REAL Assets...

[Norri]

According to Robert Kiyosaki, an asset is something that you own that makes you money. I tend to agree with that definition.

The most obvious type of asset under this definition is a rental property. However, for a small-time or 1st-time investor like me, that's quite a stretch.

My question to you, then, is what else can be considered an asset under this definition that can be attained for between R10k and R100k? Preferably something capable of bringing in R500 or more per month, with a little bit of maintenance.

If possible, post a reason why you think it makes money and why it can be so affordable. A web site that makes R100k a month will not be sold for less than a coupla million, so please keep it realistic.

I'll start the list...

1. A small web site promoting an affiliate product. You can build one of these or buy an already-successful one. If you build one, expect to spend at least 3 months working on getting targeted traffic via SEO before it makes significant income. Buying is a great option, if you can get the seller to prove what kind of money the site makes.

Over to you...

[Dave A]

Education! What an ROI!

[Yvonne]

Return on Investment.

If you had to aim for something that was going to bring you in only R500 per month, you are going to be exceptionally busy, aim higher - right from the onset - and try to develop something like a website that may start at R500 but has potential within a year or so of R100K

Surely, purchasing shares is your best option? until you have built sufficient capital.

Hoping for affiliate "Return" is similar to a pyramid scheme in my opinion?

Said a thousand times before : Find a need and service that - at a financial return, and if you have the add on affiliate commission that is the "bonus".
I do realise i am stating the obvious.

Yvonne

[Yvonne]

Dave,

I know this is a "how long is a piece of string" question!

In your opinion what % profit return on investment would be considered as the criteria for claiming one has a succesful small business -
rather than just "Creating the owners self employment" ?

Yvonne

[Dave A]

I was thinking much the same thing when I first read the original question. I was going "Any small business that makes the owner some money is a winner" but it's not that simple, is it

One of the problems with determining the return on investment in many (even most maybe) small businesses is that if the business owner was paying him/herself a regular salary equivalent to what they would earn as an employee, the "return" would actually be a loss.

[Norri]

Thanks for the replies so far guys

Dave - I agree, education definitely gives the best ROI. Which is what I'm doing now. Educating myself about all the different types of assets I might not have thought about yet.

Yvonne - I've done what you said. I started a site last year that, within 3 months, was earning between R1k and R1.5k. After about 12 months, it started earning between R5k and R6k. It's exciting and it's what I plan to do with ALL my little R500 investments (where possible).

I'm a web developer but let's not keep this restricted to web-related investments. I'm trying to expand my horizons here and see what I like. The best way I can imagine to do that is to find out about as many different things as possible.

Regarding building a site to R100k a month, I'm all for that but I'm going to be careful at what cost (time-wise) it comes. I'm not looking to start a business I need to work INSIDE 8 hours a day but a number of smaller businesses / investments I can work ON for just 1-2 hours a day. I've done it and I know people who do it, so I know it's possible. Now I just want to know different ways other people have achieved same.

I'll continue with my second suggestion...

2. Network marketing - Some ideas exist (The Passive Incomes magazine) where you can invest a small amount of money and a FAIR amount of time (ie: quite a bit) to get a reasonable ROI.

NB: Network marketing is a touchy subject. Leave the arguments for another thread. Let's focus on ideas here.

[Yvonne]

Many, many years ago, a group of my friends, my husband and I, used to have a get together evening every two weeks and brain storm business ideas.
Bear in mind that this was 30 years ago!

We had such amasing fun! The entire purpose was to be as idiotic as we could!

We had a topic - how could we create a business that was based on using "Waste". Tyres etc.

No-one was permitted to bring any negatives into the discussion - if they did they had to take a "Swig" of alcohol!

Came up with some brilliant ideas - some of which are in use today!

One idea was to use old tyres shredded for rural roads! Thereby not "burning" tyres!

Portable car ports, made somilar to tent poles! and embedding a lever which did not permit the car to be reversed.

A nursing sister - a consultancy to check hospital medical bills - unheard of argueing those in those days!

Farm dam walls shored up with tyres filled with stones! (That possibly was in use - but we had never heard of it!)

There were lots of other ideas, now forgotten!

Sadly! to the best of my knowledge, not one single person in the group went on to do anything more than just think and talk about it.

There is an excellent, excellent book called Thinkertoys - which I think would be perfect for you!
For example: A lot of good ideas - come out of frustration! rather than just a perceived need which people are prepared to pay to resolve!

Don't forget - any brilliant idea posted here, might be "hi-jacked"!

Dave,

I still would honestly like to know what you think regarding R.O.I.

At a business valuation seminar - figures of over R100K per month profit were bandied about, after owners drawings!

When drawing up a business plan for a new business, what clear pre-tax profit would be feasibly required to be of interest to an entrepreneur?

Yvonne

[Dave A]

At a business valuation seminar...

Yvonne, was this the "Prepare your business for sale" seminar by Mark Corke?

[Yvonne]

Yes! it was, but my comment, taken out of context of the entire seminar would be unfair!
I found that seminar to be excellent, and unfortunately the discussions confirmed my opinion that we "own a job" rather than own a thriving business!

I am just seeking an estimation of what profit one should be obtaining as a return on costs - and when can one consider a SME to be successful, based on % profit.
An idea of what profit a company "should" be making, as long as all "owners" working in the company are only drawing an industry average salary plus benefits.

I would think in the region of 20% of turnover, is that realistic?

Yvonne

[Dave A]

20% of turnover as profit before tax would definitely be good!

There is a difference between profit margins as a percentage of turnover and return on investment, though. When it comes to sale time, I think it is that return on investment calculation that they pay a lot of attention to.

I really must try to get to Mark's presentation on this next time he's around my way. If I was selling a business, he would be my "go to" man. Definitely knows what he is doing and seems to have the contacts.

[Alta Murray]

Hi Yvonne,

Back in the old days Stellenbosch Uni did the stats on the different industries, and you could get a good grip and what net prof % you could look at. Unfortunately they don't get a gov. grant anymore, but here are some average net prof % for you:

Construction & Building 3.19
Short Term Insurance 9.75 with latest year set at 16.20
Pharmaceuticals 20.15 and we all know the mark-up on that
Food comes in at a mere 1.87 see why we don't like to cook?
General Retailers 5.17
Media 13.84 (latest) see why we like to gossip?
Travel & Leisure 11.46 and holding steady since 97
Real Estate 31.96 average but 6.15 on latest
General Financial 39.65 on latest showing strong growth
Venture Capital -0.87 latest

I am a bit weary of these stats, and at SETA they also asked me what industry ratios I use as barometer on my graphs, but that is all we have right now, and historical performance must also be looked at.

But it can be a bit misleading in that the % might look low, but a % of what turnover? 10% of a R100.00 Turnover is way lower than 10% on R 10 000.00. So essentially you have to look at the whole picture afore you can determine what % one can look at for a SMME.

I did an analysis for a college last year, and I advised them to close down, to cut their losses and close the doors. Did they listen? No, so it was closed down for them. Rent can kill your venture even before you start off, and boy, in this country people can invest in assets like there is no tomorrow!! The latter is one of the biggest problems. There is only one criteria in investing in a Fixed Asset -- how much money will it bring in, and what will my turnover ratio be on my Fixed Assets? I am not even talking about Total Assets and all the rest of the ratios.

But yes, just had a discussion today on what business owners do -- you and your business are not one entity, so don;t tell me that you are making x per month, when you are using all of x just to make a living for yourself and your family. Then you enter into the survivalist scenario for a business.

If you like, I will help you do an analysis on your business for free, and you can check out the end result and see what it looks like. Just let me know.

When it comes to a service industry, I like to see a net profit margin of at least 30%.
And it can go up to 49% if you know what you are doing.

[Alta Murray]

Jip, I would look at that one too afore I buy, however there are a lot of things to consider, and sometimes one graph may bite, but the rest will give you a good idea of the problem areas and whether it will be an easy fix.

Fixed Assets are a huge headache, and even when evaluating this, people tend to forget about the lifespan of the fixed assets as well. You can get a good graph, feel happy, but what about replacement cost if it is nearing the end of its life cycle? Seen this happen, where people bought a company and never checked this little critter out. And up went the Long-Term Liabilities.....

RONA fits in with your cash cycle, and a lenghtening cash cycle is a bad deal too. So I want to sort of see how many days I get on my Inventory Period, AR period etc. and I want to know exactly how many days I don't have cash if I have a cash flow problem.

Operating Cycle is another one you will have to look at, but I am getting too much into this

[Alta Murray]

Don't think me funny but a speed dating venue would bring you a good return if you advertise properly. There is a huge need out there for that, and you can hire a venue, and sit back and relax. Payment is made beforehand, so you will have the capital to pay for the venue, no riks. I am a low risk, high return girl.

There is nothing crummy about this, just a lot of people who don;t have time to go out there and meet people, this is a well known fact. Listen to Yvonne, find the need.

I will try and think of some more ideas, but I am not big on ideas for get rich quick schemes, I believe that you have to find your passion, and just go for it. Universal Laws will take care of the rest, and you can find many, many an example. But keep on studying......that is your key out!!

Also anything to do with a health or organic prefix is seen as a need today.

Good luck!

[Dave A]

Food comes in at a mere 1.87 see why we don't like to cook?
General Retailers 5.17

That makes you wonder about the rental structure on malls and the like.

Who is really making the money?

[Alta Murray]

Your developers of said malls by far, and check out who they are! Rent is and remains a huge drain on business, and our local mall, which by now is a landmark, can cost anything from R 60 000.00 per month and I am talking a teeny wee spot of space. Also you are forced to revamp your space every 24 months go keep up with the general ambiance of the mall. Now I don't claim to be the smartest person on the planet, but if you add running cost of any business to the rent, it sends you to yer very knees.

Every time I check out rent, i tend to think of the old Victorian landlords, and I can only shake my head. But you are the first person I know to be vocal about this, the rest of the business people I know just shrug. I think it is because everyone else is paying the same rent, and to say anything make you seem like a loser? I don't know, I just know that it is an issue that we will need to address... and boy are they arrogant! Some of them, I have checked, don't even consider sub-letting if a business in a mall goes bust, which is another sign they are making tons of money.

The barriers to enter are huge, the initial investment is phenomenal, so it remains a game open to only those who really, really have money!