As the UK property sector continues to roll into the Renters’ Rights Act, many agency businesses may be focusing on the wrong risks, according to an industry accountant.
Diana Mushosho of The Property CA, warns that while much of the industry discussion has centred on legal compliance, tenancy reform and operational processes, the greatest challenge facing agencies is actually financial visibility.
She has questioned whether business owners truly understand how changes in the market will affect cash flow, profitability and long-term resilience.
FOLLOW THE MONEY
She says: “The agencies that struggle over the next few years will not necessarily be the ones that fail to comply with the legislation.
“They will be the businesses that fail to understand how these changes affect the financial foundations of their organisation – the true drivers of the business.”
The Property CA’s recently published Renters’ Rights Act Financial Survival Checklist highlights 10 key financial areas agencies should be reviewing, including cash flow forecasting, landlord profitability, staff utilisation, arrears management and scenario planning. The checklist warns that while most agencies have spent considerable time preparing for the operational implications of the Act, many have not yet fully projected the wider financial consequences.
DIGGING INTO THE RISKS
According to Mushosho, one of the most talked about risks is the potential impact of landlord exits from the private rented sector, and yet no one has quantified how much they are prepared to lose before the business starts to crumble.
She adds: “Many agencies are aware that some landlords may choose to sell their properties, but fewer have modelled what that actually means for their business. What happens if 5% of your managed portfolio disappears? What about 10%? How does that affect revenue, staffing requirements, overhead recovery and profitability? What is the current buffer for the business, and is there a plan to improve that given the current market?”
Mushosho also raises the issue of how some tenants have become more reluctant to pay their rent in time, if at all.
She add: “What this means for agencies is that with no collections, much of the money is sitting in working capital as owed monies, which ultimately impacts the cash levels.”
Diana argues that agencies need to move beyond simply monitoring void periods and lost management fees. Instead, they should be analysing the knock-on effects across the entire business.
The Property CA is inviting concerned agencies and property management companies to take part in a free 30-minute health check to assess the potential impact on their businesses.
