Lee Rotbart

Posts Tagged ‘small business’

The fat lady is warming up

In Getting the mortgage on August 18, 2010 at 9:56 am

They say it ain’t over till the fat lady sings… well, she may not be singing, but I can definitely hear her warming up.

Yesterday I was given some bad news about Plan B. The bad news being it hadn’t worked. Apparently the banks are so scarred from all their crazy spending a few years ago that they are demanding an income (from PV) that is 200% more than the business needs to pay out in mortgage.

To those out there, like me, who have very little experience of running a business / getting a mortgage this means that if the mortgage is £31,000 per year the guesthouse must be making £31,000 in profit (before tax), meaning that the turnover must be £62,000 + all the costs of running it + living expenses + wages. As per my cash flow projections we were coming in around 175%, but not meeting that 200% threshold means that we either have to pull £70,000 out of our arse, or ask the vendors to lower the price by that much.

That’s the news, now for the rant.

It’s absolutely bloody crazy that two (relatively) young, accomplished, experienced, intelligent people with a significant 6 figure sum in cash for a deposit, stamp duty, etc. cannot get a mortgage. It’s insane that these banks – who caused the credit crunch in the first place – now have such ridiculous lending criteria that a business with a projected £15k profit in the first year cannot get a loan.

It’s barmy that a 7 bedroom, 4 storey guesthouse which overlooks one of the most popular beaches in the UK, in the heart of the tourist destination of the South West, is not enough collateral on which to base this loan, a loan that isn’t even that much (in the scheme of things). 3 years ago they would have been throwing money at us.

And here’s the real irony. If we were buying this as a residential property our combined incomes (which come to less than our projected 1st year turnover) would have been enough to secure a loan on a 25% deposit, whereas for a commercial mortgage we need to be bringing in more money than that and need a 30% deposit. Go figure?!

Yes… I’m frustrated. I’m frustrated that these hugely greedy banks who are absolutely incapable of seeing past an application number, and looking at the real detail involved, are sitting back on their fat, fat bottoms telling the government that “they are doing everything they can to lend money”. The fact that they’ve considered our application means they can fill in their pathetic little statistic forms and say that they were looking to lend but on this particular occasion the applicant couldn’t meet their criteria, criteria that Bill Gates or Richard Branson would have failed to meet in their early days.

I mean… come on! What business is expected to make a profit in the first year? It’s a given that most businesses need between 1 – 2 years to start turning a profit, so the fact that we were showing a profit in the first year, well – we’re already ahead of the game.

I do apologise for this rant and I know that up until now I have refrained from using this blog to spit fury about banks and all their little ‘computer says no’ minions; please excuse me this one time as there was just no other outlet, and I realised that I wouldn’t be able to get a scrap of work done today if I didn’t vomit all this up onto (virtual) paper. Danny should count his lucky stars that he’s in France as this way it’s the blog that ‘gets it’!

OK… on to Plan C; I have no idea what it is yet but I refuse to believe it’s not out there.

If I had a time machine…

In The beginning on August 9, 2010 at 3:08 pm

Having spent all weekend writing about our USPs, marketing strategies, and sorting out cash flow forecasts I am a bit out of steam for updates. Not that there’s that much to report. I should mention that much to my chagrin our commercial mortgage broker did not jump up and down with joy when I sent him the business plan, nor did he claim that it was the best piece of writing ever seen, hence I’m currently feeling rather under-appreciated.

It did occur to me however, that this process would be so much easier if I had a time machine and could fix the following elements that I have absolutely no control over at this stage in the game.

My current mortgage

I would have been very grateful if a little mortgage fairy had visited me in 2008 and mentioned that interest rates, which were standing at 5%, were going to go down and there was no need for me to get a fixed rate mortgage for 5 years at an interest rate of 5.69% – which seemed like a phenomenal deal at the time.

Saving: £5,800 in early repayment charges + £thousands in reduced monthly mortgage payments had I had the courage to invest in a tracker.

Porthminster View accounts

Without divulging too much information, if I had a time machine I would pop back to 2006 and tell the current proprietors of Porthminster View how to set up their accounts to ensure that they would have no trouble selling it as a profitable business should the situation ever arise.

Saving: Hmmmm, this is a difficult one. Probably would have saved us lots of time and made the process of borrowing money a lot easier, however, it may have meant that we wouldn’t have been able to buy the property at such an affordable price; so maybe not such a bad thing after all.

Plan A

With the knowledge I have now, I would never have invested so much of our time and energy in Plan A which was a bit of a non-starter. Plan B all the way.

Saving: £1,500 in survey and broker fees + a healthier mental state which wasn’t driving me to think homicidal thoughts about all surveyors in the South West of England.

My car (RIP)

With advance knowledge I would not have turned right out of a side road, on 28th December 2009, straight into the path of an oncoming car, irrespective of whether he was indicating to turn left or not. Without making that slightly disastrous decision I wouldn’t have written off my car in a matter of seconds, therefore resulting in having to buy a new one with our ever depleting funds.

Saving: £2,000 + insurance, etc. to buy a new car, plus I would not be rendered uninsurable through losing my no-claims discount which was tenuous to say the least.

The Big Chill

I might have hidden Danny’s Big Chill ticket so he would have had to stay at home with me all weekend and help me write the 20 page business plan.

Saving: Not sure if this would have saved me anything; it may have made me feel better briefly, yet I suspect my relationship would have been in a worse state than it is now had Danny and I been stuck in my flat all weekend drafting marketing plans together (plus this way I get my own way).

Like I said, I am feeling unappreciated and therefore indulging in a little self-pity.

All in all, there are a few things I would like to wind the clock back on under the supposition that it would make life easier at this stage in the proceedings. However if, like Doc says in Back to the Future (and I’m paraphrasing here), “each action has a direct and opposite reaction” then any of these things actually changing may have resulted in us losing this opportunity; so I guess it’s a good thing I can’t go round fiddling with time… God only knows what kind of chaos I could cause.

Planning to run a business?

In Getting the mortgage on August 5, 2010 at 3:03 pm

Apparently a business plan consists of more than forecast figures we’ve plucked out our bottoms, and some high level grand ideas about organising guided walks and afternoon teas. Unsurprising really, and more than naive of us to assume that was all commercial lenders would need. We’ve been wittering on about our enthusiasm, passion and general bonhomie but you might question (and someone has) if that alone is going to deliver a return on investment.

Now this isn’t high finance, it’s not even a small start-up, however it IS a business, and we cannot defend our position when friends accuse us of retiring if we are approaching this the same way a retired couple might. Nor can we moan about lenders not funding us based on our overall determination and passion, when we have provided them with little evidence (bar figures that we’ve found in aforementioned parts of our anatomy) that we can pay them back the money we are asking to borrow.

We can, by the way, I’m sure of it…. but I’m beginning to understand how it might look otherwise. Now we know that Porthminster View is in an enviable location, with phenomenal views, and lots of potential, we just need to show the lenders that.

This weekend Danny is off to the Big Chill festival… and while he is dancing in a field I will be ordering take away and getting down and dirty with the SWOT analysis and cash flow forecasts. Am I secretly looking forward to it? Yes, I think I am, for a couple of reasons (1) this is something I really really want, and if that means spending a weekend writing a business plan so be it (2) we need to know if we can pull this thing off. Maybe, just maybe, this is why guesthouses are being repossessed up and down the country? Not because the industry is bottoming out (soaring UK tourism statistics would suggest otherwise), but because people forget that this really is a business, as nice as it is it’s still real money, and real banks, with real consequences.

It’s surprisingly easy to talk about £hundreds of thousands without ever really grasping what this means; even if I think of it as my annual salary x 7 it still doesn’t really hit home. It’s money we’ll never see, loaned out by people we’ll never meet, and paid back by banks we’ll never visit. For us however it’s not just a business, it’s a lifestyle, it’s a massive change, it’s an opportunity to build a life together. However, while that might be all we need and all we want, I doubt that’s a good enough argument to make it past the Dragon’s Den panel of lenders.

So… I like to think that this blog follows the very good advice provided by a friend – it is positive, yet realistic. We’ll see what happens on Saturday, you may yet find me on http://www.callthisabusinessplan.com.

The mortgage maze

In Getting the mortgage on July 28, 2010 at 6:33 pm

I feel like a double glazing salesman, phoning around trying to get someone to bite using the same script that has been rejected by hundreds of people beforehand. With each new phone call there is renewed hope, as well as newly identified obstacles. We get so far down the line with one lender, and then something comes to light that means we can’t go forward.

There are the highly suspect ‘market trader” commercial mortgage brokers saying “We don’t mind if you have been bankrupt before and have CCJs coming out your ears, we’ll find you money” – sentiments we are becoming ever more suspicious of.

There are the ‘over-realistic’ brokers saying “You don’t have a hope in hell, we can’t help you unless you have more money than sense at your disposal”.

Then there’s our ‘I cannot say enough good things about him’ mortgage broker who is bending over backwards and exploring every possible avenue to help us get this money, as he truly believes in us, and in what we are doing.

We are currently mid-discussions with 3 separate organisations and everything is so slow, and so painful and I’m bored of hearing myself say, “if only ******* hadn’t employed that surveyor”, because it’s irrelevant drivel which is no good to man nor beast.

I don’t believe in fate, but somewhere along the line surely we have to know when to fold our hand. Kenny Rogers once (tunefully) gave us some advice about knowing when to hold ’em and fold ’em (The Gambler, 1978):

Should we be folding? Or is this just something we have to get over, something we’ll laugh about in a few months time? I truly don’t know. I know that even though I’m telling people there is no more hope I’m secretly thinking about the last conversation I had with *******; that while I’m looking at other properties I’m still coming back to this blog, and thinking about this (and only this) near perfect opportunity.

Surely there can’t be many properties in the middle of one of the most beautiful, and popular, areas of the UK that:

  1. Have planning permission
  2. Have a search engine friendly website on a sought after web address
  3. Have the perfect number of bedrooms – not too many to be unmanageable for novices, but not so few that there’s no potential to earn a decent wage
  4. Have phenomenal views from 4 out of the 6 bedrooms
  5. Have all fixtures, fittings, linen and furniture in place (and not charging any extra for them)
  6. Have a live-in maid who is prepared to stay on, who knows the ropes and will be vital in ensuring the guesthouse runs like clockwork while we’re still finding our feet

Correct me if I’m wrong, but this is a great opportunity isn’t it? Add to that the fact that we have significant money behind us, business brains, enthusiasm and passion for the task – it just doesn’t add up.

Two years ago, when this recession hit, my only concern was that I might not get a pay rise at my current job (just for clarification, I was actually right about that). Now it’s so much bigger. Those newspaper headlines that, like the war in Afghanistan, were only relevant to “other people” now mean something to me. Headlines that screamed ‘Banks not lending’, ‘Financial crisis makes 80% mortgages a thing of the past’, and ‘No more credit’ are now my reality.

It just goes to show that you never know what’s round the corner. One man’s relevant headline is another man’s chip paper. After all, there is probably someone somewhere that cares about Wayne Rooney’s love life.

In her heyday Margaret Thatcher once remarked:

Small firms can be a seed-bed for new ideas and a testing ground for new ways of working. They often lead the way in new products and new services. They put the customer first. They have to, to survive in a fast-changing world.

Maybe I should write to her…