Trust me, I’m an estate agent: A toolkit for budding entrepreneurs

In this article, entrepreneur Andrew Ramsay shares some very useful practical tips on starting your own business; covering everything from finance and thinking about surviving your first year through to picking your perfect team of staff.

Background

Firstly, a bit about myself. I will try not to bore you. I am semi-retired and have the joy of being able to live half the year in Spain and the rest in England. It was working for myself in the final dozen years of my career that enabled me to do this. I am still a non-executive director of our family business.

So how did I end up in this position? Starting back in the early 1970s, I worked for more than ten years in wholesale grocery. In those days, our customers were independent grocers. At the ripe old age of 26, I was the manager of a wholesale distribution depot with 50 staff. Six years later, the branch merged with another as industry consolidation got underway. The march of the supermarkets had begun. So one of the things that I learned early on, was that industries change, and few people can expect to remain in the same career throughout their lifetime. But what I had gained, was a great deal of commercial experience.

I went to work for well-known brand names as a National Account Manager, and eventually ended up at Royal Mail. I was a Client Director, and then Bid Director. I was responsible for negotiations with government departments and major companies. For example, TV licensing was then conducted via the Post Office network, and one of my jobs was to negotiate the contract.

Starting a business

However, in 2001 when I was 51, Royal Mail was in a state of chaos, and was losing £1M every day. That needed action. So they offered managers over 50 a package which was just too good to refuse. My wife was also a Client Director there. So we took minutes to think about the offer, before accepting. We already had a holiday home in Spain, so we rented out our UK house and moved to Valencia province. 

Royal Mail gave us a lump sum and started to pay our pensions just as if we had worked until 65. Crazy, I know, but that was part of the deal. But I didn’t want to spend the next 30 years sitting by the pool. At the time, I spoke very little Spanish, but I needed a job where I could use my commercial experience and negotiating skills.

I spotted an advert in the Sunday Times for a UK estate agent which operated in Spain. They were successful in South Costa Blanca, but wanted someone to get them going in North Costa Blanca. I went to work for them, and helped to get them started. It was a strange market at the time. We brought people over to Spain on so-called inspection trips and paid their flights and hotel. They would stay for three days, and 90% returned to the UK as the proud owners of a Spanish home. The Spanish though these people were nuts.

It was a client who had bought a house from me, who asked me why I didn’t do this job for myself. I had been there for a couple of years, made lots of contacts, and by then, spoke reasonable Spanish.

Why did this client suggest that I did this? Presumably, because he trusted me and thought that I should be using the skill for my own benefit. Just remember that word. Trust. I will come back to it.

For the next four years, I worked on my own. I used all my contacts in the industry, and got lots of recommendations from friends. Estate agency is about the stock that you have for sale, so generating new business was essential. Meeting new potential vendors is very important.

Everything went very well, and I was making money. Then in 2008-09, came the financial crisis, and the Spanish property industry fell off a cliff. So another lesson for me. Don’t assume that your business success will last forever. It will always be subject to pressuresfrom the external environment.

Starting in the UK

We decided to rent out the Spanish house and return to our UK home. Of course, it wasn’t just the changing property market that took us back, but also the arrival of grandchildren. No matter how committed you are to a business, family is important.

By then, I was 58. You don’t need me to tell you how difficult it is to get a job at that age. Prospective employers would think of me as over-qualified, unwilling to be a comparatively junior employee, and yes, as too old. So what to do? Set up our own letting and sales business. This is a really important point. Why do you want to do this? Is it financial necessity, boredom at work, family, dreaming of a better life? Whatever it is, be honest with yourself before you jump into the deep end.

Then came the light-bulb moment. My wife and I decided to look at the options for starting a franchised property business. We went to three different franchisors. One of them was based in a former police station in Grantham. The guy spent more time telling us about one of the cells where the murderer, Beverley Allet, had been held, than talking to us about our plans. When we left, my wife and I looked at each other and said, “No, not for us!”. The chemistry has to be right. We settled on Martin & Co. It took us about 8 months of planning from agreeing to take a franchise to actually getting the show on the road.

So whatever you do, don’t rush. It’s better to spend months planning than to get it wrong.

Our first office was opened in March 2010 by David Cameron, just before he became Prime Minister. He was our local MP, and it meant that we got lots of free publicity for the opening. On opening day, the only property that we had to advertise, was our own home and my wife’s parent’s home. 

Two years later, we had paid off the bank loan. After less than five years, we had two offices, a portfolio of over 500 properties under management contracts, and a thriving property sales business.

Some suggestions

So what did we have to think about on the journey? 

What follows is not in any particular order, and it is certainly not an exhaustive list. It is just something to make you question yourselves. I was a corporate MBA man. I made the jump to my own successful business, but we all do it in different ways. I have no idea what your plans might be, let alone what you think that your USP might be in a new business. I can only offer generic suggestions. Inevitably, much of what follows is based on ideas that I gleaned in the real estate world. It’s up to you to translate that to your own situations.

If some of this sounds negative, well, it is intended to make you question your own motivation.

Form a limited company? 

It was essential for our franchise agreement, but it might not suit every circumstance. A company might protect your personal finance, but it may not. Don’t forget that banks won’t lend to a small company unless it has personal guarantees from the directors. The same applies to leasing premises. However, there are tax benefits. I am not qualified to advise on those, but I would say that we only ever took a minimum salary from the business. I think the current limit is about £8000pa that you can take without having to pay national insurance. The rest should be taken as dividends. Of course, you might still need NI contributions if you haven’t reached the 30-year maximum, so take advice.

Where to trade from? That depends on the industry, but unless you intend to work from home as a sole trader, you will need somewhere. We decided to go for a high street shop front. All the other local agents were in smaller side roads, so we were bold, or stupid! After staff, rent and rates are the biggest costs, so be careful, but don’t think too small. Public profile is important.

And while you are looking for premises, don’t forget that planning rules will prevent you from putting some businesses where you might want to. For example, when we opened in Witney, only A1 retail was allowed in the main street between certain points, so we had to be just outside that. You will probably need change of use permission from the local authority. Although you can apply easily enough, it is well worth having an informal chat with a local planning officer to see if he is likely to object. Most simple decisions are taken by the officers, not the committee, using so-called delegated authority. So keep the planning office on your side.

Finance

Of course, depending on the industry, you will need finance. It is customary in ours, for the start-up to provide 30% and the bank 70%. Other industries will vary, but do the research. What will the bank want? Well, they will certainly want evidence of your likely success. That will include five years’ cash flow and profit forecasts in considerable detail. They will want to know your background and everything there is to know about your finances. They expect to see a detailed business plan that includes how you propose to market your new business. The bank will certainly want a fixed and floating charge over your company assets. They will definitely want a charge on your home. So if you or your spouse are risk averse, don’t even think about it.

Incidentally, banks like lending to franchisees. The failure rate is low, and the franchisor gives lots of support to start-ups. So don’t forget to consider a franchise.

Working capital

Whatever number you have in mind, add at least 50%. It always costs more than you expect to get going.

Assets

Buy or lease? Unless you have unlimited funds, don’t even think of buying offices, or cars. Office equipment is fine, and can be written off over four or five years. There are plenty of places that sell second hand office furniture. Why invest 25 grand in a car when you need every penny for the business? Many lease firms offer deals that include wrapping the car in your corporate design and will take it back after three years. Offices? There are thousands of properties out there looking for tenants. Don’t even think of buying. You should be able to negotiate a three or six months’ rent-free period to cover set-up costs. Don’t go beyond a ten-year lease. Always insist on a break clause if the landlord wants a rent review every three or five years.

Exit strategy

On your profit forecast for the bank, try to include an estimate of what the goodwill might be worth in five years’ time. Why? Because the bank will be interested – as you must be – in your exit strategy. We knew that our son, who was an Army major, wanted to leave the Army and go into business. He now runs our agency day-to-day. You may think of selling the business in five or ten years, but do have some idea of how you plan to exit. 

What to sell? 

If and when you do sell, you could sell the shares in the company, or you could just sell the goodwill and assets and keep the company. Your accountant will advise you. One of the advantages of selling the shares, is that if you founded the company as a £100 company, in a few years the shares will be worth tens or hundreds of thousands of pounds. That means you will have to pay capital gains tax on the increase in their value. However, the good news is that HMRC will usually grant you Entrepreneurial Relief. That means that CGT would only be 10%. 

Professional advice 

Use a good accountant and solicitor. Don’t be tempted to cut corners in this area.

Outsourcing

Which brings me to how you spend your time in the new business. As I have said, my background was in negotiations and sales. I am not an accountant. In the lettings business, it would be easy to spend almost all day dealing with the accounts. Collecting rents, paying maintenance contractors, paying landlords, the VAT return, the PAYE return, the wages, monthly management accounts, the statutory accounts, the annual returns to Companies House – it’s never ending. Why would I want to do something that it obviously not my forte? One of the best decisions that we made, was to outsource the whole lot from day one. A specialist firm of accountants does all of that work for us. They check our client account daily, prepare the rent processing every day, send it to us by email for sign off, and then make the payments to landlords. And they do all the other stuff that I mentioned. For our customers, it’s completely seamless. They have no idea that we don’t do all of that in house. We could not possibly do it ourselves for less than we pay a specialist. So think about how you want to spend your days when you start your new business. It might not be possible to outsource your accounting, but do consider if you actually need to keep everything in house.

How will you support yourself? 

Few businesses make any money for the first year or more. You might be giving up a wellpaid job to start a business. How are you going to pay yourself when the business isn’t generating any profit? It’s why so many people fail. They haven’t thought about it. My wife and I were fortunate that, as I have mentioned, we both had occupational pensions, as well as rental income. How will you support yourself and your family in the early months?

Family matters

I mentioned earlier that we returned to the UK in 2009, partly because we now had grandchildren. Don’t under-estimate family issues. Is your spouse or partner joining you in the business? If not, will they support you, even when there is no money coming in and you are spending every waking hour at work? The kids probably won’t see much of you either. 

Trust

Yes, back to that. Four suggestions for how to build it among your prospective customers.

First - Run an ethical business, and don’t try to cut corners

Never be tempted to pay staff or anyone else in cash. Don’t accept business from customers who you think don’t operate in an ethical way. Never offer to waive the VAT if someone pays in cash. The customer will tell his friends, and even if HMRC don’t find out, you have lost all credibility in the market.

Second - Get a qualification 

Whatever your industry, make sure that you have a qualification, or at least a sound knowledge about everything to do with the business. I (and several of the staff) took professional qualifications in lettings. Then we could talk confidently to customers. They will always spot if you are bluffing them, so don’t.

Third - Network, network, network

And I do not mean social media or LinkedIn. They have their place in the 21st century, but it’s an apology for networking. Go talk to real people, not their virtual selves. Join a local business breakfast club. Most towns have them. You will meet other entrepreneurs and be able to exchange information. We did it very early on, and met not only people who became our customers (landlords), but also people who became our suppliers. If you look them in the eye and listen to them, that’s how you build real trust, not on social media.

Fourth - Listen

There’s an old saying that, “We are all born with one mouth and two ears. Use them in that proportion.” Most salespeople and many estate agents don’t do that. Yet, if you listen to what the client is saying, you will save yourself a lot of time. Qualifying leads is vital. In our industry, too many agents just throw a load of properties at a client, and hope that one of them will stick. If you find out what they really want and listen to them, it should be easier to avoid wasting time. That’s what we do in our business. As a result, more than one in four viewings becomes a let. 

If you can create the time, join a service organisation – Rotary, Round Table, Lions, whatever. They are not networking groups. They exist to serve their communities, but also to provide fellowship for members. They have a number of advantages. You will meet people who know people, you will raise your profile in the local community, and best of all, you will be serving your community. That has to be worth the investment of your time.

Say NO to bad business

When we acquired our second office, it had been run for ten years by a guy who, although he was a lovely guy, had not got a clue. He just could not say no to a customer, no matter how ridiculous their demands. In an industry where the average commission for a fully managed service is about 10% of the monthly rent, he had agreed to 7% with some landlords. To make matters worse, that was with no tenancy renewal fees, no tenant-find fees, and all the staple fees that keep an agent going. Utter madness. We had to “lose” some landlords who just were not profitable. Don’t be tempted to work for nothing, just to get the business going. 

Staff selection

There are no “perfect” people in this world. We made loads of mistakes. A settled team is great, but don’t let it get too settled, or you won’t progress. 

Of course, we made mistakes with staff. I took on a negotiator from another agent. I had come across her at work, and thought she would be good in our office. She started on a Monday morning. On Tuesday she went to lunch and never came back. As I said, you can’t always get it right. It seemed that the high-speed world of lettings just wasn’t what she was used to.

Staff development and loyalty

I can think of few more satisfying things in business than taking a raw recruit and developing their talent. It is cheaper than taking on fully experienced people, and helps to build their loyalty to you.

Examples of how you can build staff loyalty and develop someone. We took on a young mum who was just coming out of a messy divorce. She joined us part time as an administrator. That was six years ago. Now she is an Associate Director, professionally qualified, and runs one of the offices. Another example. We took a chance on a worker who had a bit of a chequered history. He had been caught doing things that he shouldn’t have – nothing financial, I hasten to add. He had been out of the industry for a while because he had done something silly. He’s now a hugely respected member of the team, and is loyal because of how we helped him. Another example. We took a young girl straight from school after A levels. She was so naïve that on her first morning, she put her hand up to ask for permission to go to the toilet. She went on to be an indispensable team member who staff and customers really respect.

So build and develop your staff. Reward then with personal commission schemes. Send them on training courses. Have a laugh with them. Make sure you hold a Christmas party for them. That’s how you get their respect and loyalty.

Know the personnel laws (or take good advice)

Early on, we had an issue with an administrator who went off sick with stress. We put her on Statutory Sick Pay, so it wasn’t costing us anything. I knew the employee was not necessary as stressed as she stated and this was blocking a job. So I followed a procedure to free up her role whilst upholding the law.

So know what you can do in personnel law and what you can’t. Keep good personnel records with a file for every employee and make sure you conduct regular performance appraisals with them.

So these last few are “soft” issues to do with people. When you start out, it’s too easy to get bogged down with the hard issues around strategy and starting the business. Maintain a balance with the soft stuff, and it will be OK. 

Staff capacity

Of course, staff are expensive. If they are properly trained, they will more than repay their cost to you. I am in a customer facing business. In that environment, in order to expand quickly, you cannot risk not having the capacity to handle anything thrown at you. We chose to always have more staff than we could have got by with. As a result, we gave great customer service. Obviously, that doesn’t work in all industries. But don’t scrimp on staff. It will end up affecting your performance and bottom line.

Marketing

I am certainly not going to tell you how to market whatever business you set up. All that I would say, is don’t get drawn into the sexy stuff if you don’t need it. After staff and premises, Marketing is the next big expense. Try doing what the competition don’t do. We have always refused to advertise in the local papers. It’s what most agents do, with pages and pages of houses. Yet where do virtually all enquiries come from? From the internet, from our own website, but usually from one of the big property portals like Rightmove or Zoopla. So why would we advertise in the press? 

Think about ways to get cheap or free publicity. Sponsor some local event. One of our directors writes a property blog. Loads of people follow it, and it costs us nothing. We use social media to promote new properties, events that we are involved in, and so on. Again, it costs almost nothing. So don’t just allocate a marketing budget and spend it. 

Culture

So you are in a big firm, with specialists all around you. Suddenly, you are responsible for everything. It’s a big culture shock. Who can you talk to when you just need to download? I was lucky. My wife had been an MD at a direct marketing firm before we met. We worked together in our business. In the early months, we would sit at breakfast with notepads and discuss what was happening and why. A bit sad, I know. That’s a big change from a corporate culture. So who is going to be your muse?

Adaptability

When you are running your own business, you have to be prepared to adjust your behaviour to changing situations. For example, our franchisor has always tried to get us to offer mortgages to our clients through their partner broker. Of course, we would earn a commission on any deals done. However, it would be through a faceless call centre. Instead, we have an arrangement with a local mortgage broker. She does not pay us any commission. We send her people who need a mortgage, and she send us landlords who have taken a mortgage with her and need to find a letting agent. How did this arrangement arise? Because we met at a business breakfast club. Remember what I said about networking.

I will end on this thought on the ever changing business landscape. I got my MBA in the mid-1990s while working for Bunzl. The graduation ceremony was at Ely Cathedral. The Vice-Chancellor of the OU was Betty Boothroyd, the Speaker of the House of Commons. As she handed me my certificate, she said, “I see that your employer sponsored some of the costs of your degree. Are they pleased with their investment?” I replied, “Presumably not, they have just made me redundant.”

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© Andrew Ramsay, 2016
Reviewed 2022