joint venture

Five common mistakes to avoid when buying a property

Posted on May 11, 2016 by Business Partners Limited

When things go wrong in commercial property investment they can really go badly wrong, because the consequences are often counted in millions or rands. Owen Holland, Business Partners Limited (BUSINESS/PARTNERS) national asset manager: properties, lists five common mistakes made in commercial property investments.

Before you venture into your next commercial property deal, says Holland, it pays to be aware of the following common mistakes so that you steer well clear of them.

Common mistake 1: Shoddy due diligence

Fundamental flaws in a commercial building can be completely hidden from sight, says Holland. A perfectly sound structure might be built half a metre over the boundary line – a mistake that puts you at the mercy of your neighbours and one that may cost you millions to fix.

The only way to avoid these pitfalls is to perform a due diligence investigation in which every aspect of the building is checked: not only the condition of the physical structure, but its plans and approvals, the facilities such as water and electricity, and the state of the leases if the property is being bought with existing tenants.

Holland says it is crucial to hire professionals to perform a due diligence investigation. They can cost up to R30 000 depending on the size and complexity of the property, but their costs are negligible compared to the money they can save you.

When you are keen on buying a commercial property, Holland’s advice is to sign an offer to buy the building subject to the outcome of a professional inspection, including the structure, facilities and leases. If the investigation exposes any defects, you can either walk away or renegotiate the sale with seller. Either way, the cost of hiring professionals is money well spent.

Holland says even vacant land should be subject to due diligence in the form of soil inspection. Again, this is expensive, but your building plans may be scuppered by the existence of, an unexpected geological structure, a hidden rubbish dump, or even toxic waste buried in the soil.

Common mistake 2: Not calculating upgrades and future maintenance costs

A thorough due diligence must not only look at the current health of the structure and facilities but must include a careful consideration of upgrades and maintenance that may be required in future. These can pounce on the buyer quite unexpectedly, says Holland. An anchor tenant might only agree to renew their lease if certain upgrades are made. The rise in electricity costs may force the new owner to upgrade the property to become more energy efficient in order to remain attractive to tenants. An asbestos roof may have to be replaced.

“The buyer must be aware of the fact that the seller will always know more about the property,” says Holland. It is up to the buyer to discover the hidden costs before buying. The seller won’t volunteer the patent information.

Common mistake 3: Not considering the bigger picture

Even if the property itself is in a pristine condition, the area in which it is situated may have reached its peak and is in a downward spiral. If you buy property in a devaluing node, the value of the property will decrease, says Holland. It is therefore just as important for the buyer to look into what is happening to the area as it is to investigate the condition of the building itself.

Well-known examples are the CBDs of Durban and Johannesburg which devalued dramatically as Umhlanga and Sandton became the focus of development. Holland warns that properties in the high streets of many towns and regional centres can be significantly affected by the establishment of a mall on the outskirts.

Nothing beats driving through the streets of the node in which you intend to buy. Signs of refurbishment, development and rejuvenation are good. A lack of upgrade activity could signal the fact that the node may have reached its sell-by date.

Holland also recommends speaking to municipal town planners and local developers to find out about any plans that may affect the area.

Common mistake 4: Being too fussy about price

Not every property that you buy as an investment has to be a bargain. If you set your mind on only buying properties that can give you more than, say, a 10% return on investment, you run the very real risk of not buying anything, and missing opportunities to build up a substantial portfolio.

A well-engineered, prime property situated in a low-risk area is most probably not going to be priced at a bargain level, but as long as it is not overpriced, it will give a fair return on investment and can help form the backbone of a solid property portfolio, says Holland.

The bargain hunter will miss excellent buying opportunities of prime properties at fair market prices and run the risk of building a portfolio very slowly if at all. There are many investors in this hot market chasing prime properties for the yield so the bargain hunter or over pedantic buyer may be left with cash in the bank at low returns for a significant time period.

Common mistake 5: Gearing too high

Cash is king in any business, says Holland, and property investment is a business like any other. Buying a building with too much borrowed money exposes the investor to grave risk. The bond of the property has to be serviced by the operating income earned from the property. If this is too high, the failure of one tenant to pay his rent could jeopardise the whole investment.

Holland says there is no single rule of thumb to guide investors about how much money is prudent to borrow for a property investment; it depends on the reliability of the tenants and the vitality of the node. If the tenants include the branches of established, nation-wide companies, the buyer could borrow more, but if the tenant mix is made up entirely of small mom-and-pop stores, it is better to have a loan to value of 50% or less. The cash flow forecast, including bond repayments and tax, must allow for a realistic vacancy and arrear factor as well as for any short term increase in interest rates.

Holland urges prospective property investors to consider joining up with an established joint venture partner as a good way to start a commercial property portfolio. BUSINESS/PARTNERS, for example, are always keen to consider joint-venture proposals for property investments from entrepreneurs. The advantages go beyond the availability of finance, and include expert knowledge on due diligence investigation and assessing commercial nodes.

Most importantly, a joint venture partnership with an established property expert can teach you how to avoid the common mistakes without paying painfully high school fees.

Open communication can turn family into a valuable business asset

Posted on April 14, 2016 by Business Partners Limited

By Jeremy Lang

Regional general manager of BUSINESS/PARTNERS

In a sense, almost all owner-managed businesses are family businesses. The fortunes of even those run by a single entrepreneur without the direct involvement of other family members are heavily influenced by what goes on at home.

Such lone-operating business owners can turn their families into one of their greatest assets – a refuge of emotional support and healing when things are tough at the business, a source of inspiration during tedious times, a sounding board to help with difficult decisions. But like all relationships upon which an enterprise depends, this relationship requires concerted effort and focus.

The ideal is to get your family to incorporate your goals for your business into their own goals. They must know what your goals for the business are and they must want you to reach them. If they do, they will always be ready to support you when you need them.

This does not mean that you are unnecessarily burdening your family with the worries of the business world. Aligning your goals with theirs allows them to be part of your ups as well as your downs. It lets them share in the adventure of your business journey and allows them to be engaged in your life, which, after all, is what most family members need from one another.

Here are a number of principles and pointers for engaging with your family about your business:

The basis of making your family part of your business is open and transparent communication. Keep them abreast about good and bad developments in your business. “They have to understand why they can’t go to the restaurant this month (when your business is going through a hard time),” says Lang.
Don’t try to shield your family from the bad news in your business because it may make them anxious. They are much more likely to become anxious by noticing that you are under pressure without knowing the context. Rather try to allay anxiety by describing to them the whole picture.
The first step in communicating to your family about your business is to clarify your goals. You have to explain to them what your definition of success is. For some entrepreneurs, success is reaching a certain net-worth target, for others it means financial independence, retirement at a certain age or freedom from eight-hour work days.
Invite your spouse and children to spend some time in your business. Make a point of celebrating the achievements of your business with your family. If you land a big contract, for example, arrange a family treat.
Allow your family to take care of you when you’re down. Keep communication channels open and honest so that your family can offer emotional support when you need it. Being vulnerable takes courage and always leads to a stronger family bond. Use technology to communicate with your family when you are at work, and vice versa. Accept that the work life of a business owner is more difficult to separate from home life. Fortunately, modern technology makes it possible for you to sort out a crisis at work or at home without always having to physically go in.
When you have to spend long hours at work, try to make it up to your family by spending quality time with them on another day.
It is always a good idea to have a mentor, someone who can help you with the business side of things, but also with family issues. An ideal mentor would preferably be someone who has successfully managed the same kind of lifestyle.
If you miss the goals which you have set for yourself and communicated to your family, renegotiate. Don’t just ignore them and hope that no one will notice. The more seriously you take your own goals, the more seriously your family will take them too, even when they change from time to time.

Daily communication around the dining room table is crucial to keep the family informed, but nothing stops entrepreneurs from having a more formal discussion, perhaps once a year, about the state of their business to their family, just as they would to a shareholder or a potential joint venture partner. It helps to focus the exercise and give it weight. The family is, after all, one of an owner-managed business’s most important stakeholders.

Open communication can turn family into a valuable business asset

Posted on October 19, 2015 by Business Partners Limited

In a sense, almost all owner-managed businesses are family businesses. The fortunes of even those run by a single entrepreneur without the direct involvement of other family members are heavily influenced by what goes on at home.

This does not mean that you are unnecessarily burdening your family with the worries of the business world, says Lang. Aligning your goals with theirs allows them to be part of your ups as well as your downs. It lets them share in the adventure of your business journey and allows them to be engaged in your life, which, after all, is what most family members need from one another.

Lang sets out a number of principles and pointers for engaging with your family about your business:

The basis of making your family part of your business is open and transparent communication. Keep them abreast about good and bad developments in your business. “They have to understand why they can’t go to the restaurant this month (when your business is going through a hard time),” says Lang.
Don’t try to shield your family from the bad news in your business because it may make them anxious. They are much more likely to become anxious by noticing that you are under pressure without knowing the context. Rather try to allay anxiety by describing to them the whole picture.
The first step in communicating to your family about your business is to clarify your goals. You have to explain to them what your definition of success is. For some entrepreneurs, success is reaching a certain net-worth target, for others it means financial independence, retirement at a certain age or freedom from eight-hour work days.
Invite your spouse and children to spend some time in your business. Make a point of celebrating the achievements of your business with your family. If you land a big contract, for example, arrange a family treat.
Allow your family to take care of you when you’re down. Keep communication channels open and honest so that your family can offer emotional support when you need it. Being vulnerable takes courage and always leads to a stronger family bond. Use technology to communicate with your family when you are at work, and vice versa. Accept that the work life of a business owner is more difficult to separate from home life. Fortunately, modern technology makes it possible for you to sort out a crisis at work or at home without always having to physically go in.
When you have to spend long hours at work, try to make it up to your family by spending quality time with them on another day.
It is always a good idea to have a mentor, someone who can help you with the business side of things, but also with family issues. An ideal mentor would preferably be someone who has successfully managed the same kind of lifestyle.
If you miss the goals which you have set for yourself and communicated to your family, renegotiate. Don’t just ignore them and hope that no one will notice. The more seriously you take your own goals, the more seriously your family will take them too, even when they change from time to time.

Separating the boys from the women

Posted on September 29, 2011 by Webmaster

Malani Padayachee, MPA Consulting, 2011 finalist

Juggling three kids and a very successful company takes perseverance, stamina and an innovative mindset – characteristics that 2011 Entrepreneur of the Year® Awards finalist, Malani Padayachee-Saman, possesses all too well. Being at the helm of MPA Consulting Engineers and having majority women equity shareholding in a very male dominated sector, is what she believes makes her company unique.

Established on 1 July 1997 and situated in Randburg, Gauteng, with a satellite office in Middleburg, MPA Consulting Engineers was the first organisation with a majority women equity ownership to be registered with the Consulting Engineers South Africa (CESA) in 1998, and is currently only 1 of 2 such organisations registered with CESA. Providing consulting civil and structural engineering services to both public and private sector clients, the company has the expertise and knowledge to run with projects from feasibility all the way through to implementation.

After graduating with a BSc Civil Engineering from the University of Durban-Westville (1991), and later with a diploma in Engineering from the University of Witwatersrand (1998), Malani was employed by a consulting engineering practice firm where she worked for five years.

“Thereafter I received a scholarship from the British Trade and Industry and was placed with a consulting engineering practice in the UK for a year,” she recalls.

“It was during this period that I discovered just how competent South African Engineers are and was inspired to write a business plan, which I simply rolled out on my return to the country.”

Having worked abroad and after gaining her professional registration (Pr Eng – Registered Professional Engineer), Malani decided it was time to take the leap toward entrepreneurship.

The feminine touch

MPA Consulting Engineers believes that it is adequately placed to function as role models to other females who want to enter the engineering sector.

“We have already been instrumental in developing two other females within the sector who currently run very successful businesses,” Malani continues.

“While we are a small company, employing 30 individuals (most of whom are professionals), we participate in all areas of civil and structural engineering services thereby offering clients a one-stop service. In addition, we are instrumental on structured joint venture arrangements, working on large-scale projects. Assuring that our clients receive nothing less than service excellence is what makes us a cut above the rest.”

Engineering is a scarce profession in South Africa yet engineers are crucial in ensuring a country’s development. Malani says it is imperative that more young people are encouraged to select engineering as a preferred career path and, more importantly, consulting engineering is appropriately suited to women as they possess a number of inherent qualities and abilities that assist in rendering a good project.

“This career path does require perseverance and dedication, and ensuring that you surround yourself with good mentors who add value to your business.”

And, she adds, never compromise on IT.

“I see employment creation and participation of women in the construction sector as a key focus area and as an organisation, I believe that we have an important role to play in moving our country forward in both these areas and become leaders not only locally but also across the African continent.”

A balancing act

Malani is married with three children – a 13-year-old and a set of twins (10-year-old). Running a family alone isn’t easy but she owes the success of both her business and personal life to a good support system.

“I am a believer that true success is not measured by how successful you are but more so by how successful your children become. I would like to believe that one day, as a result of my influence on work ethics and social interactions, etc, that I will stand a proud parent.”

It is difficult achieving a work-life balance but Malani ensures that she prioritises her time efficiently. It also helps, she says, to ensure that all the necessary support structures are in place.

“I also find that as a working mother you become very innovative in your home environment, and often find time-saving mechanisms for simple everyday tasks.”

A member of the South African Institute of Civil Engineers (SAICE), SABTACO, Business Women’s Association (BWA), and Women in Finance (WIF); as well as serving on a number of councils such as the Engineering Council of SA (ECSA), CESA, and the SA Society of Trenchless Technology (SASTT), Malani is more than just a successful entrepreneur – she is a female force to be reckoned with!

Contain the clash

Posted on July 15, 2010 by Webmaster

How to close deals and deal with conflict

In any business, partnership or joint venture, there will be conflict.

Mostly, SME decision makers will enter the fray thinking of the outcome in terms of winners and losers.

Similarly, when these decision makers enter into negotiations with a potential partner, client or supplier, the battle lines are often drawn around who will win and who will lose.

Negotiation and conflict resolution are arts of the business world and one needs to know how to play the game.

How to haggle

When SME decision makers enter into negotiations on a deal, they accept that it is a give and take situation. Usually, everyone wants to be the taker but this is simply not the reality.

Big business will always try to negotiate from a position of strength and Business Partners Executive Director, Christo Botes, says you cannot negotiate as an SME if your back is against the wall.

“If you back off continually and constantly cut your margins, you will lose the other party’s respect. Your reputation in the industry can also be adversely affected,” he explains.

“You need to stand your ground on matters of principle and never allow your integrity to be questioned.”

Jan Steenkamp, the Executive Head of Sanlam Cobalt, echoes this: “Before you enter into a deal you have to be sure of its purpose… It is natural for people to try win at all costs and get all the benefits stemming from a deal. When you try to get too much, it almost always leads to conflict.”

It is also important to be transparent and honest and you need to balance your needs and the other party’s expectations.

“Never bluff – if you create a perception that is not accurate, you will be caught out and you will lose your credibility.

“When you go into a deal you need to ensure that the deliverables are well defined for both parties… you need to define the end goal upfront and take the emotion out of the deal,” Steenkamp says.

It is called batna

Gibs’ Associate Professor Albert Wöcke, says whenever you enter into negotiations, you need to set a BATNA: the Best Alternative To a Negotiated Agreement.

“People think they need to compromise, compromise and compromise until everyone is happy. Or, they try to win at all cost,” he says.

Wöcke explains that once you have set your limits – your BATNA – you enter a negotiation with a sense of power. In addition, if you have set and defined limits, you will know when it is time to walk away.

He adds that not all negotiations are about possessions and that you need to identify quickly what the other party’s motives are.

In a win-win scenario, the conversation revolves around different, and congruent interests.

In a win-lose scenario, one of the players has a positional bargaining ace-card.

“Typically, you need to look at their sources of influence and your own. If it is a large company you need to look at what makes you attractive,” he explains

The deal goes south

Deals with customers, suppliers or joint venture partners will come undone from time to time and it is important to handle the situation professionally.

To Wöcke, conflict is not always a negative word and he says that it is essential to promote innovation and change – it can be a driving force in a business.

When it does move into a negative space, he says that conflict management comes down to the way you want to see the situation play out.

Wöcke explains these intentions are either competing, avoiding, compromising, accommodating, or collaborating.

In other words, you need to decide what outcome you seek through managing the conflict. You also need to decide how important the issue is versus continuing the relationship: “If you have this in the back of your mind, you can generally manage the outcome because the other party will probably respond to your approach.”

Steenkamp adds to this, saying that if the conflict is between business partners, or joint venture partners, one needs to quickly identify the true cause of the disagreement. This is because conflict often manifests itself in issues different from the true cause.

“Most business owners want to be in control and when someone starts stepping on their toes it leads to conflict. The different roles need to be defined clearly and for the benefit of the greater good of the company…

“In some cases the best answer may be to walk away but you need to be mature enough to do this in a way that ensures both parties are not negatively affected,” Steenkamp says.

When the conflict is internal, the rules do not change: “Quite often, conflict stems from emotion and personal management styles or backgrounds. If this happens, you need to improve your communication lines and try to understand the other person’s way of thinking – here an outside person can help you to remove the emotion and facilitate an open an honest conversation…

“You need top be able to listen and understand the other person’s perspective. It does not help communication if you defend your position all the time,” Steenkamp says.

Glass houses

Botes says that when shareholders and directors start to work against each other, it usually signals the beginning of the end.

Shares and voting rights are almost always a source of contention, as SME decision makers want as much control as possible.

Rather, he believes that a business needs a clear leader who has the casting vote in a partnership. Capital, he adds, does not automatically define knowledge or ability.

“If conflict starts to snowball, it can often be too late to save the business. You need to work at your relationship with your business partners every day.”

He adds that silent partners also often become involved in a business when things go wrong. While they did front capital, silent partners are usually not operationally involved in a business for a reason.

“It is always best to set out the relationship from the start… A good way to deal with potential conflict is to have regular meetings to update silent partners. But, do not let these meetings adversely affect the business.”

Botes adds that reverting to a shareholders agreement is only a last resort. Rather, the spirit of the agreement should guide the relationship.