5 Biggest Mistakes Agents Make When Going Out on Their Own

By Kristen Porter, O*NO Legal

O*NO, you are thinking of going out on your own but have heard horror stories of start-ups failing and are wondering where they went wrong. They were solid agents, made tonnes of sales and brought in heaps of new business. But what happened?

Here are the 5 biggest mistakes agents make when going out on their own, so you can side-step all of them:

1.     Starting as a sole trader

‘My accountant has recommended I start as a sole trader and change to a company later as I grow’.

I have a real problem with this as it is terrible advice.

Firstly, the real estate industry can be risky. Risk brings with it liability, and as a sole trader your personal assets are on the line. Ask yourself – Can I afford to lose my house? If ‘yes’, then fine – be a sole trader, but I don’t know anyone who would answer ‘yes’ to that question.

Secondly, there is tax. Not many people go into business only hoping to make a salary. If that’s you, then maybe you don’t need another structure, but if you want to make decent money, then you will be wanting to pay tax at company tax rates which are much lower than personal tax rates in the higher brackets. Also consider that when you ‘roll over’ your sole trader agency to a company you will be hit with capital gains tax.

2.     Underestimating the need for a shareholders agreement

If you are going into business with a partner, then you must set the rules for the relationship. Many top agents forget this step, or simply underestimate its importance. Before getting married, you talk about all sorts of things such as whether you want children and how many, your values, hopes and dreams, and all the big things that matter in life.

Business partnerships are like marriages, and you need to make sure you have the same conversations. The shareholders agreement will cover who can make what decisions, how many offices (children) you will have and your growth strategy, what values the agency has, can you cheat on the other person (compete with the business), and how would a divorce work – would you buy them out, they buy you, or would you sell?

There are lots of considerations here, so don’t underestimate the importance of setting those ground level relationship rules.

3.        Entering into a franchise without thinking it through

Every franchise is different as it’s not a ‘one size fits all’ scenario. Depending on what you are looking for in your franchise relationships, the value that the franchisor is offering will depend on who you are best aligned to work with.

Franchise relationships aren’t for everyone. Generally, a franchise relationship is best for people who are either new to business ownership and are looking for extra support and coaching, or those that want to be a part of a larger brand and family.

If you are the former, then make sure what the franchisor is offering is what you need. The biggest complaint franchisees have against their franchisor is they feel value has not been delivered. Do not fall into that trap. Understand what value a franchisor will bring to you and your agency.

4.        Misunderstanding trust accounting & licensing responsibilities
Alarm bells ring loud here. Misunderstanding your trust accounting and licensing responsibilities can ultimately end your career. Agents lose their licence for this. Yes, you will either outsource your trust accounting or employ someone to look after it for you, but YOU are on the hook if anything goes wrong. It’s your backside and career on the line.

5.        Fancy physical premises

Ask yourself, is a fancy pants office really necessary RIGHT NOW, or can I find an alternative whilst I grow and cash flow is tight?

Many businesses struggling to pay their rent, even pre-COVID, are offering to sublet space or desks with shared facilities to reduce their overheads. That kind of model can work well in the early days, especially if you need an office presence and a space to meet clients.

As more and more or your clients adapt to the virtual world, the need for an office with huge street frontage to display your listings is dropping, which presents a massive opportunity for agents to save money on office space and put it into other areas that can have a better ROI.

Key Takeaways

1.     Get your structure right from the start
2.     Document your relationship with your shareholders or partners
3.     Understand the franchise relationship
4.     Nail the trust accounting and licensing requirements
5.     Only take premises you can afford

Your next steps

If you are thinking of going out on your own, then download our FREE Real Estate Agency Start-Up Checklist. Our Checklist will ensure you don’t miss any important steps and will assist you to shield your assets, future proof your relationships and expand faster. What are you waiting for? Download our FREE checklist now.

Don’t miss our any of our real estate agency law updates and blogs. Sign up to our newsletter now.

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us.

Article sourced from the O*NO Legal Blog.

https://www.onolegal.com.au/

Click here to access our latest Hot Topics Audio Book, featuring Kristen Porter