How to identify a profitable real estate franchise in Belgium

As someone with an interest in real estate, perhaps you are considering setting up business as an independent estate agent. You are then certainly aware of the real estate franchise system. By joining the franchise system, you can take advantage of the experience and brand image of your franchisor, while remaining the sole owner of your business. However, your relationship with the franchisor remains the cornerstone of the franchise system, so you will have to choose your future partner very carefully. One question that must be addressed is the profitability of the model proposed by the Belgian franchisor. Engel & Völkers describes how to identify a profitable franchise.

What is profitability?

Before being able to determine if a franchise is profitable, we must ask what exactly is profitability from the financial point of view. Belgian franchisees tend to consider that their estate agency is profitable when the profits generated allow them to pay off their loans. However, it is necessary to go beyond this and take into account two concepts: dividends and capital variation. Indeed, if your company generates a profit but at the same time incurs a capital loss, you are not profitable.

There is no precise rule to determine the point when your estate agency must be profitable. As a general rule, you will need at least two years to become profitable, because even if your agency makes a good profit, it will be difficult to reach your break-even point before then. The break-even point is the point where earnings are greater than the franchisee’s personal input. As mentioned above, this duration may vary depending on your business and your margins.

Belgian law: the DIP and profitability

How to separate the wheat from the chaff among franchisors? Belgian law requires the franchisor to provide the franchisee with a pre-contractual information document known as the D.I.P. This document includes all the important information for the franchisee, including information concerning profitability. However, this only concerns the profitability of the Belgian franchisor and not their franchised entities. In addition, franchisors will often give you the average figures for similar estate agencies. You may also receive a list of other franchised agencies belonging to the network and obtain information directly from them.

How to judge the profitability of a franchise in Belgium

In Belgium, the profitability of a franchise is judged on the basis of four indicators: the profit margin of the business, the profitability threshold, the amortisation of the overall investment and the estimated turnover. The profit margin is the ratio between the gross operating surplus and added value. This means that the relationship between the working capital (excluding investment) and the value that is obtained by deducting the purchase price of raw materials from the turnover. As a real estate company, you will therefore tend to have a profit margin that is higher than those of distribution franchises, for example.

The profitability threshold is also called the break-even point, it is therefore the amount of turnover necessary to cover the expenses of the company. The return on investment is the ratio between earnings minus investment costs divided by the investment costs, which depends not only on your business but also on the volume of the initial investment. The estimated turnover will depend as much on your concept of a franchised estate agency as on the quality of the management of the franchisor and many other factors. To be able to properly assess the profitability of your franchise, do not forget to take into account even the smallest expenses.

Starting out in a real estate franchise in Belgium

There are several steps to setting up business as a franchisee. The first is to find the franchisor that suits you best. Engel & Völkers is a world-renowned franchisor in the real estate sector. With more than 800 franchisees in 35 countries, our concept is recognised the world over. Learn more about our franchise in Belgium at the following address.