Thinking of selling your lettings agency? Here’s what you need to know!

We spent some time with Lucy Noonan, Founder and CEO of Atomic Consultancy, to pick her brains about the many moving parts of the selling process.

From first steps to the complexities involved to any possible downfalls, Noonan offers her expert opinion on it all.

What are the first steps to consider if you’re thinking about selling your lettings agency?

Step one is to speak to your accountant about the best way to sell your business. There are various approaches to a sale, the two most common being selling the lettings portfolio alone or selling the business as a whole. It’s crucial to get excellent accountancy advice from the start, understanding the tax implications of both those routes.

Secondly, look at how your turnover is derived. It’s important to understand your turnover in terms of managed income and ancillary income, as the value of lettings portfolios is subject to multipliers.

Thirdly, you should perform rigorous due diligence on your business. What are your overall costs? Have you got years left on any long leases? What are your staff costs? Do you have complicated commission structures in place? How long have your staff been in place, and who will be the key staff members that will help with integration after the sale is complete?

In addition, you should have a complete understanding of all the direct debits in your business such as fleet, printers, CRM systems, portals and phone contracts. It’s essential to understand your outgoings, to undertake an audit on them, and be clear on the timescales involved in getting out of any longer-term commitments before engaging a possible buyer.

Many buyers in the market could be put off by uncertainty about these details so before you sell, you need to be in good order to maximise the profitability of a sale.

What are some of the complexities involved when selling your lettings agency?

Each buyer approaches the acquisition and running of a business differently, making it important to appoint an advisor such as Atomic Consultancy at the earliest stage. Start off right, guided by the experts, and you’ll be able to stay on track to a successful completion. Atomic has worked with many buyers in the industry, both independent and corporate, and understand who will give you the best possible price, while also being the best cultural fit.

Another complexity is in deferred element of the purchase. The sale of a lettings agency business won’t always result in 100% of the purchase price up front; there’s usually a deferred element to account for a smooth transition and any unforeseen challenges. For example, if your business is worth £500,000, the buyer may retain £50,000 for 6-12 months, as insurance against problems that might arise.

The next area of complexity is the due diligence stream, of which there are 3 main areas – operational and compliance, financial, and legal. Operational and compliance due diligence means looking at the quality of your portfolio, including details such as ensuring you have gas safety certificates in place.

Financial due diligence involves checking that your accounts are in good order and that your deposit account reconciles, etc. Legal due diligence includes a thorough check of your employment contracts, company registration details, and bank accounts.

There’s no getting around it – selling a lettings agency is a highly complex process that can often throw up unexpected obstacles. Doing this without the support of experts can leave you exposed to undue risk.

Are there any possible downfalls to selling your lettings agency?

Our word of caution is, if you’re not prepared, the process is very likely going to be difficult. If you’re not confident about your numbers or can’t reconcile your accounts, then the buyer may ask for an additional deferred consideration.

There are plenty of businesses wanting to acquire but in the current climate, many smaller, independent agencies are struggling to get funding – a problem Atomic can resolve, ensuring funding is in place.

In addition, buyers don’t want to take on a host of liabilities. If, for example, you have a large printing contract in place for another 5 years, a buyer might ask you to contribute to a termination fee. If you’re looking to sell in the next 1-2 years, we advise you avoid signing up to lengthy contracts, and try to get commercial terms as best you can.

What are some of the major upsides to selling your lettings agency?

A lot of people’s circumstances are changing at the moment. If a business owner is seeking to retire, now is the perfect time for getting the highest value due to a lively, competitive marketplace.

There is also a significant raft of regulation coming in, on carbon monoxide and changing EICRs, for example, decreasing the value and profitability of a business. Exiting now allows you to avoid resourcing to meet these new, regulatory demands.

Thirdly, we’re seeing numerous agents selling their lettings portfolio so they can concentrate all of their efforts on estate agency, rather than both.

What do people not know but need to know if they’re going to sell their lettings agency?

The process is highly complicated, which is why you need an experienced broker to guide you from valuation to post-acquisition integration. Going it alone is risky and highly challenging, but having undertaken this journey 200 times in the past 7 years, we know every pitfall and guide you every step of the way.