Business Plan. What to look out for?

[Dave A]

I think you should be happy — ecstatic in fact — with any share over 25%. I think you are underestimating what your boss brings to the table.

Well said Duncan.

Now that is a really interesting comment! Particularly against the backdrop of the "share the wealth" sentiment that is being bandied about so much in South Africa nowadays.

[Snoopy_inc]

Dave im confused... why that interesting? and what is your view point on his prospective.

[Dave A]

From my understanding, the comment is to a large extent not applicable to your situation.

My take on your situation is:
This is your business idea. Your problem is that you don't want to leap off the cliff to go out and make your fortune on your own. Therefore you need to trade off a shareholding in return for keeping your existing security blanket. I know it comes with benefits, but realitically there is nothing really preventing you from striking off on your own with this one other than the risk.

But back to Duncan's statement and Graeme's endorsment:
I was struck by the simple "natural order of things" paradigm of it - it comes from a normal business environment. And to a large extent it runs against the grain of what we're seeing at the moment.

We've got government "encouraging" ownership transfer to people who in a pure business environment would not even get a look-in. Although the "benefit to business" is being manipulated into a positive on the ownership front, let's not forget the real reason behind the drive.

We've got workers jumping up and down to get "a share of the company's profits" - when they already do. (Where do salaries come from?).

I just don't think there is a healthy understanding of just how fragile profits can be, and what it really takes to generate them in a "normal" competitve business environment.

Basically, it just struck me how far removed we are at the moment from a normal business enviroment. We've developed this nurturing sharing environment theory, when the reality of the past was - "You want ownership, off you go on your own to make your own way."

[duncan drennan]

My take on your situation is:
This is your business idea. Your problem is that you don't want to leap off the cliff to go out and make your fortune on your own. Therefore you need to trade off a shareholding in return for keeping your existing security blanket. I know it comes with benefits, but realitically there is nothing really preventing you from striking off on your own with this one other than the risk.

Going back and rereading, I actually misread something. I thought that your boss had initiated the opportunity (my mistake). Seen as it is you who has initiated that changes things a bit. I still think that you may be underestimating what your boss is bringing to the table. What he brings provides a lot of stability and greatly reduces your risk.

When I was employed full time and promises of this and that were bandied around I never realised exactly how much sweat and pain had already gone into that business. Having been on the other side — just starting up on my own without all the risks of employees — has given me a very different perspective and appreciation for my previous boss.

I have to agree with Dave there, you need to figure out the trade off between shareholding and your security. You have the opportunity to get your foot in the door in a relatively safe way, make use of that.

[Dave A]

What he brings provides a lot of stability and greatly reduces your risk.

The question is, is that worth 50%?
To a large extent, it's actually a very personal decision.

When I was employed full time and promises of this and that were bandied around I never realised exactly how much sweat and pain had already gone into that business. Having been on the other side — just starting up on my own without all the risks of employees — has given me a very different perspective and appreciation for my previous boss.

That needs to be made into a poster somehow.

[Snoopy_inc]

lol dave

Ye make it into a poster im sure all business owners will buy one for their office :P

look i have to be honest i dont mind the % part i just need to find a way to deal with the fact that i will be working for him AND be his partner. since i will be working for him in the other business and with him on the new venture at the same time. I will do both during the day etc.

Hence my reasoning for the higher %. May not be a great reason but one that will make me feel better about the process.

[Dave A]

As I said - it's a personal decision.

I know what I'd do in those circumstances, but for others it might be too much trouble over 1%.

[Chatmaster]

Really turning out to be an excellent thread. Some really good posts here!

The only issue I have with really giving a valuable response to all I have read so far is understanding the business concept and the TRUE value your boss will be bringing to the table.

IMO I would much rather employ skills rather than giving away a share of a business. Maybe that is just me. Well to get back to the points here...

I would suggest that you get a lawyer to draw up a solid agreement between the 2 of you. Most of the agreement will depend on the contant of your business plan. The agreement must be detailed with regards to both parties involvement, contribution and liability. What is very important is who manages the financial side of things and who manages the operational side of things. Then registering an official business as Dave suggested. Opening a business account for it.

To get back to the business plan. It will serve as the building block of the business and how it will operates. It will get you to setup a solid budget and do some research into competitors. It will also get you to make some estimates and set targets that you can shoot for. A business plan is a must in any kind of business.

So my suggestion with your todo list will be as follows:

1. Draw up a business plan
2. Get a lawyer to setup a agreement
3. Appoint a good bookkeeper or Auditor
4. Register your business
5. Open a bank account

When reviewing your company type, ensure that you keep in mind that the business must be a legal entity. Reduce your personal risks.

Something else I just want to mention,...
When you compile your business plan, ensure that your targets you set are easily reachable and not built on dreams. There is nothing that messes up a partnership as much as negative stress and impossible targets. Having an own business comes with stress, but negative stress is when you start falling into a hole and grab hold of all kinds of twigs and leaves that will only come with you as you fall in the hole. But you also get positive stress, stress that can motivate you to do even better than before.

[Snoopy_inc]

Thanks chatmaster. Appreciate the input.

[Pierre@Skeg]

Sorry for coming in so late. My 2c follows.

You are now stuck in that part of the business life where the decisions you will make will haunt you for the rest of this ventures existence. On the other side you are making decisions about the value of the business and each partners contribution with the least amount of information available. So it is both easy and difficult to negotiate percentage ownership etc. Think very hard about these numbers and issues.

Why not change the nature of the deal than try and figure out how to make the deal work. Aks him rather to be an investor than a partner, and therefore seperate the control of the business from the ownership of the business. This is not an insignificant difference.

And finally I have a question: If you did not work for this guy, would you still have come up with the business idea? Is it not a oppertunity created by the environment you are in? I can ask my staff now and will get 20 new directions for my business to go in in 10 minutes. But they are just ideas. I have learnt that it takes a helluva lot more than a good idea to make a successful business. And it is not just money.

I work in product development and see a lot of small businesses started from new product ideas. The first employees are always the most disgruntled ones when the business gets successful, they believe it is because of them that the owner is making all the money and the employees are getting stiffed. They believe the owner had the idea but they made it work. That is exactly why he "employed" them, but he did not make them partners. I have also seen partnerships wherby the one that does all the work becomes bitter because the other is making the same money, and the cash the other guy put in gets forgotton. the sword, it cuts both ways.

[Dave A]

Great post, Pierre.

/clicks reputation.

[Chatmaster]

And finally I have a question: If you did not work for this guy, would you still have come up with the business idea? Is it not a oppertunity created by the environment you are in? I can ask my staff now and will get 20 new directions for my business to go in in 10 minutes. But they are just ideas. I have learnt that it takes a helluva lot more than a good idea to make a successful business. And it is not just money.

That is such a valid comment I just had to give you some rep. Great post Pierre!

[Snoopy_inc]

Pierre i couldn't agree with you more and i know that i have learnt alot from him. This is where i get confused. I believe that we could make it work, but in most instances im my own worst enemy. I will put my heart and soul in and will know that he wont due to the fact that he has multiple businesses... that is going to get to me at some stage.
As far as the idea is concerned... i came up with this idea a very LONG time ago. I have got a model that i am following of which i have set for myself to not only grow myself but also SA. (NFSA) www.wellinformed.co.za - Currently a brother forum to Theforumsa.co.za. Dave knows of my ideas and intentions and all i can say right now that this is a stepping stone to greater things to come.

My problem comes in is i am a very cautious person. I always look at the consequences before i act and analyze if its worth it. In doing so i have found where there will be issues. They need to be addressed of course. I will make sure we address them. My burden is that i don't know how enough about the whole process of starting up a business. Hence my posts here.

My one question i asked has been unanswered mostly (except for Chatmaster to a degree )

What does one ask of partners to make sure there is a equal input for the amount of % they got? And how does one enforce that?
Legally? financially?
I hear you peirre in that you say that i mustn't forget the capital he lays down for it or the valuable input. Don't get me wrong im not greedy and am happy to have him as a partner. If he inputs into the business. I can foresee that im going to take this on as my own and going to push it beyond what he is capable of understanding. Where his skills will get the business up and running mine are of a growing area. In every job or project i have done i have made damn sure that i push it further and get it to a point where i know its going to be running smoothly if i look the other way for a short period of time.

[Pierre@Skeg]

Thanks.

I think you might want to seriously look at the differentiation between investor and partner. I like to think of the differnce as the following. An investor gives x money for y ownership and hence y share of the profits. A partner keeps on giving till either the money runs dry or there is a fall out or the company goes bust or it does not need money anymore.

Defining the contribution right from the outset is difficult because it is difficult to compare the financial input vs the intellectual input and inevitably this makes for a negotiation based on the perceived value of the intellectual input. The money is easily quantifiable but the intellectual input is difficult. How smart are you? How much can you do in a day and can you do it better than anybody else? These are difficult things to quantify and when in a straight up negotiation it is not even the real intellectual value but how much you think your contribution is worth vs the investor/partners "perception" of your worth. So at the end you basically pull a number out of the hat and negotiate around it. Maybe explains why a lot of partnerships are 50/50. They just never got around to the negotiation and a 50/50 split is an easy way around it.

I have another question. If you are now 1 year down the line with this venture, your boss put in the start up money and you put in the hard work and brains, and the venture needs more money. The boss says the business needs to now find its own capital and you are forced to look for either investent or a loan. Who is going to either sell their shares for investment or is going to sign surety for a loan?

[Snoopy_inc]

Pierre to be honest i have no clue about that and what will happen.... these are the types of questions that i need so that i know what to throw into the pot when the talks commence again.

I understand the differences in investor vs partner... the thing is that he will be doing things with me on this.... even though i will be the person putting the thing together and getting it to work etc. He has great ideas also.

My concerns are exactly what you mentioned with regards to when he stops contributing.... i cant stand it when i work for something and they don't put in the same amount or what their % is worth.

That for me would ruin the partnership... as i get very fussy about things like that.

Keep the questions coming they are helping me.