It is sad how our minds have been conditioned a certain way towards debt. We are told that debt is bad, but there is good debt that can work for an entrepreneur.
There are cases for and against debt. It was the Holy Grail that allowed the automobile, housing, banking and furniture sectors to become successful; it was also the curse that ushered the world into the economic meltdown in 2008.
So, what is good debt and how has it benefited those who know how to play the game?
In real estate, people use debt in innovative ways, like going to the bank to apply for finance for a new house. Once the bank approves, a tenant is brought in and their monthly rental is used to repay the loan. Then they go back to the bank as they still qualify for another property as their income at the time of application still remains the same. This qualifies them for another property, and the model is replicated while tenants service the loan, and their balance sheet increases.
Property developers use this model with a cluster of residential buildings, apartment blocks, and major developments. Developers identify the land, get the correct approvals and compliant paperwork in order, then they hire architects to draw the building plans. Once this is done, the properties are sold off-plan and this money is used to construct the infrastructure.
Another sector where people use debt, with less risk, to become successful is franchising. Firstly, franchises have a proven business model with high probability to succeed. Secondly, banks are more willing to finance new sites or buy an existing branch if the franchise has an established brand. With good management, the debt will be settled.
As entrepreneurs in Africa, we need to be savvy in gearing debt to work for us, and understand the power of leverage.
The recession hit when the US economy was over leveraged in real estate asset class. This is the same asset that many entrepreneurs use as their capital base. They approach banks to take another bond on their house to start a business, or grow it, at the risk of losing their primary residence should things not go according to plan.
Leverage is crucial when you are dealing with financial institutions, particularly banks. However, there is another avenue where leverage is not necessarily a physical asset; there are venture capitalists that fund a company on the perceived current or future value of the company. Others go further by focusing on the team behind the company, credibility and successful track records.
Above all, entrepreneurs need to be careful not to over-leverage themselves. When under-leveraged, the risk is manageable.
Start-up entrepreneurs are famous for bootstrapping their companies, until they produce a viable prototype or penetrate the market. An example of this is Fuseware, a successful African tech company founded by Mike Wronski before he sold it to Ornico.
This presents a challenge between two funding models: debt versus equity financing. Well-structured debt is preferable, provided the company can service the debt in the short term. This is best option for expansion purposes.
Equity is best for start-ups and growth-stage businesses. In this regard, an investor buys a stake in the company and takes on the same risk as you. The downside is that that the entrepreneur loses some control the moment an investor comes into a company.
Sooner or later, it is going to be necessary to approach capital markets to raise money. The fundamental reason for listing on a stock exchange is to raise money. Today, there are other reasons, but raising capital is the main one. A company’s share price is based on perceived value that might be influenced by its income, assets or track record. At the end of the day, the company is worth what the market is prepared to pay for and what investors agree to sell shares for.
There are many times when an entrepreneur’s personal debt overlaps with his company’s debt, predominantly in small to medium sized companies. If able, entrepreneurs should only deal in debt held by the company, rather than their personal accounts.
While debt is not entirely encouraged, any company that is going to be of global significance needs to be familiar with it.

How To Make Debt  Work For You

Few entrepreneurs work in the realm of fantasy. For Wilja Reitz, it’s the world she inhabits for a living everyday.
Reitz, owner of Ouland Royale, a ‘baroque barn’ in Plettenberg Bay (also known as Plett) in South Africa’s Western Cape province, has acquired quite a reputation for her couture hats, lampshades and restored antique furniture in this little town.
She has also been instrumental in giving the finishing touches to designer outfits sported by VIPs at some of South Africa’s most prestigious annual galas, including the J&amp;B Met, Durban July, and internationally, even the Royal Ascot. Having run her own boutique, Decadence, in Cape Town for many years, Reitz relocated to her family’s Plett farm in 2013 where she built her “fantasy-inspired” baroque barn.
<img loading="lazy" decoding="async" class="size-medium wp-image-30822 alignleft" src="http://www.forbesafrica.com/app/uploads/2017/05/Wilja3-200x300.jpg" alt="" width="200" height="300" srcset="https://cms.forbesafrica.com/wp-content/uploads/2017/05/Wilja3-200x300.jpg 200w, https://cms.forbesafrica.com/wp-content/uploads/2017/05/Wilja3-300x450.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2017/05/Wilja3-600x900.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2017/05/Wilja3-683x1024.jpg 683w, https://cms.forbesafrica.com/wp-content/uploads/2017/05/Wilja3.jpg 682w" sizes="(max-width: 200px) 100vw, 200px" />
It was a dream many years in the making, as she had been stridently collecting curious pieces of baroque furniture, French mirrors, antique porcelain and crystal glasses.
“It was a vision in my head for about 10 years where I wanted to combine a magnificent space and cuisine. The farm belonged to my grandmother, we were very alike and it was the right place for me to create my living fantasy,” says Reitz.
To make this dream a reality, Reitz put in long hours and years of hard work.
“I don’t see work as a hardship; I see it as a blessing. If I can have it my way, I’ll work 10 to 15 hours a day happily,” she says. She has been plagued with setbacks enough times, but says she has always bounced back.
“I’ve dealt with a lot challenges in my life and in business. When you get knocked down, you have to refuse to be a victim of circumstance and get up, brush yourself off and move forward.”
She regards appreciation of life’s many trials and triumphs as key to business – and this she finds in the most mundane of everyday tasks.
“I like to push boundaries and don’t take anything for granted. Sometimes when I’m washing dishes I look at my hands and think how lucky I am to have hands to work and dishes to wash. I think gratitude is the key to success.”
With a sizeable female clientele, women’s empowerment is not too far from Reitz’s radar. She is rather outspoken in her belief that women need to be free of any patriarchal influences in society.
“When I owned my boutique, women would come in and try my hats. During those moments, a woman feels elegant and special; she becomes the person she wants to be. Women can end up living their lives for other people.”
The challenge she says is in balancing your home, career and dreams.
“The women on this continent are extremely powerful and there is a hell of a lot of talent in this country. But a lot of this is suppressed, as women are expected to play a certain role in society. A woman should be allowed to be who she dreams of being. I make sure the women who work for me feel powerful and special and that they can do anything.”
And the belief that anything is possible was intrinsic to Reitz’s childhood, which was filled with stories of fairies and fantasy. She translated this into her designs and to the baroque barn, her own fantastical space she built from scratch and that is now a sought-after venue for weddings and events.
At the barn, gilded furniture pieces create settings in which to relax, antique treasures are artfully placed, while chandeliers add timeless elegance and a myriad mirrors create the illusion of space.
“I spend hours and hours on the detail. I don’t look at magazines or anything like that as I prefer to create my own trends; my inspiration flows from inside. Being creative makes me feel worthwhile and I transform mundane spaces to something beautiful… I thought that if I can build my own fantasy space, I can use all my talents and I’m enjoying experimenting with food as well as flowers.”
Reitz is now adding a new antiques-and-décor boutique to the venue; she also undertakes orders for hats and lampshades.
“As with all artistes, my work is never complete, I will always strive to develop myself more and to use the talents I have been given.”
And the world she has created is a theatre of expression, for herself, and the people who walk into her store.

Tag: Furniture

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How To Make Debt Work For You

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