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Brokerage Valuations: Boosting Your Firm's Value

Jan 5, 2021 9:19:18 AM

It’s time to take a look at your profitability and make your firm more valuable.

You don’t have to be ready to sell your brokerage to take action on making your business more profitable. Boosting value typically means boosting profitability, and I don’t know an owner out there who would object to being more profitable!

There are many ways to boost value. For most firms, getting back to the basics by spending less can often bear fruit! The first thing we tell clients, regardless of their reason for improving their bottom line, is to carefully track where they are spending their money. This may require the time-consuming endeavor of sitting down with the controller and going line by line down the general ledger. It may seem tedious, but it’s a highly worthwhile time investment.

Optimize Spending

No matter how menial an expense may seem, every opportunity to cut or optimize spending can positively impact the bottom line. Make sure you aren’t cutting something that would adversely impact the culture of the company, or an agent service for which you’re not prepared to offer a meaningful alternative. When it comes to larger endeavors, such as closing offices and cutting staff, such actions need to be well thought out and executed.

Top-Line Growth

Once firms do what they can with operating expenses, it’s time to boost the bottom line via creative action on the top line. The most logical means of adding top-line growth is recruiting more agents. That’s easier said than done, right? Since recruiting productive agents is something all firms actively pursue, let’s look at a potential value booster that not very many pursue—fee increases. 

Not all firms may be in a position to increase fees, but many are, and should. Rather shockingly, we find that fee increases are rarely something brokers endeavor to undertake because there’s risk when you mess with compensation plans. But, if it’s done with intentionality, it can be well accepted.

I’m not going to give you a script on how to communicate fee increases to your agents, but I’ll encourage you to make it more of an organizational mindset. Most people understand the increasing costs of running a business. Perhaps you write into your independent contractor agreements and corporate manual that you reserve the right to adjust fees periodically, which would go a long way in helping to alleviate any surprise when you pull the trigger. 

Keep in mind that fee increases don’t need to be large to make a meaningful impact to your bottom line. Almost all of a fee increase would drop to the bottom line, which would increase your value by a factor of say three to four times every dollar dropped.

These are just a couple of ideas on how to boost your firm’s value. By spending time putting these ideas into practice, 2021 is bound to be your most profitable year yet! 

Scott Wright is a partner with REAL Trends Consulting. Reach him at 303-741-1000.

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