Short Horizons Produce Fragile Companies

A letting agency that budgets as if every year will be its best year can look healthy right up until the first slow season.

Good years invite commitments. Fees are coming in, so the agency signs a long lease on a bigger office and adds staff, and nothing goes aside. When rentals slow, as they do in every town from time to time, the fees thin out while the office rent stays exactly where it was, and the gap has to be closed from somewhere.

The dangerous somewhere is the trust account. It holds tenants' deposits and landlords' rent waiting to be paid over, and it often holds more money than the agency's own account does. Borrowing from it for a week can feel minor. It is the step that ends agencies, because that money belongs to clients and the trust account is audited. An agency that plans for the long run assumes the slow months are coming and keeps a reserve of its own, so the trust account never starts to look like an option.