I never said ANYTHING remotely similar to that. NEVER. His contention was if you sign a 7 year lease you need to have 84 monthly lease payments prior to the commitment. I think you and I are not on opposite sides of this debate. Look at what I have ACTUALLY said not how it has been characterized. And look at his statements.
Please link to the post where I said you should have all of your cap-ex prior to signing the lease. I said you need the capital to support the commitment(lease). Having capital to support the first 6 months of the lease and "hoping" the revenue will be there is not supporting your commitment.
Note your word "already" in both your first and last sentences. If the last sentence ain't a full cap-ex statement what is? On 10/25/09 at 11:48 PM you said: Umm - why did this person sign a 7 year lease if they didn't already have the capital to support it? Your argument fails in the first sentence: DON"T SIGN THE 7 YR LEASE IF YOU CAN"T AFFORD IT!!! Is it a shock to you that there are still people that pay cash for their house? (i.e. no mortgage) I'm really not trying to be an ass so please don't take it that way, I just see every argument you're making built on a false foundation: don't make commitments you don't already have the resources to meet.
I don't see your point. He didn't already have the resources to meet his commitment, period. Resources in this case are capital and/or the guarantee of capital, neither which he apparently had. It's vastly different if you have a contract guaranteeing capital in the near-term from a project, a bank can lend against that. They can't lend against you hoping for sales next month in a retail store. 'Hope' is not a guarantee of capital. 'Wishing' is not a guarantee of capital. 'Maybe if I run a sale and advertise more' is not a guarantee of capital. Admittedly I don't know the specifics of this situation, just what you've offered in this thread which is what my analysis is based on. It doesn't sound like there was a bank involved, just the owner's capital and commitment to a 7yr lease on a store. If this is the case then the property company deserves what they get, which is likely not the balance of the lease once the store goes away. Typically a bank(local) is involved if the owner needs a loan and does analysis to see if the owner's business model is sustainable in the area, which is how the loan gets underwritten. If there was no bank, and no comprehensive due-diligence, then the outcome was all but certain.
But that is my point. You think he needed 84 months rent on hand (or a guarantee of) to prudently open his doors and I believe that even if he had only 74 months on hand it might still be prudent. Depending on the totally of the circumstances maybe even 64 months or, god forbid, even 54 months might be prudent. Should he have cash on hand for every piece of inventory he orders as well? Should he wait to have college and maybe grad school tuition banked before having a child? C'mon. Give it up. My bet is fewer than one retailer in a twenty opens his first store with enough capital (or a guarantee) to pay out the lease on day one. I wonder if Sam Walton did -- maybe ... and maybe not. More importantly you can't figure out if you made the cap-ex statement or not. In one post you challenge me to find where you made the statement. I find it and so you do a back flip and defend the very statement you denied making just an hour ago. Take those freakin' meds. They were prescribed for a reason.
I challenged you to find my post because I know what I said and wanted you to reread it as you clearly got it wrong. Most people would have realized the intent of my comment immediately. You bring up an interesting point about college tuition for kids. Do you think the economy would be better off if people had that mindset: line up payment for something before you commit to it? IMO, we would be a lot better off if parents had even 10% of their kid's college fund started before the child is born. For the store owner, banks offer loans for floor-plans but to get that loan you need to pass the bank's business stress test to ensure you can move the product. IMO, I wouldn't run a retail store unless I could cover the cost of the merchandise. As an aside, often times vendors PAY for floor space in retail stores, so the store owner has nothing out-of-pocket to put the products on the floor. Having 74 vs. 84 months is NOT prudent; if you aren't going to get sufficient revenue you should sign the lease. Period. End of discussion.
Hey Dipshit, you donât see his point because you have no idea what youâre talking about. Why are continually bashing my friend and saying that he didnât have the resources or capital he needed? What part of âhe was well financed at the start of the leaseâ donât you understand? He didnât need to borrow any money to be well financed (although he has several credit lines), he already had enough. He didnât rely on âhopeâ or âwishingâ or âadvertisingâ. He relied on the fact that he had already been running a successful clothes store in this mall for almost 10 years. The fact of the matter is you judge everything after the fact and use the outcome as the determing factor as to how well the business started. If somebody opened a business on a shoe string and made all kinds of commitments that they couldnât honor but it worked out, youâd say they had a sound business plan and âforecast the economic climate correctly.â If on the other hand somebody was well capitalized and had a solid business plan and in fact had already been in business for several years and that business didnât work out, you will always say that person didnât do anything right. Thereâs no doubt you work for a large multinational company that hires you to bash small business and encourages community oriented, local, good small businesses to close their doors and stop trying. I imagine if we started to talk about why GM failed, your first response would be that they paid their employees too much. Cause after all, an employee who is well paid is bad for that business.