Do you want to start a real estate investment holding company? If YES, here is a 17-step guide on how to start a holding company with no money or experience. A holding company is one that owns valuable investments such as bonds, stocks, gold, mutual funds, silver, art, real estate, private businesses, patents, licenses, copyrights and any other thing deemed valuable in business.
This essentially means that a holding company doesn’t do anything but is a conduit that controls and holds the stock or any other thing valuable of underlying businesses. According to factual research, most of the successful companies in the world are holding companies. You might need to engage the services of a business consultant and an attorney to help draw up the papers for your holding company.
If you intend controlling many businesses; then it is suitable for you to incorporate a holding company but if you intend to start a small business, it might not be a bad idea to incorporate a holding company as the holding company can help in providing protection for assets – either personal or that of the business – that are considered to be of high value.
17 Steps to Starting a Real Estate Investment Holding Company With No Money
1. Understand the Industry
The united states hold the position of being the largest direct investor abroad as well as the largest recipient of foreign direct investment all over the world. The approach of the United States to international investment has been with the intention of establishing a system that is open and rules-based, one that is consistent across countries while being in line with the economic and national security interests of the United States.
According to the United Nations, the outward direct investment position globally in 2016 was $26 trillion, with the United States direct investment position at nearly $6.4 trillion. Holding companies, wholesale trade industries and the financial services industry account for the largest shares of the United States services direct investment position outside the shores of the country.
In the year 2,000, the country’s direct investment in holding companies accounted for more than 36 percent of the total U.S direct investments abroad. As at 2006, close to 46 percent of the total USDIA stock was aimed at holding companies. USDIA stock in holding companies therefore increased at a pace that was faster than the average of 18 percent per annum.
Holding companies are majorly designed for tax purposes so that funds can be channeled to operating companies that are in a wide variety of industries. In the banking sector, the frequency and magnitude of operational risk events in the bank holding companies based in the United States have seen a significant increase in line with business complexity especially deregulation.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those that require the services of a holding company are not only restricted to business organizations but also individuals who have things that are worthy of value such as art, patent and copyright. This is so because a holding company does not do anything but own valuable investments.
Therefore, if you are looking to define the demographics for your holding company, you should try and make it all encompassing, as it might include businesses and individuals in the United States and outside.
3. Decide Which Niche to Concentrate On
Holding companies can be referred to as a company which has acquired more than 50 percent equity shares of any company it is interested in so as to be able to control how the board of directors are composed. Why holding companies exist is to achieve economies of production, get rid of competition as well as obtain the economies of management.
There are few niches existing for those who are looking to start this kind of company and it is imperative that you go for the kind of holding company that you feel will help you achieve all your goals and objectives. Below are some of the niche ideas that are available within this particular business;
- Hotels and Real Estates
- food industry
- Investments in high-tech startups
- entertainment industry
- Banking and Finance Industry
The Level of Competition in the Industry
The level of competition that exists in this industry does not in any way depend on the holding companies themselves but with the subsidiaries that they control, since the holding company does not basically do anything.
The subsidiaries of the holding company in the same industry can however compete based on location or its services. What holding companies want is that they do not incur a loss in any of the investments they control and so in order to help its subsidiaries with any competition they might face, oversight and support might come into play.
There are several holding companies scattered all around the United States and so if you choose to start your own holding company, you should be aware of this fact.
4. Know the Major Competitors in the Industry
In every industry, there are brands that have stood out and the holding company industry is no different. The top brands in this industry are not only popular within the United States but also around the world as well. Most of these top brands have not only been around for a long period of time but have engaged in activities – investing and publicity – that has seen them continue to gain popularity.
Below are some of the leading holding companies in the United States as well as all around the world;
- Berkshire Hathaway Inc.
- Sears Holding Corporation
- Johnson & Johnson
- Proctor & Gamble Co.
- JPMorgan Chase & Co.
- Wells Fargo & Company
- Alphabet Inc
- Bank of America Corp
Even though the model for the holding company hasn’t changed in ages, several analysis have been made to show that several things are about to change. Holding companies will no longer take kickbacks and opaque billing practices. It is estimated that a lot of false play will soon start manifesting itself as clever ways to fake results or take false credits will be used by some holding companies.
Overhead for holding companies will reduce by 75 percent and there will be more tech people in holding companies than finance people. The enormous amount of revenue generated will be leveraged by holding companies in order to engage in corporate stock deals as cash based billing will no longer be possible.
Niche holding companies will form in order to provide specialties in comparison to other holding companies that will basically just be the same without anything looking to make it different.
Virtual holding companies that do not own anything will have competitive advantage over others in terms of low overhead, objectivity and enormous scale and will be able to disrupt different industries.
5. Decide Whether to Buy a Franchise or Start from Scratch
When starting any business, there are certain decisions that you would have to make regarding the company which might be whether to start your business from start or to buy a franchise. Regardless of the options available however, an entrepreneur can only pick what aligns with its core goals and objectives and what is likely to enable them achieve their intentions faster. While a holding company might have subsidiaries that offer franchise opportunities to other businesses, the holding company itself is not one that can fall under a franchise or to which franchise opportunities exist.
A holding company can either be started from scratch or formed form an already existing company, whichever option you intend going for, ensure that a thorough research has been carried out and that a business plan is written for what you intend to achieve. Also, building a business structure is necessary as this will enable you achieve your goals and intentions faster.
6. Know the Possible Threats and Challenges You Will Face
Every entrepreneur knows the challenges that come with starting a new business and should therefore be prepared for it. Also, while some challenges and threats might be easy enough to handle, some are usually out of control and so it is imperative that the entrepreneur remains focused during these period in order not to lose sight of why the business was established in the first place.
If you are looking to start your holding company, some of the threats and challenges that you as an entrepreneur is likely to face during the course of starting or running the business include; adverse government policies, economic downturn that affects the purchasing power of customers and a decrease in investment activities, arrival of a major competitor offering same services and change in industry trends.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
When looking to start any business in the United States, one aspect that cannot be neglected is the legal entity that you will choose for your business. The legal entity you choose will determine how far your business can grow nationally and internationally and so this is not a decision that should be taken lightly.
A holding company is also not just any kind of company and the services of an attorney will be needed when looking to put together all the aspects of the business. While the attorney might help with the complicated parts of setting up the business, the decision on which legal entity you intend to use will depend on how much information you have at hand.
For a holding company, there are two major legal entities that must be chosen and they are, the corporation and the Limited Liability Company (LLC). Regardless what your business needs are; these two legal entities have been designed to adequately cover them. You should however consider two factors; liability and taxes when making the decision of which legal entity to go for.
If you are a small business owner, it might be best for you to choose the LLC legal entity in terms of asset protection. What kind of company you already have should be taken into consideration when making this decision. If you are looking to get a tax structure that will be favorable to you, then it is important that you form your holding company in a state that will be different from where the operating company will be based.
If you intend maximizing on your asset protection, then you should consider forming two LLCs, where one will be the holding company and the other the operating company, with separate entities but the same agent. This will therefore free the holding company from any debts incurred by the operating company.
8. Choose a Catchy Business Name
When looking to start a business, it is imperative that you determine what name will be given to your business before you can begin filing any business application. Choosing a name is not easy because the name has to be catch, easily pronounceable and remembered by your intended target market, competitors, stakeholders and the general public.
Below are some catchy Business Name ideas suitable for your holding company;
- Meckers Inc.
- Silas Holding Corporation
- Anita & Baker Co.
- Frausier Holding Company
- Brian Johnson Inc.
9. Discuss with an Agent to Know the Best Insurance Policies for You
Holding companies are typically responsible for major decisions that are made by the enterprises under it; this also leads to many people being privy of confidential information as well as data. This means that the actions taken by some key staff members could directly impact the financial wellbeing of the company that is being managed and that of the shareholders thereby leading to the risk of liability lawsuits.
As a business owner, you can ask for a customized policy that will suit the needs of your firm. Some of the insurance policies that you will therefore need to consider when looking to start your holding company include;
- Errors and Omissions Insurance
- Cyber Liability and Data-breach Insurance
- Employee Theft Coverage
- General Liability Insurance
- Workers’ Compensation Insurance
- Commercial Property Insurance
- Umbrella Policies
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
When looking to start any business, ensuring that you protect your intellectual property is very important as it will save you a lot of heartache in future. Even though a holding company essentially does nothing but oversees other companies, if the holding company owns a substantial stake in any company; it is only right that steps be taken to ensure that the intellectual property is protected.
There are attorneys who are well versed in intellectual property and they will be the ones you should engage when looking to apply for intellectual property protection as they will know what will be needed to be filed.
11. Get the Necessary Professional Certification
Due to the fact that a holding company basically oversees other companies, there is no need for you as an entrepreneur to bother with acquiring any sort of professional certification as this would not be necessary. This does not however stop you from getting professional certifications that you feel will be necessary to help you handle your company better.
12. Get the Necessary Legal Documents You Need to Operate
When looking to start any business, it is important that all the necessary documents are in place so that you do not run into any sort of hitches with the constituted authorities. If you do not know all the documents that you will need to start your holding company, you should engage the services of a lawyer who will help you in filing for incorporation.
Below are some of the legal documents that you will need to run your holding company;
- Certificate of Incorporation
- Operating Agreement for LLCs
- Business Plan
- Business License and Permits
- Insurance Policy
- Federal Tax Identification Number (TIN)
- Employer Identification Number (EIN)
- Employment Agreement
- Consulting Contract Documents
- Article of Incorporation
13. Raise the Needed Startup Capital
When looking to start any business, one of the major factors that need to be dealt with is finance – from how much is needed, where to get it and how it can be gotten. Without finance a business idea may never come to reality and even if it does, it may not remain in existence for long.
While sourcing for funds isn’t an easy task for any entrepreneur, it is not something that can be avoided which is why entrepreneurs are always encouraged to write a business plan as this is what will help convince any external investor or financial institution about the viability of the business idea. Below are some of the options that can be explored when you are looking to start your holding company;
- Raising money from sale of personal stocks and properties
- Raising money from investors and business partners
- Applying for loan from bank
14. Choose a Suitable Location for your Business
Holding companies do not need to be in a particular location where clients of its various entities can see it as it has no business in the day-to-day operations of its entities – this is because it is mainly a conduit – and can therefore be located anywhere.
However, the fact that you can operate your holding company from any part of the United States does not mean that choosing an obscure location will have no influence on the success of your company. If you check out other holding companies, you will find that successful holding companies do not mind paying extra just to be in the hub where there are enough business activities due to the fact that a holding company needs to network in order to have the array of connections that it needs.
It therefore cannot be overemphasized that the location you intend to choose for your holding company is very important as being seen is one of the keys to the success of a business entity, which is why entrepreneurs do not mind going an extra length to ensure that they are in a location that favors their business.
If you choose a location that will make your business obscure, you might have to spend more in promotion in order to generate more awareness to your business. One thing that should however be taken into cognizance is the fact that getting a good location that allows you be in the center of things does not come cheap and so you should ensure that you have allocated enough funds to take care of this aspect.
This does not however mean that you should spend in such a way that will cause a strain to your overall budget as this might end up causing more harm than good for your business. If you aren’t well versed in the dynamics of choosing a location, then it is necessary to engage the services of a real estate agent who has a better grasp of the city to help you choose a place that will be best to run your business from.
15. Hire Employees for your Technical and Manpower Needs
A holding company is one that has no day-to-day role in any of its investments as the company basically provides executive oversight and sets risk management parameters for companies. It is essential that accurate accounting records of all transactions are kept.
The accounting records for the various entities as well as that of your holding company must be kept separate in order that a legal distinction can be made between them. When it comes to the decision of either renting or buying a space to run your holding company from, the decision will depend on your budget and the size of business you intend to run.
If there is enough capital, you can decide to locate your company wherever you want especially if you do not intend to be directly involved in running the subsidiaries under you. If you intend running your holding company for a long time, then you should consider buying the space which you intend to use so that you can engage in long term planning, structuring as well as expansion.
The kind of business structure you intend to build for your holding company will depend on how large you want the holding company to become. Also, another thing that you will need to take into consideration when looking to employ suitable hands for your holding company is finance, as you should only employ those that you can comfortably pay.
On the average you would need; Board of directors, chief executive officer, president, vice president, director of finance, operations manager, human resources manager, administrative officer, receptionist, cleaner and security guard. From the above analysis, you would require at least 15 key people in order to effectively run your holding company.
The Service Delivery Process of the Business
A holding company is referred to as a special kind of company because it doesn’t do anything but just owns anything of value – which could be private businesses or stock in other companies.
Holding companies can come in two forms; they serve as investment vehicles for investors in order to enable these investors own minority stakes in businesses. This is advantageous because it enables other investments to remain protected should one out of it fail.
Holding companies can also serve as risk management tools for corporations especially the large ones, where deals can be structured so that the corporation can control more than they have or can afford.
16. Write a Marketing Plan Packed with ideas & Strategies
Marketing is a vital activity that every company needs and so it is pertinent that this is taken seriously by entrepreneurs. It is with marketing that a business can generate the needed awareness, and it can also convert part of that awareness into revenue generation that will aid in the sustainability and expansion of the business. The right marketing activities can enable a business to easily penetrate its intended target market and get a share of the market.
The fact that people require your services or products does not mean that you wouldn’t have to prove yourself constantly by engaging in activities that will promote your image and make them see you positively. A good marketing campaign starts from the inside where you build on a profile that can indeed be marketed. Once your profile is built, and then you can lay out what your marketing plans should be.
For there to be effective marketing strategies, it is imperative that you conduct a thorough market survey where you try to understand the market you are going into by determining who your target markets are; what it is they expect from you and what you should expect from them as well. Your market survey will also enable you identify who your competition is, where they are located and how best you can compete favorably against them in the industry.
Depending on how complicated your business is, you might have to engage the services of a marketing consultant who has thorough knowledge of the industry to help in creating the right marketing strategies for your business. Below are some of the marketing ideas and strategies that you can utilize in order to market your holding company;
- Ensure that you introduce your holding company to as many stakeholders in the industry as possible
- Install billboards in strategic locations in order to create awareness about your business
- Ensure that your business is listed in yellow pages as well as in online directories
- Advertise your business in newspapers and relevant business magazines as well as on radio and television stations
- Empower your marketing team to engage in physical marketing activities both online and offline on behalf of your company
- Attend business seminars and conferences in order to network and raise awareness for your holding company as well as engage in networking
- Leverage on the internet in order to promote your business
17. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
While publicity might seem like a pointless activity for an entrepreneur just starting up, it is in fact a very vital aspect as this ensures that the entrepreneur is able to get attention for his or her business quickly than if they didn’t engage in any publicity campaign for the business. Also, with publicity, not only is the intended target market aware of the business but other stakeholders and even competitors become aware of the business.
The advantages that come with boosting awareness for one’s brand is why even businesses that are in existence and have become very successful at what they do, set aside a certain amount of money every year to engage in activities that will keep them in the eye of their target market as well as the general public because these companies have found that enough awareness form the public is in line with the revenue they generate.
However, not just any activity can help promote the image of the company positively which is why concrete plans have to be written down and then strategies crafted in order that the overall plans might be achieved. It is therefore important that before any plans are crafted, a thorough research on the market has been conducted as this will help ensure that what is being crafted is in line with current market trends.
You can also engage the services of a publicity consultant to help create the right strategies that will help the business achieve its intention. The advent of technology has made it easier for publicity campaigns to be carried out, as it is not only cheaper for companies with technology but it is also far more effective as it can be designed to reach a large number of audience. However many companies tend to use a mixture of online and offline means of publicity.
Below are some of the strategies needed to boost the awareness and create a corporate identity for your company;
- Ensure that you place adverts in newspapers and magazines as well as on radio and television stations
- Install billboards in strategic locations in order to create awareness about your business
- Create a distinct logo and slogan in order to stand out
- Develop a website and use this to boost awareness for your brand
- Engage in business conferences, seminars and meetings in order to network and promote your business
- Leverage on social media platforms such as Facebook, Twitter, Linkedin and business blogs and forums in order to boost awareness for your brand