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Thread: Business advice

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    Business advice

    Hi Gents,

    Not regularly on here, so when I am, I have huge issues, for which I need your advice.

    About 8 years back, my father was afforded the opportunity of buying a business from his then employer. The deal was too sweet to pass up. He offered the business to my dad with no fixed payment and no fixed term, so basically it was a "pay me as you can afford it" kind of deal...Coupla years later the 'seller' passed away and of course ownership of the business went over to the kids as did the building, which wasn't part of the deal. I was very wary at this stage, but the kids kept to the letter of the deal of which I am very glad. My dad passed on and me and my brother and sister each got a share and kept it running

    After we finished paying for the business, we offered to buy the building, but the weren't in the market to sell. So we are still renting to the tune of about R30k per month

    Current economy and a bad business decision, as well as some unforeseen losses in terms of bad debt, means that at current we are into our overdraft every month. We are surviving, but not really showing a profit, but fighting hard to recover.

    Now came the bomb. The owners informed us today that they want to put the building in the market. This is devastating to us. They want to sell the building for R5.5m. So...this creates some horrid scenarios for me:

    I could try and buy the building, but this is unlikely seeing as my bank only give 70% loans for commercial property which leaves me with a R1.65m part to pay, which I obviously don't have, not even in assets, not even close. Even if I could, my repayment will be around R60k per month which is double what I am paying now. Steep increase for a business trying to get out of the overdraft.

    If I don't try to buy it, there is some scary scenarios:

    1) The new owner, would most likely hike the rent at the next contract, creating the same scenario as above
    2) The new owner, might give us notice, demolish this building and put up a block of flats, as I am on the border of the business and residential areas
    3) The business has been here for more than 40 years. If a competitor with deep pockets buys the building and gives me notice, he'll be able to take over my franchise as well....

    Al these scenarios are scary to me. Please help.

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    1.What prevents you from relocating the business? Why do you have to be there?
    2. Could you try to buy the building with an investor? Are there other tenants or are you the only one? If there are other tenants, you could get a return on investment.
    3. Could the franchisor assist in finding alternate premises?
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    Quote Originally Posted by Blurock View Post
    1.What prevents you from relocating the business? Why do you have to be there?
    2. Could you try to buy the building with an investor? Are there other tenants or are you the only one? If there are other tenants, you could get a return on investment.
    3. Could the franchisor assist in finding alternate premises?
    Hi Blurock, thanks for the reply:

    1. We could re-locate. However this business, although it had three different owners, have been here for 45 years. It's well known throughout the community, and people come here because their dads came here. Relocating will mean that we will pay a higher rent, which is more favorable than not knowing our future here...On the other hand again, it is a workshop, so there is huge costs involved in moving all the equipment over. I also do truck business, so finding premises that tick all the boxes will be difficult.
    2. We could buy the building with an investor. I am positive he would put the rent up as well. Interest for a fixed deposit of R5.5M amounts to roughly to R37k per month, so ANY good business person would want more than that. I've been paying R29k. I know this Landlord has been looking after us very well. The timing just sucks...big time.
    3. Problems with relocation above...

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    Its a sticky situation and you unfortunately need to way up your options.

    The one is like Blurock mentioned finding another premises to rent - make sure you do a proper due diligence to see if your business would be viable in the new area, etc...

    Another option seeing the business is in over draft is to evaluate if it would be better to try and sell the business on asset value or sell the assets - you could then possible use this money to go into a new venture that might be abit more lucrative for you.

    No easy answer unfortunately - way out your options do some calculations - speak to a commercial estate agent - speak to a business broker - these are just ideas.

    Wishing everything works out for you!

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    Silver Member PlatinumWealth.co.za's Avatar
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    Shit situation to be in. Me personally, I would try and leverage an investor to buy the building with you, work out a mutually beneficial deal.

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    Thank you all for the advice. First things first. Getting a estate agent out, to see if the property is worth that much. Looking at other premises is going to be daunting...market research, cost of moving not to mention even finding the right spot...

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    Do you not have a lease?

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    Quote Originally Posted by Andromeda View Post
    Do you not have a lease?
    Only about a year left. Plus it includes a 2 month notice period. So if a competitor with deep pockets wants to coin in on our community footprint, he'll just buy it and give us notice. Hell if anybody buys it, he will just give notice rather than wait till lease runs out to increase rent...

    Might've found an investor to help with the 30% deposit. Just waiting for value on property...rough times ahead...

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    It is probably a stupid question Hannnes, but is the notice reciprocal and without reason?

    I am just thinking of you getting some breathing space to afford you the time to come up with a workable plan.

    Normally the price for commercial fixed property will be based on what a valuator arrives at, which is usually a function of the rental, or rentals of similar properties in similar area. If you were being charged a "friendly" rental, then you might be up a creek. On the other hand, potential buyers will certainly consider the present rental and a seller will usually find it not so easy convince them that you are getting a preferential deal. But ultimately perhaps that is reality.

    Good luck with getting an investor on board.

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