Wednesday, November 14, 2012

Pooling resources: Part 2

Continued from part 1.

Having already bought a plot and having collected some cash from new members; we were smiling from ear to ear. By the way, the new members’ share was calculated based on market value of the plot and available cash plus a premium. The essence of the premium was to cater for the work already done and structures already put in place. The capital injection they brought was used to acquire another plot in Kitengela. We seemed to be getting somewhere.

It was now time to do a 5 year business plan; after all targets must be set and well documented. Planning is extremely essential for any business. The business plan ordinarily will:
1.     Outline the vision and mission of the company. Vision creates that momentum of growing anticipation about the future, where change is embraced as a step closer to that very compelling picture of what’s coming next. The Mission defines the company's purpose and primary objectives. Its prime function is internal – to define the key measure or measures of the company's success – and its prime audience is the leadership team and stockholders.
2.     Set out values that the company must adhere to.
3.     Outline the products and services to be offered and the target market
4.  Carry out a serious SWOT and PEST analysis. It is crucial that an internal analysis of the strength and weaknesses of the membership as well as opportunities and threats be analysed. It is also important to analyse the external environment.
5.     Stipulate the strategies that take you to the vision and how to implement them
6.     Outline the management structures are also very key
7.     Give clear financial projections

This is just a paper and it can remain a paper if not well implemented and monitored. The same document is very crucial when you decide to approach financiers.

Our line of business mutated with time from speculation with plots to buying large tracks of land, subdividing and selling plots. With leveraging on credit, it was much easier and faster to expand and the turn-overs were testament of the expansion.

Management structures changed from owner managed to having a team of professionals manage the firm. The shareholders remained as the board members and exclusively deal with strategic decisions that are scaled down to the management team for implementation.

The company eventually pursued other lines of business including development of housing estates. What is nice about such business ventures is the fact that the company largely invests other people’s money. The OPM concept is the sweetest model of investment. Of course another brilliant idea developers utilize if well managed are joint-ventures with land owners. If well managed, you can imagine having a joint venture with the land owner whose land becomes the equity towards a project, then the company approaches a financier who provides the cash for development. Armed with a marketing strategy that works, it essentially means using other people’s cash to make money.

When I look at this chama cum company, the sky is the limit.

More Valuable lessons:

1.     Without a proper business plan, it is almost impossible to make it in business; you’ll end up running like a headless chicken.
2.     Having a business plan is an important thing, implementing it and monitoring the targets is far more important.
3.     Clear strategies on how to grow are important. This goes hand in hand with adapting to the ever changing environment.
4.     Management of a business is very crucial. Sometimes owners of business mix ownership and management to the detriment of the company. It is always wise to let a company be managed by professionals.
5.     There is need to have goal congruence in an investment group. This is very crucial because if this is not the case, you’ll always be embroiled in internal wrangles as opposed to spending time strategizing on how to grow.
6.     Variety of members in the group should be viewed as a strength because it brings in different views and professional outlooks.
7.     The number of group members should not be too low neither should it be too high. Too low means challenges of getting sufficient capital could arise. Too high means serious group dynamics could set in and managing a larger group is much tougher.

Our next lesson will be on making real estate part of your retirement nest egg.

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