Succession Planning is something I hear leaders talk about often. For many, however, talk appears to be as far as it goes. While I hear many leaders talking about Succession Planning, I don’t see too many doing much about it.
The average age of a real estate principal in Australia and New Zealand is around 55 years old. A large portion of real estate business ownership is marching toward its golden years. While many will not retire at 65, it would be fair to say that most will want to at least slow down a bit. You need a profitable business to do that. Or at least you need a buyer for your business. In the absence of both of these, the business owner sells the Rent Roll and closes the rest of the ‘business’ down. What a sad end to years of hard work.
If you are smart, your real estate business should be worth more than just the Rent Roll. While you are young enough, you should expend as much effort as you can spare building a profitable sales department. A team of four salespeople who EACH produce $250,000 in gross fees per annum will give you a profit of $365,000 a year provided you pay your salespeople under the correct reward structure.
Hint: the correct reward structure is NOT what the industry recommends. Forget the pathetic retainer debited against commission model, and likewise the commission-only model. Pay salaries monthly and bonuses quarterly for an acceptable performance and you will increase your profit. There is more to it than this, and you should not go down this road half-cocked, but I mention this to warn you that the typical industry reward systems do not produce wealthy business owners, nor do they produce wealthy salespeople in large numbers.
Build a profitable sales department and you double the value of your business. Imagine selling your Rent Roll for $400,000 and receiving the same amount for your sales department. This would certainly boost your retirement income, wouldn’t it?
The next question to ponder is an important one: whom are you grooming to take over?
Often you can sell your Rent Roll by vendor financing it to a Property Manager. Failing that, there will most probably be an agency that will buy your Rent Roll. If it is a large Rent Roll you may have to break it up and sell it to several buyers. But most agencies don’t have too much difficulty finding a buyer for a Rent Roll if it’s priced right.
Sales departments can be a little trickier, mostly because outside buyers do not expect them to be profitable. Therefore you don’t have people queuing up to buy them.
The most obvious place to find a buyer will be among your existing team. This is why it is critical that you find and develop winners. Not only will they make profit for you while you own the business, if a salesperson ‘grows up’ in the business, he or she will know the business, know how good it has been to you, and will be happy about buying it.
Some leaders I know have sold off portions of their sales departments to winners on the team. These leaders have chosen to sell their businesses in small portions, gradually over time. This too makes sense if it suits your plan. But again, the success of this plan hinges on your having a team of winners, and a profitable sales department to sell.
In the coming years I intend to talk more about Succession Planning and Estate Planning. My plan is to interview experts in these areas. The older we get the more important acting on Succession Planning becomes.
I don’t want to be a downer, but none of us knows how much time we have left. On New Year’s Day 2011 my younger brother, Wayne, died of a heart attack. He was fit, didn’t drink, never smoked; his death stunned us.
Throughout the following year I saw the problems that Wayne’s wife, Debbie, had in sorting out the estate. Wayne had one company, but it took Debbie a year before she got everything finalised. While that happened the bank froze some accounts and she was short of cash. And she was grieving.
It made me think. If Debbie had all this trouble with one company, what kind of mess would I be leaving my wife, Kerry, if something happened to me?
So throughout 2011, we worked on Succession Planning. We went through everything.