Are your landlords tied in?

An important concern for any buyer of your letting agency is that once the business is acquired, the existing clients start to leave. This is especially the case where the current owner’s presence in the business is strong, and he has personal relationships with many of the existing landlords. In such circumstances, the loyalty of the existing clients may be more closely tied to the owner of the business than to the business itself.

It will be important in any business that the new owner assures existing clients that it is business as usual, and that despite the change of ownership landlords will be looked after at least as well as before.

Ultimately the new owner cannot stop landlords leaving if they decide they want to. However, the outgoing owner can buy the new owner time, by ensuring that as many landlords as possible are tied into twelve to twenty-four months of full management agreement. This allows the new owner to show the ongoing value of the business under new ownership, and to find ways of providing extra value to existing landlords so that they stay.

These contracts should include some penalty for leaving before the end of the contractual period, or they will not have much value to a buyer. The greater the ability of existing landlords to leave with little or no notice, and little or no penalty, the greater the risk to any new buyer, and the less value the business will hold.

To make your business less risky, more desirable and more valuable, get as many landlords as possible tied into management agreements for a decent length of time.

If you are thinking about a sale in the next couple of years, this is one of the few things on this list you can act on immediately. Start with the largest landlords, because that is where the risk is concentrated.