Chapter 58 "Extreme Sports" for Cash Flow

Sun Hongbin is not a reckless entrepreneur.He was born in the prestigious Tsinghua University and has a master's degree.In 1999, he also went to the best business school in the world——Harvard Business School in the United States to study the AMP President Seminar for half a year, and had the same training with world-renowned entrepreneurs such as Intel’s legendary CEO Andrew Grove experience.Therefore, one cannot simply regard his national strategy as an ill-planned, frivolous venture.The fact is that under the cover of high-profile public opinion, he has carried out careful thinking and planning in many aspects.

First of all, he is very skilled on the ground.Most of the land acquired by Sunco is in the fringe area of ​​the city or the new center under planning. In Beijing, it is Nancheng Daxing Huangcun, in Zhengzhou, it is Zhengdong New District, and the two lands in Shanghai are 1 hour’s drive away from the urban area. Qingpu District and Fengxian District are Hexi New City in Nanjing, the two lands in Suzhou are in the new industrial park, and Binhu New City in Wuxi.These lands have the following characteristics: because they are "raw land", they are not favored by local developers who focus on short-term benefits, the competition is relatively intensified, and there is potential for future appreciation; the local government is eager to sell, so it is easy to obtain support; basically There are no problems left over from demolition, which is conducive to rapid start and delivery; the land area is generally large, suitable for the construction of large-scale mid-to-low-end residential real estate.

Secondly, there is a strong reality in project positioning and design.Sunco insists on only doing residential projects, and focuses on mid-range prices.Sun Hongbin believes that this type of real estate has the largest consumer group and the highest liquidity, and is suitable for quick sale in the short term.Compared with developers in many places, Sunco's national brand, relatively mature advertising and marketing methods and design concepts have certain competitive advantages. In addition to the above two points, Sun Hongbin's most important strategic basis is the strict control of cash flow.Some people have calculated that Sunco needs a total of 8 billion yuan to acquire land in one year, and it is impossible for Sunco to pay such a large amount of money with its current capital strength.Therefore, for Sun Hongbin, who is moving forward vigorously, his only feasible strategy is to maximize the efficiency of the use of limited funds.

The first way to improve capital efficiency is to significantly shorten the construction and delivery time.Sunco has been creating "national records" in terms of construction speed. In September 2002, Sunco acquired a 400,000-square-meter plot in Tanggu District, Tianjin. It only took two months from construction on site to opening for sale, which surprised its peers. At the end of 2003, after winning the bidding for the land in Huangcun, Daxing, Beijing, it announced on the same day that it would open within six months, and the peers thought it was absolutely impossible.Because according to industry conventions, it generally takes at least one year of development cycle from planning and design to opening sales, but Sunco broke the rules and really opened the market after 6 months.Since then, its projects in various places have been opened within 6 months at the latest.The shortened planning and construction time, of course, greatly increased the profitability of Sunco, especially in the so-called third-tier cities, such as Jingzhou, Yuci and other cities, Sunco invested tens of millions of yuan to purchase land, and within 4-6 months Just collect money at the opening, and you can recover the cost and get huge profits in about half a year.

The second trick is to speed up the flow and use of cash.Sun Hongbin believes that cash flow reflects the actual combat ability of a developer, and Sunco's business model lies in "shortening the cycle from cash to cash".After implementing the national expansion strategy, Sunco's budget adjustment was shortened from semi-annual to monthly and then weekly.It has also formed a tense cash flow model based on days. The company has established a strict assessment index system, paying attention to the start time of each project, payment collection, and cash dispatch. All of these are based on days. There is no excuse for delay at any one time node.Sunco's business center is also developed around cash flow, including the unified allocation of funds throughout the company, delaying the payment of land purchases, starting construction within 3 to 6 months, collecting owners' purchase payments in advance, and using funds from partners, etc. This whole set of measures is to ensure the continuous flow of cash.

At the same time of internal control, Sun Hongbin also put forward the idea that "payment method is more important than land price".When he decides to choose a piece of land, he first considers the price of the land, and the other depends on the quality of the payment method.He often asks the government to reduce the proportion of the down payment and extend the settlement period. If there is room for flexibility in this regard, he would rather increase the purchase price of the land.Out of his long-term optimism for China's real estate industry, Sun Hongbin tried to trade immediate benefits for time, relying on the continuous rise in land prices to make up for the high cost of land purchases.His strategy has been warmly welcomed by many local governments, so Sunco is not afraid to enter any strange city.

All of Sun Hongbin's strategic designs actually revolve around the word "speed". When all aspects are not fully mature, he must win a decisive victory in the shortest possible time and use speed to defeat all competitors. The speed of brand building - attracting attention by provoking industry leaders, quickly increasing popularity and attention; The speed of land purchase—bypassing the gray area of ​​the industry and quickly acquiring land through high-priced auctions; The speed of the construction cycle - the opening cycle that generally takes 1-2 years is shortened to an incredible 6 months;

Speed ​​of project sales - high-profile operation, complete sales at the fastest speed, and quickly recover funds; The speed of cash flow——Establish a fund assessment system in units of days to maximize the utilization rate of limited funds. In actual operation, Sun Hongbin's strategy seems to have really achieved the efficiency of fighting for ten. Sunco has operated some huge projects quickly with less funds.Take a project in Beijing Linghai as an example, the land payment is 905 million yuan, 30% will be paid before the opening, another 30% will be paid at the end of the year, and the rest will be paid in the next year.The total investment for the operation of this project is about 2 billion yuan.Sunco started with 300 million yuan, and all the funds during the first six months of planning and construction were paid in advance by the contractor. On the opening day, there was 100 million yuan in sales, and subsequent project and land payments were all paid back through sales.From the opening to the end of the year, the company has withdrawn a total of more than 600 million yuan of funds, which is not only enough for this project, but also can be used to buy new land, and its capital leverage ratio is as high as 1:7.According to public information disclosure, 78% of Sunco's total cash flow in 2004 was obtained through sales, and only 10% and 12% came from banks and cooperative units.At that time, almost every real estate company was using this kind of capital operation strategy, and the unspoken rules of profiteering in this industry were hidden here.Sun Hongbin's superman is that he uses the tight and extreme speed strategy to bring it to the extreme.

Wang Shi once calculated an account for Sun Hongbin: Sunco used the bidding strategy of high land price to conquer the city. By the end of 2003, the prepaid land price of Sunco was more than 7 billion yuan. In the first quarter of 2004, the scale of prepaid funds had exceeded 10 billion yuan.From the perspective of capital flow, unless there is a strong consortium or bank backing, it is impossible to deliver the land price on time.What is the capital flow supported by?Sunco's answer is simple and simple: rely on the return of sales funds.The problem is: relying on the funds collected from the sales of real estate projects in Tianjin is not enough to support the rapidly increasing land payment that needs to be turned over.What does Sunco rely on to maintain a tight capital chain?This has to make people make an assumption: Sunco is taking risks, gambling, and betting on the credibility of local governments at all levels when they implement the land auction policy.Therefore, Wang Shi asserted: "Sunco's exaggerated way of acquiring land will affect the whole industry. This kind of malicious competition and game with the government is a huge damage to the rules of the market."