Working with real estate investors over the last 18 years a couple truths have remained constant and are ever present regardless of the location, age, and income of the investor, that is…… they think like…..well…..they think like investors.
They are hyper focused on “getting in the game” and making their first deal. They are pumped! Adrenaline is flowing, blood rushing, they are eager to get up in the morning and hit the ground running. They understand how to estimate construction costs, and are learning where to go to find properties from bird dogs and maybe even doing some guerrilla marketing of their own. They want it! They want the freedom and they want the cash! I love it!
Fast forward six months. Motivation is starting to diminish. Oh, they are still in the game no doubt, because that “quick” renovation job is now way over budget and way past the time line. They still want it, but are realizing that their grand ideas of doing multiple deals at a time, having a well-oiled marketing machine, and having loads of extra cash laying around….well…….just doesn’t seem to be coming together.
I can repeat this exact same scenario for many start up companies that come to me looking for a place to lease, as well. They start strong, they have been growing their business out of their house for some time and although they are on a shoestring budget, they are ready to take the “plunge” into the market place. Exciting times no doubt! Six months later, the same as the investor. What happens?
Well I have, without question, been there, in both scenarios. The problem is the same for the new investor and the start up business… they have no solid plan. Most investors don’t consider themselves a business owner but they are. They should hold themselves accountable. They should be just as responsible as the business’s they have assembled as part of their team.
That calls for a business plan.
Most start ups and investors don’t know how to produce a business plan and many, when asked to put pen to paper, just start writing down goals and ideas. So let’s just go ahead and start from the beginning on How to write a kick @#%&* Business Plan.
Step 1. Leave it Unfinished.
Remember this is an organic document that will grow, and change, and become better as you go. It should not have an ending BUT it has to have a beginning. You should update your business plan annually at the very least. Some may choose to revise their business plan quarterly. There are some basic components of any business plan and the hardest part is gathering the research and numbers and getting it into an outline. So here is a suggested outline. You should have a front page with your business title, contact info, and a date. Then a table of contents which should look something like this:
Step 2. Executive Summary
This is where you give your “elevator speech” to the public. If you are a multifamily investor, one example may be:
At “XYZ, Inc. Apartment Company” we specialize in the redevelopment of median household income apartment units. Our average buildings are 5-10 units. We try to stay in the $500,000 after renovation range. Our current holdings are approximately $5,000,000.00
Step 3. Business Description and Vision
Before diving into this section, you should have a full understand of the difference between a mission statement and a vision statement. Here is where you want to get into some details of your business, how you operate, how you are planning on making a living, as well as what you want to accomplish and why.
Step 4. Definition of the Market
I can’t really stress this enough, know your market. Know your customer. Know their buying habits. Study the end user. Most investors are really good at the front end stuff but lousy at the back end. You should already know where your buyer or tenant or customer is coming from BEFORE YOU START.
Step 5. Description of Products and Services
Chances are you know what you do better than anybody but can you articulate what you do? Be very specific about what you do. This will enable you to go back after reviewing the entire business plan and make some additions and subtractions as a way of perfecting your trade. Trust me it works!
Step 6. Organization & Management
So right about now you probably want to stab yourself with your pen or are contemplating drop kicking your laptop. Go ahead. I’ll wait……. This step is the most pain staking of them all for many investors and entrepreneurs. Let’s face it, we are bad at these. None the less, that’s no reason not to try and improve. On this step get real emotional with it. Plan out the best legal structure for your operation as well as the management team in place. Do a SWOT analysis here and identify areas where you can improve.
Step 7. Marketing and Sales Strategy
OOOOO YYEEAAAHHHHH! This is probably the easiest one for you. Go ahead have some fun with it. Let your imagination run wild. This is where your major growth will come from. Make sure to include all of your marketing and sales channels. You can even include examples here if you want.
Step 8. Financial Management
This is where the start up costs, budgets, cash flow, P&L statements all meet with the marketing, strategy, market share, and growth projections to see if there is a viable financial business at the end of the day. This is also where you can find hidden equity in your company lease, property, or employee potential. This is the section your banker or hard money lender will pay the most attention too. They want and need to see, that you can, are, or will make money at this business venture.
Step 9. Appendices
This is the closing statement if you will. Put in all the extra stuff that you want to include but didn’t know where they should go. If you feel they are important to point out go ahead and include them.
Remember you are a business owner, act like one. You can’t just work in your business you need to also work on your business. Most of this information and more can be found by visiting SBA.gov. It’s a great resource for small business owners of all types. Just because you are in real estate doesn’t mean you’re not a business. There are many great real estate investors that never get off the ground and many that flourish, and they both do the same thing. Sometimes in the same communities. Why? Because one, has a better thought out and designed business plan and they understand it is a business.
I’ll leave you with this quote to chew on:
“We are in the real estate business, not the hamburger business. We would induce a property owner to lease us his land on a subordinated basis. That is, he would take back a second mortgage so that we could go to a lending institution and arrange a first mortgage on the building, the landlord would subordinate his land to the building. This was the beginning of real income for McDonald’s. It was then that Harry’s view of the corporation as just a real estate business, rather than a hamburger business, began to crystallize.” – Ray Kroc.
Now that is someone who understands their business and what they do.
Photo Credit: HAMED MASOUMI