.
Supplier discounts
You should be behaving now being firm with all
suppliers. In this febrile business environment if they
won’t give you a discount someone else may well do
instead.
HIPS
I know some agents have taken on the cost of a HIP.
They attempt to recover it in their commission. Get
it wrong and this will be a real cost to the business.
This area needs a great deal of thought.
Taxation costs
Tax is a genuine cost to your business. You must
make sure that your business is structured in such
a way to reduce the taxation cost to the business
and yourself once you have extracted the money
you need to live on.
Jonathan Harvie is a CharteredAccountant, an
Associate Member of the NAEA, a Partner with
Hazlewoods LLP, he heads a team of tax and business
advisers, specialising in advice to Estate Agents.
This article has been prepared as a guide to topics of
current financial and business interest.
We strongly recommend you take professional advice
before making decisions on matters discussed here.
No responsibility for any loss to any person acting
as a result of this material can be accepted by us.
For more details call
01452 634800 or email jh@hazlewoods.co.uk
Jonathan Harvie discusses cost cutting exercises
