A Fin24 user’s discipline in not taking money unnecessarily out of his business is helping him stay on course. He writes:
I extended my bond five years ago and bought into a retail business which wanted to expand. At that stage I bought a 40% stake in the business.
Subsequently my partner got divorced and needed to sell the shares that he had in the business. I wanted to buy him out and didn’t have all the money needed. I went to the banks, IDC and Kula.
Even though at that stage I had R1.5m worth of stock, I could not get finance anywhere. Eventually I made a personal loan at the bank, extended my bond and borrowed money from my family. I am now the sole owner of the business (although I haven’t quite paid off my family).
Now I have a manager running the business for me, four full-time employees, four part-time employees and the business is growing.
However, I am not taking any money out of the business as yet. I think a big mistake entrepreneurs make is to start taking too big a salary too quickly or service their loans with money from the business.
I have had the business for five years now and I hope to start taking some money out by next year. It will, however, be small because the decision will hinge on whether I take money out of the business or build an interactive website to stay competitive and fuel my growth.
I think the following things are key for new business owners:
Do your books correctly
If you try and dodge tax you are going to look unprofitable to the banks, as well as potential investors. You may need the banks for future loans and investors to invest money into your business.
Rather spend some extra time to find a good accountant who can advise you properly, and pay all the necessary fees and avoid nasty surprises.
Invest in systems and procedures
This is especially important if you are not running the business yourself. Even if you are doing this, it will free up your time to focus on growth.
Be realistic about the money
About how much working capital the business will require and about how much the business will be able to afford to pay you.
Remember, it is a trade-off between reinvesting and drawing money, thus the more you draw out the less is available for growth.
Look after good people
If you have people who are honest, hardworking and passionate about your business then look after them, before you look after yourself.
However, if you have bad apples follow the process and either get them back on track or get rid of them. The Labour Relations Act is not that complicated and you can get rid of non-performers, as long as you follow a process.
Listen to your staff and your customers. You cannot keep everybody 100% happy but try and keep the majority happy.
Powell is the owner of All out Angling.
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