How to start a business?

Start a business is having create something new. The would-be entrepreneur or founder has to convince everyone of what a great idea it is. The emphasis is on the idea and its possibilities for the future. There are 4 fundamental areas to look at:

1 The business plan

Business plans come in different formats, but any solid plan should include the following:

• An executive summary outlining goals and objectives
• A brief account of your company’s beginnings
• Your company’s business goals, with a time frame for milestones
• The service or product you plan to offer
• The market potential for your service or product
• A marketing strategy
• A 3-5 year financial projections
• An exit strategy

Once you’ve created a basic plan, you’ll want to make sure it offers realistic, solid projections about the course of your business success.

2 Marketing

Identify and characterise your niche customers and target marketing directly to their needs. Target marketing messages in appropriate sales channels to hit the nerve of important customer segments.

3 People

Usually, small businesses carry out the various activities by themselves but if you are hiring people, decide what staffing needs you have. Training plays a very important role in the development of people.

4 Financial

Pay attention and learn to manage your working capital to ensure that you always have sufficient positive cash flow to support short-term debts and operational expenses.

Investing in REIT - part 2

When we invest in REITs we are looking for an instrument that provides high, consistent and growing dividend income. The REITs that we invested in must be able to generate sustainable and growing rental incomes from their rental properties business. Without a good rental properties business, the REITs could not distribute sustainable dividends to its shareholders.

Other than dividends income, the fluctuation in REITs share prices enables us to make capital gain. A well-managed and growing rental properties business, for REIT, will inevitably lead to higher dividends payouts and therefore higher share prices. More on reasons to invest in REITs.

The key to invest in REITs successfully is to know the sustainability and potential of their rental income, the management integrity and their intention and competency to improve and grow their rental properties.

A good REIT has

• Sustainable and improving rental incomes
• Good management with integrity in managing the Reit
• Good management with intention and competency to improve and grow the properties in the Reit

For sustainable rental income:

• The properties in the Reits must be well-located, well-managed and well-maintained
• The Reits must have assurance of future income without relying on mere few big tenants
  

For growing rental income:

• Location, location and location of the properties in the Reit
• The management is actively seeking to increase properties held in the Reits
• The management is actively seeking to increase value of the properties in the Reits

Translate the criteria into checklist:

Questions to answer when invest in REITs:
1. Does the Reit have a broad base tenants in diversified industries?
2. Does the Reit have quality tenants with rental contracts more than one year? An average 2.5 to 3 years contract length is good.
3. How is the conditions and the locations of the properties in the REIT?
4. Does the original issuer still hold at least 70% of the REIT? This question is the main reason why management would do good to the REIT. The bigger their stakes in REIT the bigger the incentive for the management to manage the Reit well.

REITs we must avoid are those with properties that dumped by the issuer. The issuer would hold very little stake in the REIT after disposing their unwanted properties into REIT for a good profit and to earn management fees, trustee fees, etc. from the REIT.

Investing in REIT shares

What is REIT?
Real Estate Investment Trust (REIT) is a financial structure created to enable members of the public who are keen to invest in property to invest without the need to take a 'solo' risk. To try to 'gobble up' a good acquisition by themselves may prove too big and may cause indigestion.

Many investors do not have a huge appetite for risk and would be willing to pass up a good property deal even if it is on their lap. But they would probably say ‘yes’ to the investment if a few friends were to be willing to participate in it. Herein lies one of the fundamental reasons for the creation of REIT.

Often, many of the larger properties are occupied by big companies and multi-nationals with internationally established business. These companies, many of which are the Fortune 500 companies of the world, occupy huge volumes of space which would be beyond the ability of the ordinary man to own and be a landlord.

The commitment of these companies to their tenancy agreements are as good as bank guarantees. They generally do not default on their rental commitments – which is what any property investor would like to see. But again, because of the size of the real estate, only if there were to be a grouping of investors, would one have any chance of owning such a big asset.

Correspondingly, if you were to buy smaller assets, it is common that your tenants will be smaller firms and start-ups whose rating would not be Triple AAA and are more likely to default on their rent, not to mention, even their business!

When the grouping of investors is big enough, it makes economic sense to engage professional services to manage and enhance the value of the assets. This enables you to free up your time and yet put management of the real estate in the hands of capable professionals – whose job, among other responsibilities, is to further improve the yields and value of your real estate. This means ownership without having to lift a finger!

Life is a roller coaster of uncertainties. Even when we are most confident of the future, calamities and unfortunate events can occur and which may require us to use cash urgently.

REIT shares traded on the Bursa Malaysia allow you to sell the property shares immediately and obtain cash within three days. You only need to sell the amount of shares for which the cash you require unlike owning a building yourself where you cannot sell a part of the building. Therefore REIT shares accord you financial flexibility for your immediate needs.

The injection of quality assets such as Menara Axis into Axis-REIT has contributed to the trust's success

One of the differences between the REIT of today and that of yesteryear is in the area of taxation. Previously, property trusts did not enjoy any tax preference and were taxed like usual corporations at 28% income tax. Today, however, the REITs are enjoying a lower tax bracket of only 15%.

REITS in Malaysia are generally returning to shareholders dividend yield of between 6.5% and 7.5%*. In the short-term this is likely to be the scenario; however, in the long- term, a well-run REIT should be able to pay out dividends in excess of 10% per annum, due to, among other factors, rent increases as the market improves, as well as extraordinary gains due to capital gains on asset disposal.

The various REITs on Bursa Malaysia have their core investments in differing market segments of the property market. Axis-REIT is focused on industrials offering principally office and warehouse space used by trading companies such as Fuji Photo Film, Fuji Xerox, Minolta, Ricoh, Electrolux, Philips and DHL.

The YTL–REIT is focused predominantly on the retail trade as can be seen from its investment into Starhill as well as Lot 10 Shopping Complex.

The UOA and Tower REIT have their attention focused on office space. The latest listed-REIT, KPJ Healthcare REIT, is focused on investments in hospital buildings.

The decision on which segment a REIT wishes to focus their "energy" on, depends on the core competency of the promoters – i.e. the promoters believe in focusing on the areas of the market they know best. All these segments have their advantages and it is very much up to the investing public to decide which market they have more faith in.

The other major difference in today’s REIT is that they are mainly promoted by developers who own tenanted properties, rather than financial institutions as in the REITs of yesteryear.

I am sure almost everyone will agree that bankers under¬stand ‘finance’ best and are unlikely to be the best managers or promoters of real estate, which is best left to those in the specialised field of property development and investment.

Therefore, you have today the birth of developer-promoted REITs such as Axis, YTL, UOA and Tower REIT.

The management of REITs in Malaysia is under the strict purview of the Securities Commission (SC) which has imposed many rules and regulations pertaining to how the REIT is to be managed, including the prior approval of the SC for the appointment of any particular director of the management company. This ensures that the REIT is in capable hands.

The YTL–REIT is focused predominantly on the retail trade as can be seen from its investment into Starhill as well as Lot 10 Shopping Complex.

Besides this, shareholders and directors who are injecting any of their assets into the REIT do not have any voting rights when it comes to deciding on acquisitions.

Therefore it is the "minority" shareholders who to a certain extent decide on whether a proposed acquisition is good or not for the REIT.

The establishment of a strong and capable management team ensures that the REIT is well managed and that tenants’ issues are well addressed. By managing buildings and attending to matters pro-actively, REIT managers are able to differentiate themselves from the ‘one-off’ property owner who manages one or two buildings on an ‘ad-hoc’ trial-and-error basis.

Professional management ensures that tenants enjoy a superior and hassle-free work environment. This helps to ensure that tenants are long-term and generally do not mind paying a little bit more for quality service, to commensurate with the tenant’s image. It is this pro-activeness that ensures that occupancy is always kept high – rain or shine!

In summary, investment in REIT is all about investing in property with the following features:

1.Pooling resources to invest in quality buildings.

2.Pooling resources to invest in quality Fortune 500 tenants.

3.Economies of scale allow for professional management which know how best to enhance the value of the property.

4.Liquidity – as your shares can easily be disposed off overnight in times of urgency.

5.Your investment enjoys a lower tax bracket.

6.Yields paid to unit holders can potentially be higher than if you were to invest individually.

*Axis REIT, however, for the year ended 31.12.2006, paid an annual dividend of 10.36% p.a. to unit holders.

By By Stephen Tew, MIEA past president on Nov 27, 2007

Petrol Station Business

I came to know below info from one of the blog, there's one petrol station offer for sale.

It's a Mobil located at Teluk Intan. I pump Mobil myself because I have smile card and they accept credit card directly from pump, so I like it.

- Selling price RM930,000 (almost 1 Million). You can do business immediately. You may want to consider renovate with another RM100,000. Assume no renovation.

- Profit is around RM20,000 per month total to RM240,000 per year.

- Able to sell 150,000 litre of petrol every month.

Here comes the math I do myself.

What is the return per year?
Return will be

total profit
total capital

= RM240,000 / RM930,000 = 25%

Wow! If you are familiar with investment returns, you will be very excited with this number BUT if you are financially-blind (like my girl friend), than it is just very hard for you to get it. Compare to these, savings account return is below 1%, fixed deposit return is 4%, real estate around 8%-12%, mutual fund from -50% to 8% (wahahaha), Rule #1 investor 15%, Warren Buffet 23%, ah-long (loan shark) 50% … Does the 25% look good?

25% also means that you can get back your capital in 4 years.

What is the estimated Revenue and Profit Margin?

How do you calculate the revenue of the petrol station? (Revenue = Total sales before cost) Easy, we know the market price of Petrol which is $1.92. Round it to RM2.00, revenue would be RM300,000/month (150,000 litre x RM2). That’s RM10,000/day.

If revenue is RM300,000/month and profit per month is RM20,000, that means the cost of the business is RM280,000/month. Profit Margin is around 7%. Because your business is selling petrol and the cost of your petrol and the selling price is FIXED by the gouverment, the margin will be somewhere around that.

What are the advantanges of running a petrol station?

1. You don’t need to spend even 10 cents on advertising. Mobil, Shell or Petronas will do that for you.

2. You don’t need to negotiate price with your customer. No one will come to your petrol station and tell you, “Wei Uncle, Less 10 cents per litre can ar?”

3. Consider a very stable and consistent business for the long run. All cars need petrol and there will be more and more cars in the future. Anyone trying to invent an alternative to petrol will be *assassinated* by the rich oil companies. Wahahahahaha. Don’t play play!

What are the disadvantages of running a petrol station?

1. Profit margin is very low because it is a commodity product (7% from calculation is quite high and I believe it should be around 5%). You petrol station will be collecting most money in CASH and end of each business day, you will have RM10,000 cash and 95% of it is the COST of your business. Put in another word, that’s NOT YOUR MONEY! You need to use that money to pay your petrol company, your employees, etc. Losing others people money is more PAIN than losing your own money! You need to make sure the RM10,000 is safe everyday because 95% is not yours. If your manager run away 10 days of your money, that is RM100,000 which is 5 months of your profit! Your hair will get white in one day while he can take his holiday for 2 years. There will also be robbers waiting for you outside the petrol station everyday.

2. Petrol is a commodity product and because of this if the customer doesn’t like you or your father-in-law or your dog or your Benz, they don’t need to come to your shop. There are many other petrol stations. Your staff at anytime can poke a hole in your pocket by saying Diu-Nia-Ma (Fuck Your Mother) to your customer and they will never come back.

* Commodity is a product that a customer can buy from anyone because they are almost the same, such as petrol, rice, sugar, chickens, beef, pork … If you price it higher than someone or if the customer doesn’t like you, he can buy from someone else.

Conclusion

This is an incredible deal based on the return and stability of your investment if everything describe by the seller is legitimate (malay saying: no prawn behind the rock). However, you will need to be careful of your cash. You need a manager that you can trust or you manage it by yourself (go stay in Teluk Intan and watch the Clock House everyday, forget about watching movie at TGV or GSC). If you don’t, make sure you buy Wella from Watson so you can dye your hair when your manager run $100,000 away from you. Get your Great Eastern medical card ready if your heart is weak. Say Diu-Nia-Ma 100,000 times a day to your manager for the next 5 months.