Although it is absolutely necessary to have enough money to run a business, it is people who can make or break a business

It cannot be over emphasized that you must select your partners carefully - but you often do not realise their limitations until it is too late. Unless you are happy with your partner - start with employees. However, you may have convinced yourself that you cannot go it alone, because of your mental outlook and that you feel more comfortable with partners, especially if they add value and money and take some of the risk.

The fact remains that, if they inject funds, you now have to share control of the business, which includes limiting your profits, but also reducing your risks. Always try to keep control - 50% plus.

Factors in favour of bringing in partners would include:

* You can bounce ideas off the partner, who can assist you in making decisions.

* He/she could bring in new ideas and suggest ways in which the business can be improved.

* As stated, he/she can take the  pressure off you with a financial injection.

Problem areas, however, are:

* Is the partner in it for the long term, or only for the short term, to make his/her money and then walk away?

* Is his/her vision in line with yours?

* Does he/she have the money? - be sure before you take him/her on.

* Is he/she prepared to get actively involved in the business and not just be a sleeping partner?

* Does his/her skills, knowledge and experience complement yours?

* Can he/she bring in contracts, which benefit the business?

* Can you work with him/her? Is he/she overbearing, arrogant etc. If you cannot work with him/her then don’t. There are some big egos out there.

* Greed.

* Some partners are more actively involved in other activities - like playing golf.

* Selling or making deals without your consent.

* Worse - even stealing from the business.

* Nothing was put in writing when the partner was taken on board – now it is his/her word against yours.

* You had no other alternative than to take a partner  - because you could not raise finances from the bank etc. – dangerous.

I heard of a case recently when an owner was very busy, so he took on 3 partners, giving them 25% each of the business (for nothing) and keeping 25% for himself.  He believed that they could enhance his business greatly because of their political and other contacts. Unfortunately this was not the case; they rarely came into the office and did not bring in business, but took big salaries. The owner in frustration decided to sell the business for R1m.

The 3 partners insisted on their R250,000 each - for their 25% stake. The owner had signed a shareholders agreement and after seeking legal advice,  he realised that he had to pay. I managed to negotiate a deal on his behalf.

Whereby they received R100, 000 each. “Let the signer beware”.

Many partnerships fold by the latest after 2 years - I wonder why?

Information provided by Bob Power, Power Corporate Consultants
Silent Partnerships:

Before we get to find out how a silent partnership works, it is vital to find out what exactly a partnership means.

A partnership is a type of business entity in which partners share with each other the profits or losses of business undertaking in which all have invested.

The liability of the partners are totally a matter of their own choice and will which are discussed before entering the contract, and all the terms and conditions of the financial and legal liability have been discussed and documented legally.

If you want a definition in legal jargon, "a partnership is a nominate contract between individuals who, in a spirit of cooperation, agree to carry on an enterprise; contribute to it by combining property, knowledge or activities; and share its profit".

How does a silent partnership work?

Now that we are clear about what a partnership is, we can move on to find out what a silent partnership means, and how it works.

Also known as a sleeping partner, a silent partner is a business partner who shares the profits and losses of the business, but who is uninvolved in its management, and/or whose association with the business is not publicly known.

Usually a silent partner is a person who provides capital investment and shares liability for the company’s performance. Generally people who do not wish to get into the managerial issues and are looking for investment alone tend to be the silent partners. They participate in any tax and cash flow benefits that the company gets.

A silent partnership is just like a regular business partnership with a few exceptions in case of the duties of the silent partner.

It is extremely crucial for the people entering the partnership agreement to discuss and legalize the terms and conditions of their partnership beforehand in order to avoid future hassles and complications.

Small Business South Africa - Tips for Small Business South Africa
In 1926 George Clasen wrote a book “The Richest Man in Babylon”.  In this book he discusses seven principles regarding the use of money.  What is so amazing about these principles is the fact that they are just as relevant today as they were in the days of Babylon. Here follows a short summary of them:

Start thy purse to fattening

This simply means that you should save more than you spend.  Saving 10% of your income from an early age will enable you to build a comfortable nest egg for later in life.

Control thy expenditures

Create a budget for your personal as well as business expenditures.  Then spend according to your budget.  This will deter you from overspending.

Make thy gold multiply

Invest the money that you are saving wisely.  Make use of investment professionals and refrain from investing in get quick rich schemes.

Guard they treasure from loss

Make sure that you understand investment- and business risk.  Then apply measures to eliminate or at least minimize those risks.

Make of thy dwelling a profitable investment

Buy, rather than rent a house to live in.  If you cannot pay cash for your house, set you mind on repaying the loan as soon as possible.

Ensure a future income

Ensure that you will have an income when you are too old or otherwise unable to provide for yourself.  Also provide an income for those dependant on you in case of your death.

Increase thy ability to earn

Never stop investing in yourself by studying and developing your skills.


Blunder # 1 : Taking Your Eye Off of Your Cash Flow

The number one reason that businesses fail is lack of cash. Some of the issues that can bury a new business are:
> Under-funded growth.
> Lack of adequate record-keeping.
> No review of financial statements.
> No control over business assets.
> Unnecessary infrastructure.
> Having to wait for payment for sales.
> Sacrificing short-term cash flow for long-term growth.
> Thinking that because they have a sale they have cash.
> Spending on inventory.

Strategy: Watch your cash flow and do whatever you can to protect it. In each of the previous examples of mistakes that cause cash flow problems, there was simply a lack of consideration about cash flow. You wouldn't grow too fast if you didn't have the cash, if you knew to watch the cash. You must have good financial statements and review these on a regular basis. You would practice good control and make sure you weren't overspending when you couldn't afford it. And, you'd make sure you first had the cash flow automatically working before you took on any more projects or expansion. Cash flow is the lifeblood of your business. The next five blunders are closely related to blunder one.

Read the full report HERE                                                            Top
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