Starting and Developing a Surveying Business

Austen Imber

• Publisher: Estates Gazette
• Year: 2013
• ISBN:
  9781135326692
• Edition: 1
• Topic: Droit
• Subtopic: Droit commercial

Starting and Developing a Surveying Business shows how surveyors can develop their own successful small business. For surveyors thinking of taking this step, guidance is provided on the pros and cons which will help the right decision to be made, and the key factors which help see the business through its early stages. For surveyors already running their own small business, consideration is given to factors which will help profitability and growth potential.

Self-employment, and starting and developing a surveying business as a sole trader, encompasses many situations, ranging from a new business which grows quickly in profitability and staff numbers, to surveyors undertaking part-time work alongside leisure pursuits — or perhaps even other business interests.

In surveying, the financial rewards are potentially high for those surveyors who exploit gaps in the market, and combine technical proficiency, business instinct and hard work. Others struggle to achieve adequate profitability, and return to salaried employment. A range of guidance on starting a business is available from government departments, banks, business books and specialist magazines, all of which make self-employment appear enticing. However, for a business to succeed, the underlying long term business case has to be sound.

It is not necessarily the most gifted or experienced surveyor who is best suited to self-employment, nor the one most likely to succeed. One surveyor does better entering an already crowded market because of the business development initiatives deployed. Another offering niche services with great potential may struggle to win business or manage the venture effectively.

As mentioned in the preface, there are many ways in which sole traders and small surveying businesses operate, and surveyors have a range of circumstances, fields of practice, expertise and personal aspirations which affect the fee levels achievable, cost base, profitability, etc. Although it is not possible in Starting and Developing a Surveying Business to provide prescriptive advice which fits every individual surveyor's circumstances, the comments in the early chapters relate to the majority of surveyors considering setting up their own business, and help in the formulation of individual plans.

This chapter examines the issues which prompt surveyors' thoughts of going it alone, and provides insights into the highs and lows of self-employment. It considers the scope to work from home, together with the necessity of secretarial support, and worked examples show why profit margins and profit, not just fee levels, are key factors to consider. An explanation is provided of the various issues which determine the line of business that the sole trader will pursue — including skills review, market analysis, specialist services, opportunities in crowded markets, level of market entry, how business will be won, rolling out services, cash flow and the defensiveness of fee lines, securing a mix of clients and the complexity and diversity of work taken on. Comment is then made on issues relating to existing employment, partnerships, and advisers/suppliers. Key points are provided on what makes business people successful, and the chapter ends with examples of new surveying businesses.

Initial considerations

Surveyors' thoughts of running their own business are easily prompted by factors other than its commercial merits. Examples include discontentment with a current employer, the attitude of a manager, the journey to work, low pay and long hours. The attractions of self-employment include working from home, flexible hours, visiting the gym in the day, and stopping work early in the evening to enjoy social activities. There is sole control over the direction of the business, and approvals from managers and others are avoided. There are future riches to contemplate, and possible early retirement, or semi-retirement.

In contrast though, business has to be won, and many sole traders report the number of working hours as being excessive, especially in the early days of a full-time venture. This includes working through illness, without sick pay and the other relative comforts afforded to salaried staff. Family/partners need to be supportive of the venture, and be comfortable with potential financial pressures, reduced time for family activities, etc.

Before self-employment is contemplated, a rigorous evaluation of all risks and opportunities as well as emotional and lifestyle factors is needed. This appears to be obvious advice, but there are small businesses that fail because they are inspired primarily by enthusiasm, and lack the necessary market research and evaluation of their true prospects

The highs and lows of self-employment

Self-employment has many drawbacks as well as opportunities and perceived lifestyle advantages. Self-employed surveyors report the highs being higher and the lows being lower than with regular employment. Frustrations include long periods with relatively little work to undertake (leading to the viability of the venture having to be reassessed), and clients being slow to pay, not forthcoming with approvals to recommendations that enables casework to be progressed, and unable to offer further work. Pitches for new work take time, and prospective clients' criteria and decision-making processes to appoint consultants is at times fickle.

A partnership enables contact to be maintained with other people, but for a sole trader with few meetings, inspections, etc, to undertake, many working days are spent alone. If finances become squeezed, and pressure is applied by lenders, the family home might need to be re-mortgaged — or even sold in order to move to a smaller house and remain solvent.

Commitment, resilience, determination, motivation, patience and toughness are key qualities required if experiencing such difficulties. Building a business takes time, and many people never take the step. A common reason is the fear of failure and lack of confidence (if not ability). Most businesses suffer difficulties, but provided the underlying concept is strong, and the cash position of the business not too precarious, they can survive them.

One telephone call from a prospective new client offering an instruction could see the fortunes of a small business change, and the spirits of the surveyor uplifted. Previous business development initiatives, the success of which was impossible to measure at the time with any accuracy, all of a sudden inspire a lead. Clients introduce other clients, and once a job has been done well, others follow. New clients emerge through unpredictable sources, and good fortune also helps achieve vital breaks.

In time, a regular client base emerges, and a steady level of work eases the early pressures of self-employment. Expansion of the business, and the taking on of other staff, might not appeal, but many sole traders enjoy years of self-employment, combining business and leisure interests with immense satisfaction.

Scope to work from home

Traditionally, surveyors setting up their own practice have often acquired office space and taken on a secretary. Increasingly, it is feasible to work from home, drawing on the latest information technology, without secretarial support. Benefit is gained from a lower cost base which facilitates more competitive pricing, higher profitability, and less overall risk.

For example, a residential agency needs an office/retail outlet, and would have to employ secretarial/administrative staff, whereas a surveyor providing specialist consultancy advice to clients on a national basis typically works from home — and if proficient with information technology, does not need a secretary.

The impression given to clients by working from home needs to be considered. Meetings at clients' offices or other venues helps avoid problems, and the location and size of a home could be impressive. Background noise, however, including from young children, gives a poor impression when speaking on the telephone or conducting meetings at home.

Home-based sole traders often report that it takes time before they are able to separate home life from work and therefore relax at home — especially if working long hours and if keen to develop the business. A small office elsewhere helps avoid this, even if it is not essential. An alternative is to share facilities with another business, making dual use of a secretary, administrative support, etc. One benefit of a home-based business is that it provides a low-cost start to a venture, with a view to expanding into offices when sufficient instructions are won.

If taking on premises, surveyors are naturally well-placed to deal with the property issues, and guidance is not provided in Starting and Developing a Surveying Business. If need be, the free RICS publication, Property Solutions — A Practical Guide for Your Business is available. This summarises the issues for businesses to consider in respect of property. Office costs are influenced by location, style, size, and the impression that premises need to convey to clients/ customers. Surveyors should be aware of the need for buildings insurance, contents insurance and public liability insurance, including insurance for loss of fees in the event of fire/destruction. Home insurers need to be contacted to see if business use makes a difference to the policy and premiums paid. Car insurance similarly needs to include business use if not already doing so.

In theory, a liability for capital gains tax, business rates, etc, could arise if working from home, but in practice, the nature of a sole trader's business use does not cause problems (ie by generally using shared domestic and business space rather than designated business space). If however, staff begin to work from the surveyors' home, and dedicated offices are created, problems are more likely. Planning permission could be required to operate a business from home, and lease consents are likely to be needed if the property is rented.

Necessity of secretarial support

Sole traders who are reasonably fluent with information technology usually find that a secretary is not necessary. Optimum use should be made of a mobile phone, laptop and other devices. Even if it is important that the telephone is answered when in meetings or away on holiday, calls can be diverted to a designated mobile phone of a family member or friend who is able to respond professionally with the name of the surveyor or company. There are also companies who provide secretarial/telephonist support services.

The ability to type at a reasonable speed directly into a laptop or desk computer and prepare letters and reports is considerably more efficient than the traditional form of dictating letters. Where surveyors lack IT fluency, and have relied heavily on secretarial and administrative support in previous salaried employment, they need to consider basic IT skills training before starting their business. Similarly, they will need to be appraised of the latest IT available, and how it is operated without the day-to-day support of others.

Sole traders are also often able to draw on family members, friends and neighbours to assist with photocopying, banking, posting letters, buying stationary and many other small roles — all which would otherwise add up as non-chargeable time for the surveyor. Time is money for the sole trader, and getting the many small elements and overall logistics right accumulate to having a significant effect on end-year profitability.

Secretarial services need not be full-time. Options include informal arrangements with family and friends, sharing secretarial facilities with another surveyor or local business, using a recruitment agency, and employing a secretary part-time.

Research into the options and costs of secretarial support, IT needs, and a car purchase, are just a few examples of the early tasks which must be undertaken when setting up as a sole trader. As a general example, costs are on the lines of computer, software, telephone, fax, mobile phone, e-mail/web facility, chairs, desks, cupboards, bookcase, shelves, filing cabinets, camera, safe, pictures/ decoration, plants, reception area, insurances, vehicle, premises costs (rent, rates, water, electric, gas, service charge, repairs, etc), telephone charges, other equipment, staff, stationary, postage, travel/mileage, advertising/marketing, lawyers/ accountants/other professional fees, professional indemnity insurance, subscriptions, journals, etc.

Profit and profit margins

Surveyors, as with many other professional services businesses, commonly focus on the fee levels achievable for particular services when determining the nature of their business, and the surveying activities to be undertaken. However, cost structures and profit margins differ between surveying businesses, services offered, and working methods. Surveyors need to assess profit and profit margins, not only fees.

As a simple illustration of the interrelationship between fees, costs and profit margins:

30 chargeable hours per week, for 50 weeks, at fees of £100 per hour, working to a profit margin of 25% (reflecting office, staff and other overheads in a larger practice), produces a profit of £37,500 (£150,000 fees/turnover, £112,500 costs, with the 25% profit margin deriving from £37,500 ÷ £150,000).

At profit margins of 75% (reflecting home working, no other staff and minimal overheads for an individual surveyor), fees of just under £67 per hour for the same chargeable hours see profits double to £75,000 (£100,000 fees, £25,000 costs, with profit margin calculated as £75,000 ÷ £100,000).

This shows how an understanding of the markets for surveying services, and the trade-offs between services, fee levels and essential costs, helps a particularly profitably venture to be established, even when, on first appearances, fee levels seem low, and profitability is therefore thought to be limited. For surveyors having worked previously in the larger surveying practices, the illustrations show how the economics and opportunities for small new surveying businesses are very different to the costs, margins, and business models with which they are more familiar.

There are, of course, many factors to consider when determining the format for the business, but this shows how with a skilfully tailored concept, a busy and reasonably talented home-based self-employed surveyor is able to achieve strong profitability. As an example, in the late 1990s a Midlands based surveyor in his early 30s, starting a business from home without secretarial support or existing contacts/clients, reached annual profitability of £100,000 within the first full financial/tax year. A combination of property investment advice, property management work and business management consultancy enabled him to provide high added value to growing small investment companies and other businesses at affordable fees. A low cost base was secured through home working, and basic information technology skills avoided the need for a secretary. The surveyor's equivalent salary if working for a property consultancy would not have exceeded £30,000. Today, the surveyor enjoys a secure financial position and need not work again, although he still combines property, advisory and educational interests. The principles embraced by the surveyor are reflected in the issues emphasised in Starting and Developing a Surveying Business.

Fixed costs, variable costs and the surveyors' commitment

A sole trader is likely to have a relatively high proportion of fixed costs compared to variable costs (as can be seen from the list on p 4) — although the cost base depends on the type of work. As a simple example, a self-employed surveyor undertaking 40 hours per week (30 of which are chargeable time), may achieve £30,000 profits from £45,000 income and £15,000 costs. A further 10 hours' chargeable work (two hours per day) would increase income to £60,000, and produce profitability of £45,000. In other words, a third extra chargeable time achieves 50% increased profit. This assumes that all costs are fixed, which except for minor additional costs is not too unrealistic for a sole trader — with office equipment, the cost of acquiring a car, computer and other IT needs, the RICS subscription, Estates Gazette subscription, etc, remaining unchanged. Further detail on costs is shown in Chapter 8 and Chapter 11.

This is similar to the enhanced profitability achievable when property consultancies push their surveyors to exceed 40 hours per week. Although bonuses are usually payable, and are a variable cost to the company, the surveyor's extra efforts have a disproportionately beneficial effect on end year profitability, especially if profit margins are in the region of 10–20%. At 15% profit margins, for example, (£100m turnover, £85m costs, £15m profit), a 5% increase in turnover increases profit by 33% to £20m (assuming no cost increases). Conversely, lost fee earning time quickly erodes profitability. The extent of such sensitivities depend on the typical margins of the business, and also the relationship between fixed costs and variable costs. The smaller the margins, the greater the sensitivity of variations in income and costs to profitability. Likewise, profits are more sensitive to changes in income when there is a higher proportion of fixed costs. In the above example, the sole trader is initially working to margins of 66% (£30,000 ÷ £45,000). Larger practices see profitability vary, but between 10–20% as a guide, depending on the nature of the business, and the performance in a particular year. Smaller niche firms, but with turnover still in excess of £1m, achieve margins as high as 30%, and occasionally more. As a general point, margins for a sole trader taking all profits and larger practices having staff costs are not really comparable — but they still illustrate certain advantages enjoyed by the sole trader.

The above illustrations show the scope for sole traders to increase profitability by working hard (such as t...

Table of contents

• Cover
• Title Page
• Copyright Page
• Table of Contents
• Foreword
• Preface
• 1 Assessing the Opportunities
• 2 Personal Qualities and Working Methods
• 3 Finance and Cash Flow
• 4 Business Plans
• 5 Business Status and Tax Issues
• 6 Winning Business
• 7 Business Growth
• 8 Case Illustrations and Other Issues
• 9 RICS Requirements
• 10 VAT
• 11 Accounting
• 12 Property Investment and Development Interests
• 13 Further Information
• Index