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Hidden traps waiting for unsuspecting entrepreneurs
Entrepreneurs, especially if they haven’t been cursed with climbing the corporate ladder or an MBA, have some unique challenges when navigating the field of personal and small business risk and finance. Perhaps it’s that fearless spirit and boundless confidence that will guarantee your success, but “jump and build your wings on the way down” sometimes ends in a bloody mess at the bottom. A bit of homework on wing design and jumping with the right tools would have prevented that – and the same goes for that entrepreneurial venture you dream about.
Test your idea: Unless you’re buying a franchise, a new venture usually starts with an idea, and with a product (which could be a service of course). It is important to iron out at least some of the bugs before you sink too much money into the venture. Who is your target market? What are their expectations? How much are they prepared to pay for the product? What after sales service do they expect? How often will they buy your product? How can you retain their loyalty? Don’t let a poor product sink your venture before it even starts.
Everyone needs to ‘maak’ a plan: Seat of the pants ventures or bootstrapping your way through the early years probably works a charm in your early twenties when you don’t have obligations, not so much later on. One of the biggest mistakes entrepreneurs make is to buy into the fallacy that business plans, financial plans, marketing plans, business qualifications are all bureaucratic nonsense designed to kill your dreams. Dreams and visions are all very well, but unless you know what your “break-even” is for example – and when you might achieve that dream – then it can become a nightmare. The good news is that all this information is freely available on the net, in books and online courses. Do all that homework and put your plan together before you leave your day job. If you’re ‘between jobs’ then use the time to do this homework, but keep looking for a job, even if it as a temp, Uber driver or from your rented room while you rent out your house. Money to launch your venture is hard enough to come by without spending it doing the homework and learning basic business skills.
Who are your clients going to be and how are you going to get them? This is key to any venture’s success. If you’re starting a business very similar to your ‘day job’ tread carefully, if you cannibalise their clients or copy their products, you might spend a chunk of your change in court. Brushing up on social media marketing and building your potential network takes time and trail and error as you find out what works and what doesn’t. You can also use social media to test your product or use free tools like Survey Monkey
Posted on November 19, 2014
in Behavioural finance, Business Assurance, Disability, Financial Advisory, Financial Coaching, Financial Plan, Investment, Permanent Disability, Property, Wealth Ecology
Most of us are immune to being conned by the 419 scams and phishing that we get bombarded with every day, but what about the self-sabotage that can decimate your long term wealth?
Cashing in your pension: If you’ve ever cashed in your pension/provident fund when you changed jobs instead of preserving it, don’t feel alone. Join the other 95% who do just that, not once, but every single time. One might have all the best intentions in the world to use it to pay off debt, put it in the bond, put it in an investment, but the truth of the matter is it rarely, if ever,is turned into a true asset that will produce income at retirement.
Abdicating and not delegating: It’s all very well to get your risk and investments sorted out by a financial advisor, but you have to monitor this at least once a year and whenever there is a change in lifestyle (new house, new job, new child, new spouse etc.) Your needs change, your salary changes and your liabilities change – so should your policies and investments. If your advisor or broker isn’t communicating with you at least once a year, find one that does. It isn’t going to help waking up ten or fifteen years later and finding out you are so far away from your goal you have to put away 60% of your income to catch up. Even worse, if you happen to get disabled, that is not the time to find out that you have to be reclassified a plant before you can claim. In some instances, if you can be put in a wheel chair and sat behind a desk – you’re okay Jack.
Quitting your job to be an entrepreneur – without doing a robust business and marketing plan, providing funds for your cash shortfall till you break even or being at least competent in the new role. Cashing in your pension to fund it, compounds the error. Start work it after hours, work weekends. Make sure it is going to fly first – unless you’re young, single with no dependants or responsibilities – then – who cares!
Lust: Partner up in haste – repent at leisure
This is actually a very old saying, and is as true today as it was 300 odd years ago :
William Congreve.The Old Batchelour, 1693:
Thus grief still treads upon the heels of pleasure:
Married in haste, we may repent at leisure.
When you partner up with someone else, either romantically or in business, it pays to take a bit of time to assess and mitigate the potential risks to your financial future.
Marital regime: Don’t be snoep, get an Ante Nuptial Contract. Community of Property hurts more couples than it protects. It is not just the community of property, but the ‘community of loss’ too. If one of the partners is in their own venture for example, the creditors can come after the entire estate. Then there is the double executor’s fees that can be charged on the entire estate (if you’ve abdicated the executor responsibility to a bank for example, signing away your beneficiaries’ ability to negotiate. (If you’d like to read more about this favourite topic of mine go HERE). If you’re already married COP, speak to your financial advisor about ways you can mitigate this risk.
Shareholder’s agreement – Is it worth the paper it’s written on?
If you have more than one partner in your business, you’ll have a buy-and-sell agreement or clause in your MOI. Often that is the last time a shareholder will worry about it, consumed with the business of, well, running the business. Why the concern anyway? You trust your partner to honour the agreement right?
The single biggest concern is the potential lack of liquidity in the hands of the other partners so that they can pay the value of your shares to the estate. It isn’t that they don’t want to, it’s just that the bank might not lend the money when the company is ‘unstable’. A partner is unlikely to sell his house, or other major asset to hand over the cash to the estate. This can draw out the ‘winding up process’ to years, and potentially force the company into liquidation.
New spinach varieties that have multi-coloured stems can be used in the flower garden and not just the veg garden
BUY AND SELL ASSURANCE – protecting your equity and legacy
A shareholder’s agreement in a private company will address how shares in the company should be bought and sold on the death of one of the shareholders, more often than not it will give the other shareholders the right of first refusal to buy the shares. If the shareholders do not have ready liquidity in order to buy the shares from the estate here are some of the potential consequences: