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Thread: Surviving higher interest rates

  1. #11
    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Chatmaster View Post
    My business makes a loan from a bank (if necessary) and is therefore liable for its own debt, this ensure that my personal financial safety is secure and the bank carries the risks.
    This part troubles me. It is pretty rare that the business can get a loan without some individual being tied to the debt as well in the form of a surety.

    I've been waiting on other comments before suggesting this, but your point about having a buffer brings up one of my thoughts.

    One thing that has to be understood about banks and loans is that the saying "They'll give you an umbrella when the sun is shining and take it away when it rains" tends to be rather true.

    So one of the strategies to consider is to increase your credit facilities (overdraft, credit card), but not access the funds unless you absolutely have to. Do not live on the edge of your liquidity.

    Money is going to be tight so expect more difficulty in collecting on your debtors ledger. If you've got the capacity, extend your access to credit now, but have the self-discipline not to use it.

    Apart from a rather trivial admin fee, the interest on money that you do not borrow (but still have access to in an emergency) is zero.

  2. #12
    Platinum Member Chatmaster's Avatar
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    Quote Originally Posted by Dave A View Post
    This part troubles me. It is pretty rare that the business can get a loan without some individual being tied to the debt as well in the form of a surety.
    This is definitely true for a cc. As far as I know with my one Pty none of us had to take any risks in the loan, besides it is forbidden in our memorandum that any director or shareholder does so. But then again my trust owns the share and not me personally, so I might be mistaken.
    Last edited by Chatmaster; 14-Dec-07 at 11:40 AM.
    Roelof Vermeulen (Entrepreneurship in large organizations)
    Roelof Vermeulen| Rock flaps south africa

  3. #13
    Platinum Member Marq's Avatar
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    I agree - depending on how your companies are structured, there is very little likelihood that you are personally secure. Watch out for the surety clauses and the general stuff that allows the bank through into your personal life. Check out the 'piercing the veil' scenarios.

    I don't think there is anything wrong with your overall game plan.

    • I would fine tune it to allow a percentage of overall sales to go into marketing, creation of new customer base and research customer needs and product matches (a key to survival) - Not a special bumper account for marketing spend only. This also helps keep the big picture in site.
    • Diversify, but stay close to the core business.
    • Borrow money (for growth purposes) but keep short term borrowing for short term plans.
    • Personally I have learnt that slow is good. Slowly slowly (softly softly) catchee monkey - Overtrading and diversification used to be one of the main reasons for businesses going under. I have not done any research lately but don't think this could have changed much.


    Those are just my off the top thoughts for now.

  4. #14
    Platinum Member Marq's Avatar
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    Quote Originally Posted by Chatmaster View Post
    This is definitely true for a cc. As far as I know with my one Pty none of us had to take any risks in the loan, besides it is forbidden in our memorandum that any director or shareholder does so. But then again my trust owns the share and not me personally, so you might be mistaken.
    Ah there you go - a trust should keep them out of your life. A pty or cc will not. Good call.

    I have a problem with trusts that I have not been able to overcome and that is the need for two or more trustees.
    Right now I could have myself and my wife as trustees of the main family trust holding the shares in the businesses. If I decide to shuffle off this mortal coil - my wife has to team up with who knows what/who/whom to keep the process alive. For some reason I keep thinking of the financial wizard, magus heystack, who was apparently accused of wheeling and dealing as 'the other trustee' on his neighbours family trust. The story goes that the neighbours house went for a song and the buyer was...tra la.

    So who do you/can you trust??
    Maybe someone out there has an answer to this problem - its the only draw back that I see in the whole process.

  5. #15
    Platinum Member Chatmaster's Avatar
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    Quote Originally Posted by Marq View Post
    Personally I have learnt that slow is good. Slowly slowly (softly softly) catchee monkey
    I couldn't agree with you more on that one! I have a problem with one of my business ventures atm. We have such a good and unique product that it can cause an explosion catching us with a lack of funds to keep it afloat when it does happen. One of our strategies is to roll the product out in stages to ensure healthy growth, but I am still concerned that it might cause us to look for a VC or maybe a bank loan. At this stage of the business it is not wise for us to go that route, but we will see what happens...

    This is turning out to be a valuable threat for me, I am definitely not that clued up on legal aspects and am still learning new things. Like for example it seems I pay a bit more tax because of the trust owning a share in the Pty...
    Last edited by Chatmaster; 14-Dec-07 at 11:51 AM.
    Roelof Vermeulen (Entrepreneurship in large organizations)
    Roelof Vermeulen| Rock flaps south africa

  6. #16
    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Marq View Post
    I have a problem with trusts that I have not been able to overcome and that is the need for two or more trustees.
    Right now I could have myself and my wife as trustees of the main family trust holding the shares in the businesses. If I decide to shuffle off this mortal coil - my wife has to team up with who knows what/who/whom to keep the process alive.

    So who do you/can you trust??
    You need a non-connected person to get true seperation, otherwise a trust might not protect in a financial calamity (although it will still work fine for estate planning).

    A lawyer or accountant that you are using in your business (and trust) is probably first prize. There are companies that specialise in trust administration and being the independant trustee, but fees might be an issue.
    Quote Originally Posted by Chatmaster View Post
    Like for example it seems I pay a bit more tax because of the trust owning a share in the Pty...
    It is truly unfortunate that small businesses set up through a trust structure don't qualify for the small business tax incentives.

    I also believe the disqualification based on owning multiple businesses is also less than constructive. The purpose of the small business tax breaks is to encourage more small businesses, pick up employment, etc. Who better to seed more than someone who is already making ground with one. As it stands, the incentive to become involved with the opening of more businesses by an existing business owner is removed.

    I understand the main concern is to prevent tax avoidance by breaking your company down into smaller components to keep taking advantage of the tax breaks, but that could be solved by making the rule based on the total numbers of all the companies with a common ownership element.

    My only tip to reduce tax on trusts is to remember the pass through principle. Keep passing the benefit (profit/gain) through to where it will be most tax efficient.

    I admit I debated long and hard about going the trust/PTY Ltd structure route. But in the end, if it made sense to Anton Rupert to do it that way, that's good enough for me.

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