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Hey, a lil advice needed here (business expansion) - any opinions will be appreciated

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Mr_S
Super Contributor
we have been going over ideas for the expansion of the family guesthouse, with our focus not being soley for 2010 but for long term organic growth. My age is seen as high risk due to my age and my gran is not willing to risk losin the property at her current age, so the banks are giving us a hard time with regards to financing. Business has so much demand but cannot accomodate due to the lack of space. property cannot be extened further so the only forseeable solution is to acquire another property..any ideas? (business has been operating for 8 years to date.)
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15 REPLIES 15
Not applicable
Question : If u want to expand or buy another property and the banks are not willing to finance, how will that happen, or is the financing the problem? Suggestion : Depending on your set of circumstances, a shuttle service might be appropriate for your line of business?
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Theater_Cat
Super Contributor
Dear Mr S. You would need to acquire a new property that meets your requirements from a potential guesthouse viewpoint; If the property you purchase is already zoned for guesthouse usage you could apply for a commercial property financing in which case the potential future cash infows will be used to to prove repayment ability. The property will serves as collateral to the Bank. You would need to put at leaset 25% down as a deposit. If on the other hand the property you intend purchasing is zoned single residential, you would have a hard time proving to the Bank that affordability will flow from guest accommodation income (unless you can prove salaried income from other sources). You could request a mortgage bond but will require at least 10% deposit. You would need to prove the net worth of the guarantors; business plan et al. In summation, the Banks are reserved on borrowing funds where income streams are not a given. You could also approch Business Partners or try to support your Bank application with a Kula guarantee. TC
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Mr_S
Super Contributor
financing is the main problem here. I have been specifically groomed to take over the business from my gran whos desparate to retire, only problem we seem to have is my age and the minimum deposit required...20% is the norm but i can have it reduced to 10%, i was even thinking of inviting potential financiers to be 'non execs'and have a share in the business etc... we have also viewed the option of a shuttle service but the income generated from there will be very minimal compared to actual accommodation revenues, and it would require a salaried driver who must have the relevant qualifications. buying another property would be more preferable. we have not gotten into detail with regards to rental options, as we not sure how that might work.
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john_1
Super Contributor
First you need to be clear as to why it is nessary to expand.
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Mr_S
Super Contributor
thanks for your reply, i was not aware of commercial property financing, i will do my homework on that and see if that may be a potential option. what do u think of rental as an option? im not sure as to how that would work, but it may save us quite a bit if say the business expansion fails (no reposessions and such)although zoning might become an issue. thanks
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john_1
Super Contributor
If there is excess demand why don't you just increase the price of the rooms by 10/20%
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Mr_S
Super Contributor
hi john, we could do that but then theres competition issues. there are currently 3-4 other guesthouses in close proximity to our establishment. we are currently sitting at the top price range of our star grading category (4 -star) and raising the prices too much may harm the business. 95% of our guests are business people from surrounding companies etc.
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nala
Super Contributor
i've being to SBK seminars -simon would say why go into the physical; maybe buy a share in the competiion- or let some one be a shareholder in your business;that is how sol kerzner did it ;or kiyosaki would ask will this venture help me free up my time or add more burden
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Theater_Cat
Super Contributor
Yes, you could rent a home and then let it to the tourist market, BUT the landlord would need to consent to sub-letting and you may also need to ensure that all neccessary municipal by-laws are complied with (departure use consent et al.). Having said this all, it is hard work and takes years to establish a good client base/reputation. The barriers to entry are low which may lead to greater competition.
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Theater_Cat
Super Contributor
Yes, you could rent a home and then let it to the tourist market, BUT the landlord would need to consent to sub-letting and you may also need to ensure that all neccessary municipal by-laws are complied with (departure use consent et al.). Having said this all, it is hard work and takes years to establish a good client base/reputation. The barriers to entry are low which may lead to greater competition.
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Not applicable
I would say that guest houses are in general very bad businesses...only reason people get into them if they have the capital is cause they have a very low barrier to entry and everyone thinks it is easy money....they are extremely capital intensive and have almost zero scaleability (which is the problem you have now)...I would seriously suggest you have a look at the opportunity cost of the money tied up in a guest house...one would need to know your turnover, costs and value of the assets to be able to make any sense of this though. In general the spin off of 2010 and such like is hugely overestimated....
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Mr_S
Super Contributor
i have explained earlier that this expansion has little to do with 2010. We are trying to figure out a way to expand with minimal capital, and i agree with u that this business sucks cash big time. but our advantage in this case is that we are already well known and marketed in our area, very highly recommended etc so all we need to do is to increase our capacity. i will find a solution to this, there must be a way..thanks again guys for your input!
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Not applicable
no it doesn't chew cash it chews capital.....
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Not applicable
but possibly my view is tainted by an intense dislike for B&B s...there is a reason they are run by grannies....why do they always insist on talking to you when you want to enjoy your eggs cooked in 5 liters of cheap cooking oil?
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Mr_S
Super Contributor
lol i take it u had a really bad experience at a B&B? i have a much larger vision for the business though, and this merely serves as a platform to do bigger better things.
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