Time to Shutter an Office? 6 Issues to Consider

Seems like a no-brainer: Make an office go dark, and you'll boost your bottom line.

April 1, 2009

Not so fast. First ponder these six issues.

1. Profitability of the office. "When the market was booming, unprofitable offices fell through the cracks," says Merle Whitehead, president and CEO of RealtyUSA in Orchard Park, N.Y., who has closed five of his 62 offices in the past six months. "Now we focus on running every office as a profit center." Whitehead’s rule of thumb: Each office should have a profit of at least 10 percent of gross commission income.

2. Other cost-cutting options. "Meet with vendors to try to get concessions," recommends Whitehead. "If you can change your cost of doing business for the short term—knowing there’s a long-term gain—you may be able to survive until the market rebounds. We’ve seen employees willing to cut back their hours and landlords willing to cut rent. If there are enough people playing on the team, you may be able to gut it out."

3. What you’re gaining from that location. "When things were booming, brokers were looking at small markets thinking, ‘If I can pick up another 150 home sales, that’s great.’ But now they’re asking, ‘Why am I even there?’" Whitehead says. After reviewing his offices, Whitehead determined that some remote upstate New York markets weren’t going to be viable in the long term. Other locations had more promise. "I have an office in Naples, Fla., with a very bright future. I’ll fund losses there because of the upside potential."

4. What’s next for the office manager. "Figure out if you’re going to keep the manager," advises Whitehead. "If not, you have more risk because that manager may go to a competitor and take the sales team along."

5. Plans for the sales staff. If you close an office, how many sales associates can you move to other offices, and how many do you expect to jump ship? "We just closed an office in a Syracuse, N.Y., suburb, and we were able to move all the associates to an adjacent office," Whitehead says.

6. The valuable intangibles. Sometimes, there are hard-to-quantify reasons to keep an office open. Whitehead’s Ithaca, N.Y., office comes with a huge billboard fronting a major state highway. "If the office were closed, it would cost me $3,000–$4,000 a month to have a billboard like that," he explains. "Also, I always look at walk-in traffic."