Journey 1995:Non-Stop

Chapter 288 Debt

“It’s not impossible. Anyone who wants to invest in the new company is welcome to do so. However, I can’t accept investments below 20 yuan, otherwise it would be too troublesome to manage,” Yan Hui explained.

"Huh? 20? How much of a share can 20 buy?" Zhou Ping's heart trembled upon hearing this.

20 yuan is enough to buy a house in Jinan now.

"It won't exceed 10%." Yan Hui thought for a moment. "It depends on the situation next year. Now is not the time."

"You mean, the initial investment for the new company can reach more than 200 million?" Zhou Ping thought for a moment. His uncle's factory could be built with 200 million, and if we don't consider the factory building, the equipment alone would be more advanced than his uncle's.

Why do we need so much money? Aren't we going to take out any loans?

Most factories choose to lease, and it's rare to find one like Yan Hui who directly purchases a factory.

“Yes, otherwise it wouldn’t be possible. I’ve investigated quite a few projects in the past six months. Oh, by the way, you must keep my new company a secret,” Yan Hui instructed.

Once you enter a new market, you're bound to encounter competitors; there's no need to make enemies beforehand.

The biggest advantage of this era is that many projects are still growing. When a project with growth potential enters, there will be very little resistance. Yan Hui understands this clearly now. The real estate market is still growing, and his plywood business has not declined at all. He is determined to develop businesses related to plywood.

"Mr. Yan, the problem is I have no idea what you're planning to do," Zhou Ping said helplessly.

"I know you don't know, but I'm going to be working on company matters, and I don't want anyone to know. I'm afraid some people might guess what I'm up to. Anyway, I originally planned to have you help me after the new company was established, but you came earlier," Yan Hui added.

The matter was kept secret; if Zhou Ping hadn't been of a special status, Yan Hui wouldn't have told him the size of the funds.

"So, does this mean the new company is putting me in charge of finances?" Zhou Ping's heart raced.

A new company with an investment of at least 200 million has put you in charge of its finances. If the company takes off, your status will be even higher than your uncle's "Chief Financial Officer".

"You can't run away even if you want to," Yan Hui laughed.

Yan Hui's plywood business is now quite stable and profitable, but it still operates on a "middleman" model: purchasing boards from Party A and selling them to Party C to earn the price difference.

These types of business activities require relatively little capital and generate profits from profit margins and information asymmetry.

As for timber processing plants, although they belong to the manufacturing sector, they are very basic. Some factories that only handle board cutting can hardly be called "production"; they are more like intermediaries.

Now that Yan Hui has the funds, his first move is into the familiar timber processing industry, specifically a standardized small factory that can perform deep processing.

Next, Yan Hui plans to enter the leasing industry, which has higher requirements for assets, similar to what Mr. Ma did.

Mr. Ma owns many large cranes, an industry that requires substantial capital investment. Sometimes, to purchase a large crane, Mr. Ma might even seek joint ventures with others.

Larger cranes are more expensive, but sometimes they also have higher returns, which is counterintuitive. Having worked with plywood for over two years, Yan Hui is now preparing to work with steel structural components.

Plywood on construction sites is a consumable item; all plywood must be discarded after a period of use. Concrete has a corrosive effect on plywood, which is unavoidable. Over time, exposure to wind and sun will inevitably cause the wood to warp. Once the warping reaches a certain level, the plywood's support strength decreases significantly, as does its ability to flatten the wall surface.

Steel structural components are used in conjunction with plywood.

All the plywood needs to be held in place by steel pipes and locking systems; otherwise, the plywood itself would be useless. These steel structural components are not disposable; no construction site buys them directly. They are all rented, and the quantity rented each time is quite large.

Yan Hui had investigated several leasing companies and carefully calculated the costs and benefits, concluding that the industry was viable. His plywood business completely overlapped with the steel formwork leasing business, making it very convenient for his sales representatives to reach the market. In short, Wang Yongjun and his team were overjoyed.

In addition to this, Yan Hui has another huge advantage in the steel formwork project: he has money.

A major disadvantage of steel formwork projects is the difficulty in obtaining appraisals and loans. Therefore, it's often necessary to purchase the formwork directly with existing funds and then lease it out. However, it's very difficult to get bank loans secured through appraisals for the purchased steel formwork, making scaling up extremely challenging.

Mr. Ma's crane business, however, is actually easier. For example, if he spends 300 million to buy five cranes, he can take out a loan and leverage the purchase process. If he buys a car outright, he can immediately get a mortgage loan from a bank to buy another car. If it's a high-value used car, and he has a good relationship with the bank, the loan amount can even be close to the amount he spends.

In this situation, the boss immediately has new funds to buy a car, and the purchased car can be used as collateral for another loan.

Therefore, some bosses have equipment worth hundreds of millions, but also hundreds of millions in debt, while their initial capital may only be tens of millions or even less.

The core value of money is actually reflected in debt. If debt is eliminated, capital and money will also be eliminated, which goes against common sense.

That's why large companies have large amounts of debt.

Of course, that's exactly what banks do. They lend out the money they deposit, then more money comes in, and they lend it out again, in a continuous cycle, easily rolling the money up to trillions. Without the central bank's "reserve requirement ratio" limit, a single bank could deposit and lend astronomical sums.

To get back to the point, Yan Hui's project, steel formwork rental, has a very high entry barrier because it's difficult to assess loan eligibility. It's impossible to succeed without millions of dollars in readily available working capital.

Outsiders may not understand why Yan Hui dares to invest so much money in steel formwork rental. Doesn't he need working capital himself?

This brings us back to the issue of credibility.

Yan Hui no longer relies on working capital because he can delay payments. Suppliers deliver goods to him without him having to pay tens or hundreds of thousands of yuan per transaction; he settles accounts only after the construction site receives payment.

Because of his excellent reputation, Yan Hui was able to avoid using his own funds in commercial transactions and instead put the vast majority of his money into steel formwork rental, which required large sums of capital.

Some business matters are not actually difficult, but they are different from personal understanding of business in daily life.

(That's all for today. I still don't have time to finish. I've been changing cities almost every day these past few days, sometimes flying twice a day. I'm really sorry.)

(End of this chapter)