Martin & Co has announced a new strategy, with its head office embarking on a purchase of franchisees’ businesses.
The firm said it has ambitions to be its own biggest franchisee.
Ian Wilson, managing director of the franchise lettings chains, said: “It’s the strongest possible signal we could be sending that we believe in the power of our own brand and in the long-term prospects for the UK lettings market by investing our own money in lettings businesses.”
He added: “By guaranteeing our franchise owners a fair price for their business at the time when they want to sell, it de-stresses the whole sale process for them in these uncertain economic times.”
The first office is has bought back is in Worthing. Another four purchases this year are planned.
It is the second shift of strategy in six months.
Martin & Co operated a high street-only model until last summer when it started offering online franchises. It says it has so far recruited 14.
This latest strategic direction shift means that Martin & Co will now be trading as a letting agent in its own right.
Wilson said: “Well-run lettings businesses lack a ‘reverse gear’. We are very much looking forward to controlling our own offices directly and deploying all of the head office expertise and best practice know-how at our fingertips to increase their revenue and profitability.”
He said Worthing became an obvious choice, as it is reasonably close to Martin & Co’s head office in Bournemouth and because the timing was right for the franchise owners.
Martin & Co franchise director Scott Burgess said: “It can be a stressful period for franchise owners if they are ready to sell but do not have a buyer waiting in the wings. We could offer a fair price, and because we were funding the deal from cash reserves we could work to the seller’s timescales, without worrying about whether the bank would approve funding.
“Ultimately we want to be the biggest business owner in the group as well as being the franchisor.”
Wilson added: “Lots of large corporate chains are trying to acquire lettings businesses to consolidate their market position but they have to continuously search for acquisition targets and then complete extensive due diligence because they don't know the provenance of the business concerned.
“We already have 180 businesses of known provenance and 27,000 managed properties on our books so are confident that our acquisition programme can be scaled up as quickly as funds allow.”
Photographed from left are the Worthing team: Business development manager James Carrier, negotiator Jodie Thomas, property manager Becky Spicer and office manager Caroline O’Dwyer
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Comments
Probably too late for my reply to be seen, but to answer IO's question:
If Mr or Ms Average is on a salary of £27,000 their take home pay after tax and NI will be roughly £20,500.
If profit (excluding Director's salary, dividends and tax ) is £45k (taking the mid-point of IO's suggested average) a franchisee who is sole Director and sole shareholder can take £7,000 of that immediately, with no liability to tax or NI as its below the income tax and NI threshold.
That leaves £38k. This will attract a Corporation Tax liability of 21%, or £7,980. The remaining £30,020 can be taken as dividends with no further liability to tax .
Total take home pay is £37,020 (£7,000 plus £30,020), granted not quite double Mr Average's £20,500 take home pay but well on the way to it.
In reality there will probably be writedowns reducing the Corporation Tax bill further - putting more money in the pot to pay the Director.
SImple when you know how - and this not some sort of dubious tax avoidance scheme, it is 100% legal, HMRC approved bog-standard business practice
This concludes today's lesson in Accounting for Small Businesses. NB SteveFromLeicester is not a qualified accountant and business owners should seek their own professional advice on this subject !
@SFL
Bit sensitive aren't you Steve, though nicely turned into a marketing campaign for M&Co I grant you.
But just to be clear the AVERAGE figure was £40 - £50K GROSS.
I don't understand how average earnings as I now understand them of £27K can be doubled with any tax relief you like when the starting figure is £50K gross but obviously as a PAYE man I don't understand these things.
I would have thought at best if you start at £50K GROSS then even if you pay zero tax you just stay at £50K income - don't you?
Re Industry Observer's comments addressed to me.
First of all, just to be clear, I know my own cost base inside out and back to front. I've also mentored new Martin & Co franchisees for many years so I've got a very good idea of what it costs to set up and run a branch in the Midlands.
Let's assume Industry Observer's numbers are right though, for arguments sake.
I suspect that quite a lot of people (whether we're talking about Martin & Co franchisees, independents or any other person in any other industry) would actually be quite happy to be running their own business and earning £40 or £50k a year. Let's face it, given the tax advantages enjoyed by a business owner, £40 or £50k would translate to take home pay roughly double what Mr or Ms Average might earn. Besides that, the business owner also has a saleable asset when they eventually decide to call it a day.
Some sadly don't even achieve that of course. That's business I'm afraid. Neither Martin & Co nor anyone else guarantees success (though statistically speaking you're far less likely to fail as a franchisee than if you go it alone).
The reverse side is that many achieve substantially more than average (by definition). Obviously I'll only say so much as its commercially confidential but suffice to say my own management portfolio is far in excess of the suggested average of 150 per branch (and I've got two branches).
Its not hard to work out where to find me. Anyone seriously considering joining the brand is welcome to speak to me and I'll tell it like it is (including the fact that, in common with virtually any other start-up business there'll be a huge amount of work, an element of risk, and a lot of sleepless nights for very little reward in the early days. If it was easy everyone would be doing it).
@ Learn Lettings
Yes rents have increased but so have wages, fuel, utility costs, uniform business rates, regulatory body fees and the other rent - premises.
Having said that you should set yourself up in competition to Richard Rawlings or whatever his name is rather than just industry training as your fee earning course would be much better!!
To take an average of £1250 from a typical East Midlands rental 5 years ago is a staggering performance. The average rent would not have been that much above £600, say £650pcm. So if you charged 12% which also takes some doing (I know all the arguments about peanuts and monkeys but it still takes some doing in the face of competition) then you'd be taking £78 a month or £936 a year from rent commission.
Maintenance mark up, insurance commission and client a/c interest would not contribute that much extra, but a little, so the only way to make it up to £1250 is with tenant application fees and Landlord initial and then renewal fees. That's OK in a faster turn round market and re-lets but with the average tenant now occupying for 20 months is also harder to achieve - less opportunity to raise the charges other than on the initial take on and letting.
The figures are possible but in the face of increasing competition then very difficult even 5 years ago, and now extremely difficult. There is of course tfo income, but here we are just debating earnings from fully managed.
Any agent charging 15% is either doing a fantastic job and deserving of it, or has little competition of any quality and so can charge higher fees more easily, or else has a fairly affluent and placid Landlord market for whom service and peace of mind are the most important issues, not price.
Again possible but sadly those Landlords are becoming fewer and further between even in the BTL market and where they are distant from their property.
I disposed of my lettings business when training opportunities became more lucrative, but £1,000 per annum average income per property! I earned at least £1,250 and that was only in an East Midlands market town and I haven't traded for 5 years.
Since then rents have increased, and the most successful agent in that town has charged management fees of 15% for years, which is higher than any of their competitors, so they are doing it right I would say.
There is a franchised agent established there but not making too many inroads it seems, but they are nice people.
@Ste
Doubtless Steve from Leicester will respond and I don't blame him. Though I ten to be a hard taskmaster for most agents and especially franchiors and franchisees I think you are being just a tad harsh here.
And by the way no member of NFoPP can buy a business with a client account deficit - they will not allow it unless any such deficit is made good at the point of purchase, not afterwards.
@Steve from Leicester
I thought you were a Belvoir franchisee hence the posting on the other Belvoir related item.
However given that the rent on decent high street premises in any sort of primary or even secondary location plus staff costs (with all the add-on costs staff bring) plus uniform business rates must add up to around £80K as an absolute minimum and you are being very modest in your income bases for M&Co franchisees.
Maybe economies of scle with two offices helps you Steve but bear in mind that 120 properties at £1000 per annum (assuming enough efficiency and charging at least 10% full management fees) only generates £120K GROSS income before tax.
So you are suggesting the average franchisee's income is maybe £50K at best even if I am being pessimistic on the costs. And closer to £40K if I am not.
Not that great an income for all that hard work - and original and ongoing(?) investment. Anyone with 150 properties and not in retail premises and in a below average costs (but also rents) part of the country may be doing OK Steve.
But any franchisee with much less than 150 on their books and in an above average costs part of the country I'd suggest may find life tight - assuming they actually know their true costs, income and profit which an awful ot of estate and letting agents don't.
M&Co don't have a clue. Franchisee's beware, the price they offer is likely to fall well short of real open market value. Wilson is useless. Will they buy the businesses with holes in the landlord and tenant money and make the shortfall good? If so i doubt that they will be short of prospects!
The figures may be different in other parts of the country of course, but in my part of the world you need to get to somewhere between 100 and 120 managements in order to make a fully branded and staffed Martin & Co branch profitable (provided the Franchisee works in the business full-time).
I should know, I've got two of 'em.
On that basis, an "average" Martin & Co office with 150 managements is probably doing quite nicely.
@Chippy James
Touchstone never bought back a franchised office - you are confusing it with their own wholly owned office network which they have had for many years, and indeed still have, of around 10 offices.
None of those is an ex franchised outlet.
This is priceless, just priceless.
For years M&Co marketed themselves on the basis of not owning any outlets themselves - as did all the other Franchisors of any size. And criticised others who did.
Then after banging on about the necessity of retail premises and how no self respecting agent should operate on any other basis they reverse that strategy.
Now they are going to buy back businesses - one assumes not because they have failed in business locally by not achieving the necessary core numbers generally. And above all not because they have specifically failed their annual client account checks.
27,000 managed properties (one assumes this excludes tenant finds of course) and 180 branches equates to 150 per office - hardly a sustainable figure for running a stand alone specialist lettings business from retail premises and with related staff and business rates costs.
A famous management guru, possibly Peter Drucker, once said "the last act of a dying organisation is to issue a new set of rules." I wonder where two changes of strategy in 6 months sits with that?!!
Not sure this is such a good idea. It didn't really seem to work out for Touchstone/Castle Estates when they started buying up offices. Franchisees may not like the idea of head office getting so close to their business. That said owning branches may help Martin & co to understand what is going on out in the field more.
Of course the other reason could be they are worried about more bad press if more franchisees go belly up. This will give the branches a safe way out and minimise the fall-out for Martin & Co