 |
  |
|
Seeds For Thought
Choosing Your Challenges
If you come from a deprived or dysfunctional background, the idea that you could become financially independent may not have seemed like a realistic objective.If you have lost a family member, gotten divorced, been sick, had a child go astray, you may hurt and find it hard to get yourself back on a successful path. Yet, you may just be the one toughened enough by life to persevere and succeed. Always, take your twenty minutes of quiet time and think. How sad to be a senior in college and still not know what you want to do with your life. How sad to be married to an executive who has little time or interest in his family. How sad to be able to buy a new Lexus and then immediately have buyer's remorse that you didn't buy the BMW. How sad to be surrounded by people who only care about you for what you can give them. To be happy, you must be an appreciator of life. The best things in life are free: hugs, smiles, sunshine, stars, beaches, pats on the back, thank-yous, flowers, love, loyalty, respect. Appreciate life now. Do you want to enjoy the greatest books, DVDs, videos? Do you want super fast Internet access? Go to the library. Appreciate life now. Do you want to take great vacations for little money? Go off-season. Do you want to eat in great restaurants for cheap? Go for lunch. Do you want to wear the latest fashions? Go to outlets and to seasonal sales. Appreciate life now. Go to museums. Go to regional theater. Go to local youth concerts. Go to college basketball games. Appreciate life now. When you are a thinking person following the Action Principles, you are a lot closer to leading a full rich rewarding life than you may have ever imagined. OK, OK, you still want the nice houses and cars. You still want to be able to spoil your loved ones without worrying about the cost. I don't blame you. I encourage you. Let me tell you. If you follow the Action Principles, becoming financially independent will not be that difficult for you even if you have had your share of hard knocks to this point in your life. Work hard. Smile. Care about your fellow man. Be ambitious. Want to be all that you can be. Yes, improve yourself and help others. It will happen. Yes, if you work for others, they will want to promote you. Yes, if you own your own business, you will have lots of customers. I do ask something from you in return for the Action Principles and the Master Success Courses. I ask that you buy and distribute 100 copies of the Action Principles. Or, that you buy the books and you let us distribute them for you. This will make you an Action Principles Champion. This is what I ask of you. If you haven't become a Champion yet, become one now. Do your part. I don't care if you make $500 a week or $5,000 a week. You can do this. You can do your part. If investing $125 to help 99 others means giving up a little something else, well you are a person who is going to appreciate and enjoy your success that much more. Lots of people aren't going to make it. If you are lazy and go to work hoping to do as little as possible, forget it. If you keep company with negative whiners, forget it. If you are focused on what you can get for you, forget it. If you can't let go of the past, forget it. You've got to be self-reliant and able to think for yourself. You've got to be able to see goodness and beauty and hate and evil. You've got to believe in yourself and your special talent to better your world. Only you can say, This be the moment when everything changes. Romano's Homestyle Pizza, ContinuedEach of the mentors has reviewed his equipment list and proposed floor plans. Each of the mentors has agreed to assist Kevin in getting networked into the restaurant industry. They will work with Kevin to help him get the best deal on restaurant equipment and food provisions. Each of the mentors will be able to guide Kevin according to that mentor's specific area of expertise. Mr. Kozopolus will advise Kevin on the day-to-day operations of a pizza shop. Uncle Giro will advise on advertising, promotions and specials. Mr. Domasi will help fill in the big picture that might include expanding his business through selling and reinvesting or expansion through adding additional stores. Kevin's next step is to secure a location for the shop. From his call to four real estate offices with brokers specializing in commercial property leasing, he learns that in Newton retail store rents can range from $8.00 to $15.00 per square foot plus utilities. From this range, Kevin's 1,000 square foot store would require annual rent payments between $8,000 and $15,000 per year or $666 to $1,250 per month. Kevin is shown three stores with the possibility of a fourth space being available in two months. The first store Kevin is shown is 1,300 square feet offered at $12 per square foot and is adjacent to a convenience store. The store has adequate parking and is separately metered for heat and air conditioning. The problem is that the landlord will not commit to a lease longer than three years. The convenience store's lease is up in three years and the convenience store has an option to expand into this "for lease" space at that time. The leasing broker mentions to Kevin that he might be able to buy the option from the convenience store. However, since Kevin is working within a limited budget of $25,000, this is obviously a long shot. The broker says that he will follow up with both the convenience store and the landlord. Kevin calls Mr. Domasi for his opinion. In discussing the store, Kevin and Mr. Domasi agree that although the store itself and the location are excellent, a three-year term is too short. Mr. Domasi is adamant that the lease must run 10 to 15 years with a 5-5-5 lease being ideal. A 5-5-5 lease means that the initial term of the lease is five years with two five-year options to renew. Mr. Domasi points out a business is only as good as the lease that supports the business. A lease term shorter than 10 years proportionately devalues the worth of the shop. In other words, with all other factors being equal, a shop with an 8-year lease is worth 20% less than that same business with a 10 year lease. Mr. Domasi always advises his clients looking to sell shops to first review and, if necessary, re-negotiate their leases to get those 10 or more years or options on the term. Kevin agrees that he wants to maximize the "for sale" option for the business. So, this store is out. The second store Kevin looks at is 1,600 square feet and is the sole commercial tenant in a wood frame house with two apartments above. The property, in character with the neighborhood, is in fair to poor condition. The store is substandard and the apartments seem likewise. The asking price is $10 per square foot. On the plus side, the landlord who accompanies the showing of the space seems willing to accept any type of store tenant under any lease term conditions. On the negative side, the landlord seems to have had the same attitude in renting the apartments. The hallway to the upstairs units is filthy and there is graffiti on the walls. This store is a possibility. Further, the leasing broker mentions that this building is also for sale and that the owner might be willing to give Kevin both a lease and an option-to-buy the building. Mr. Kozopolus and Mr. Domasi came out neutral on this store with both stating positives and negatives. The third store Kevin sees is a 900 square foot space in the local mall. However, this particular space is poorly sited in the mall. The store is located at the end of a wing that gets little foot traffic. It is not part of the food court. Only four tenants occupy the eight retail spaces in the wing. The other four spaces are covered with plywood. The rent is stated as a $15.00 per square foot base rent plus 4% of gross sales and a common area maintenance charge of $3.50 per square foot and a mall merchant's association joint advertising fee of $2.50 per square foot. The $15.00 per square foot quoted rent quickly becomes $21.00 per square foot plus the 4% of gross sales off the top that would push the rent to $25.00 per square foot or more. There would also be a stipulation in the lease that the business must remain open and only be open during mall hours, presently 10:00AM to 9:00PM. The lease would also state a long list of foods that Kevin could not serve, since other tenants already served those foods. Yet, the mall management would not give Kevin the same protection for his menu items. In other words, other mall food tenants would be allowed to sell pizza and subs at a later date, if they so wished. In fact, the mall management would retain the option of also leasing to a nationally rated pizza chain should that opportunity arise for the mall. Neither Mr. Kozopolus nor Mr. Domasi likes this store or the rent. However, Mr. Domasi does hold out the glimmer of hope that it might be possible to find a buyer quickly and get out. The fourth store is the end store in an older downtown store block. Most of the other stores in the block are long-term tenants: beauty salon, shoe repair, a tobacco shop, an Army/Navy store, a key shop and a coffee/lunch shop. The only newer tenant is a photocopy/film developing business. The store that Kevin looks at had been a travel agency, which was run for 35 years by the retiring proprietor. The store will be available in two months. The corner store measures 800 square feet with an 800 square foot basement and has windows on two sides. There is one parking space for the tenant but no other off-street customer parking.
The landlord, an older gentleman, Mr. Simkis, is asking $12.00 a foot and states that a 5-5-5 lease would be fine. On the plus side, although the rent is a bit high, the taxes and insurance on the building are paid by Mr. Simkis, the landlord. The location is above average with strong daytime foot traffic and with neighborhood business at night. The corner location provides for signage on two sides of the building. There is that one off-street parking space that could be used for the delivery car. Also, Mr. Simkis agrees that since Kevin would be upgrading the store that he, as the landlord, would upgrade the heating, wiring and plumbing to meet Kevin's needs. Mr. Simkis will also give Kevin a free "start-up" month before he has to begin paying rent. And, with the signing of the lease, Kevin will only need to pay two months rent. He must pay the first month's rent of $800 and an $800 security deposit. The other landlords whom Kevin had spoken with, had wanted three months rent in advance: first month, last month and security. On the negative side, there are already two established pizza/sandwich shops in the immediate area. These shops will cut into the automatic "lazy" customers business or people who will go to the closest shop regardless of quality. Also, the space needs considerable upgrading. For contracting advice, Kevin turns to Jessie Hayes, a friend from work who manages the hardware department and who does remodeling on the side, and to Jamil Rahman, a friend and Newton fireman, who also moonlights as a carpenter. Jessie and Jamil agree to work together. They recommend a new plywood and linoleum tile floor and a dropped ceiling. Also, rather than trying to repair the walls, they would be covered with 3/8" sheetrock to provide a smooth painting surface and give the shop a new appearance. Together with the custom work to be done (counters, etc.), Jessie and Jamil estimate figures of $3,000 for supplies and $5,000 for labor or $8,000 in total renovations. Of the choices available, all three of Kevin's mentors favor this fourth location. Also, they agree that the extra two months plus the start-up month will give Kevin ample time to have all his plans in place, including financing. With a signed lease from Mr. Simkis and his business plan with cash flow projections and containing his $25,000 budget figures, Kevin begins calling banks about small business loans. However, with Kevin's limited cash participation (he has $10,000 saved), no bank seemed interested in writing a $15,000 loan. Each of the bankers that Kevin speaks to reckons that with just $25,000, he would be undercapitalizing the business. It is the bankers' opinion that Kevin's business plan should be redrafted to show not only available cash funds to carry the business for at least six months, but also Kevin's living expenses for the same period. Kevin's assertion that he would live at home and only eat store provisions, and that his car would be his sole expense, is not acceptable to the banks. The banks insist that the business plan reflect realistic living expenses. The bankers concur that Kevin will need $40,000 to start his shop and not $25,000. Of the $40,000, the bank will loan 50% or $20,000, if Kevin can show that he has $20,000 from other sources. The interest rate on the small business loan would be 10%. After talking with three banks, Kevin calls Mr. Domasi and Uncle Giro. First, Mr. Domasi, "Well, Kevin, let's see, you and I already talked this over and $25,000 was our number. What's the problem?" 
Kevin fills in Mr. Domasi on the bank's position, "The problem is that the bank's number is $40,000 to open and operate the shop and of this $40,000 figure, they will lend $20,000. I have to come up with the other $20,000. I have $10,000 and would need another $10,000.""Or," Mr. Domasi counters, "from our standpoint, you have $20,000 from the bank and your $10,000 which makes $30,000 or $5,000 more than you'll actually need." "Yes, but the bank won't go for this. I need to show $10,000 more." Kevin reiterates. Mr. Domasi suggests a possible compromise, "Maybe, you can work a compromise with the bank by getting a line of credit for the other $10,000." "How would that work?" Kevin questions. "Well, you get someone with good credit, say your parents or a relative, to sign a letter stating that they will lend you up to $10,000, if and when you need the money," Mr. Domasi instructs. Kevin nods in understanding, "But, I shouldn't need the money." "That's right," Mr. Domasi agrees, "You shouldn't need the extra $10,000 but the bank will feel more comfortable if you have this extra financial cushion." Kevin is grateful for the tip. "Thanks, Mr. Domasi. I'll try that approach." Kevin now calls Uncle Giro and explains the financing challenge and also Mr. Domasi's idea about the line of credit. "Well," Uncle Giro updates Kevin, "My manager, Carlo, and I have both gone over your budget and floor plan and you seem to be in the ballpark at $25,000. Are you asking me for the line of credit letter? Let me think for a minute. What if I give you the line of credit for a $1,000 fee?" Kevin seems surprised, "You mean that you'd give me a $10,000 line of credit for which I'd pay you $1,000?" "That's right," Uncle Giro nods. "Let's say that the line of credit is for one year and that after the year, you pay me whatever you owe on whatever portion you've borrowed on the $10,000 plus interest plus $1,000." "What would the interest be?" asks Kevin. "The same as the bank rate but, presumably, you aren't going to have to ask for any of the $10,000, so you'll only owe me $1,000." Uncle Giro is dead serious. "You're a real businessman, Uncle Giro." "And, I want to teach you to be a real businessman, Kevin," Uncle Giro holds up a shaking finger, "This way you'll learn to respect borrowing and friendship." "Thank you, Uncle Giro. I'll talk with the bank and get back to you." "Listen," Uncle Giro isn't through. "I want you to run this whole financing package by Sam Vincent at my bank, The First Cooperative, and see what he says. I'll call him for you." Kevin receives a warm welcome from Sam Vincent following the call from Uncle Giro. Two days before his appointment, Kevin had dropped off his financing package with Mr. Vincent's secretary and also filled out the bank's loan application forms. As it turns out, Mr. Vincent is not a loan officer with The First Cooperative but the Senior Vice-President. Kevin sees the value of an introduction. "So, Kevin, Uncle Giro says that I should take good care of you. He says that you're the next Uncle Giro." "I appreciate that, Mr. Vincent." "Kevin, we've been handling Uncle Giro's banking for the last 25 years and we'd like to start the same relationship with you. However, I've had our chief business loan officer review your plans and applications and she thinks that you may be cutting yourself short asking for $20,000. You probably want to borrow $25,000 and with your $10,000, you should be in good shape." "You mean that you want to lend me more than I'm asking for?" Kevin heart is beating a little faster. "Let's say that when you borrow from First Cooperative, we become your financial partner. As your partner, we want to be sure that you have a solid chance for success. When you succeed, we also succeed." Kevin liked the sound of this. "Thank you very much, Mr. Vincent." "Kevin, I'm going to send you to Mrs. Davis, the head of our business loan department and she'll see that your loan request is expedited. If the loan is approved at our loan committee meeting on Thursday, you can start drawing on your funds next Monday. How would that be?" Following the loan approval, Kevin will send a thank you letter to his "partner," The First Cooperative, care of Mr. Vincent. With the help of Uncle Giro's phone call, Kevin has received a very different reception from The First Cooperative than he had received from the other three banks he had visited as a man-off-the-street. Kevin calls Uncle Giro to thank him and to tell him that he won't need the letter of credit. "Well, Kevin, I was sure that Sam would take good care of you. So, you don't want my $10,000 line of credit for the thousand?" "Are you still offering it, Uncle Giro?" "Yes, I'm still offering it and, then, you can be sure that you'll be starting from a good base. My credit will be like an insurance policy for you." "Thank you, Uncle Giro. I think I will take you up on your offer." "Fine, I'll have my attorney draw up the letter." Kevin calls Mr. Domasi to update him on the financing commitments. "Good, good. You've got $25,000 from the bank and your $10,000 and the $10,000 credit from Uncle Giro for a total of $45,000. Let's see. You should only need another $5,000 to open that second shop." "Mr. Domasi, you'd be funny if I didn't know you were serious." The Romano Homestyle Pizza RestaurantWith the rental payments, restaurant licenses, signs, stationery and initial advertising costing another $7,000, the restaurant was opened for $27,000 or $2,000 over budget. To operate the business, Kevin is left with $8,000 of his own money and the $10,000 credit with Uncle Giro. For his staff, Kevin turned to the department store where he had worked and selected people whom he knew had strong work habits. One ambitious young man was hired full time to work with Kevin. Kevin also recruited several part-timers from the department store. His sister Susan and brother-in-law Mike are also working part time. And, Mom and Dad are helping where they can. The story that you just read about Kevin Roman is fiction. I wrote the story to illustrate basic entrepreneurial opportunities and problems. You job as a student is to think about Kevin's situation. What would you do the same way? What would you do differently? What are the general entrepreneurial principles that you can identify and apply to your business or career plans? The following anecdote is a real life experience. Papa Peter's PizzaThis great opening opportunity was a disaster. The word-of-mouth was going to be bad. What could or should have been done?
Lesson Eight ResourcesGo to Lesson Nine3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13Index
|
|
||||||||
 |
© Copyright 1994-2008, American Success Institute. The Action Principles® is a registered trademark of the American Success Institute. We are a nonprofit research, publishing, and educational corporation headquartered in Natick, Massachusetts. |
 |