| Biomes and Ecosystems grow naturally – but not quickly, and certainly take way longer than a human working lifetime – because unlike your wealth, they do not have a manager. Left to their own devices an ecosystem will take a very meandering route to maturity – and many don’t make it. A cycle of droughts can take land right back to being a desert. With properly qualified human intervention, ecosystems can recover in years, not decades or centuries. Judicious irrigation, seeding, planting of seedlings, enriching soil, preventing erosion, reducing evaporation etc. can all do wonders. Your wealth ecosystem is similar. Unless you’re born into riches (and most second-generation wealth is usually squandered long before it reaches a third generation) how you choose to sustain yourself is one of the most important decisions you make as an adult – and unfortunately it requires ongoing effort. If an animal decides they can’t be bothered to learn how to hunt, or to spend hours a day foraging, they die. It’s only really us ‘evolved’ humans who support the sick, disabled, old or just downright lazy and feckless. I use the word ‘sustain’ because income does not necessarily need to be involved. Partnerships are found right across the plant and animal kingdom, with a division of labour – perhaps with a stay-at-den mom, a worker bee or symbiotic relationship between a plant and a fungus.  The environment of course is key – for humans and for every other living organism on the planet – and you have to adapt. Let’s be a little politically incorrect here and look at the South African work climate. In the last century there have always been pockets of individuals that have had it easier than others. During the apartheid era, people of colour had it much tougher than the (then) ruling minority (and even more specifically, a subsector of that minority that spoke the right language). Women had it tough trying to climb the corporate ladder (so you can imagine how much harder it was for women of colour). The tables have turned, and now, young white males are finding it harder to get ahead in the formal or government sector. Life isn’t fair, it never has been, get over it. The one saving grace through all of this is the entrepreneur – the person who makes their own luck – it has never really mattered their gender or colour of their skin – it is their persistence and work ethic. The work environment is changing and of course that trajectory was helped along by the pandemic, where working from home and being more ‘independent’ was normalised. Companies of course are pushing back, they are either too lazy to properly monitor remote productivity (the ones that used to use key stroke monitoring to check on your ‘activity’ during the pandemic), feel they are losing control or need to justify their office space. Globally 90%+ of businesses are small businesses and account for over 50% of the jobs. Working remotely has shown millions of ‘workers’ that they do not need the ‘crutch’ of a large organisation, and they can do it themselves in one way shape or form – but it does come with some challenges.  Entrepreneurship requires risk taking. It means starting at the bottom. It usually means being the chief cook and bottle washer to start with. First though, you have to learn the skills – and never has it been easier or cheaper to do that. You don’t need to spend hundreds of thousands of rand on an MBA (and that degree certainly doesn’t instantly imbue you with entrepreneurial drive). Animals automatically ‘hustle’ – if they don’t, they die. Some of course are better than others, but if you’ve ever been mobbed by a troop of monkeys when you’re in a game lodge (or any house on the KZN Coast) then you know what I mean.  The first advice I would give a budding entrepreneur, is have a plan. Sure, you’re not taught how to do that at school…. so don’t go back to playing video games or work grind with a toxic boss, rather spend a couple of hundred bucks on Udemy – or find one of the thousands of free resources out there (including from US Ivy League universities). 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, your projected cash-flow, regulatory hurdles, tax implications, market dynamics, cost of sales, margins, unique selling point etc. then your business is not going to make it out of the gate. Until you have a fleshed-out plan, suck up the day job. Don’t cash in your pension on a whim to ‘follow your dreams’ and regret it later.  Next you need ‘seed money’ – to keep you alive until the money comes in. Cut all the fat out of your consumption. Hustle baby. Drive Ubers, be a Nanny/Manny, walk dogs, just get going. If you’re already in a job – do not give it up until the business is ready to fly (not soar maybe, but at least keep the wolves from the door). If you’re lucky enough to have a partner who will support you and your venture, make sure they are properly protected and rewarded. Protected from you going bust and compensated with assets when you succeed. Obviously, this can be taken care of in an ante-nuptial contract but get a good lawyer and make sure you both share equally in the success or failures down the line (especially if you are the ‘sponsoring party’). It must be win-win. I have just come across too many cases where a partnership/relationship/marriage dissolves, and one has been the entrepreneur and the other, the corporate slogger, has kept the food on the table but wins the prize for walking away with less than their fair share. Or try this on for size …. takes half of the other partner’s pension! Entrepreneurs, especially if they haven’t been cursed with climbing the corporate ladder or a 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, but ‘jump and build your wings on the way down’ can leave a nasty mess at the bottom. A bit of homework on wing design would have prevented that – and the same goes for that entrepreneurial venture.  Business Partners : Pick them very carefully. Make sure your values are aligned, especially when it comes to money. If one partner is frugal and the other a spendthrift, you will come to blows. Have a solid shareholder’s agreement, with a buy-and-sell agreement backed by policies so one of you isn’t left holding the liability can if the other dies prematurely. (These have to be carefully structured, so they don’t fall foul of double estate duty, so use a suitable professional – ironically it probably isn’t going to cost you anymore than using a normal broker). Learn from the animal world. Parasites usually kill their host – the longer it takes them the better. Symbiotes (win-win) have a much better time. Never abdicate from your responsibility for oversight, even if you don’t really like it.  Business risks: Understand what all of these are: Cybercrime, hacking, denial of service, customer liability, labour risk, theft, fire, product recall and so on. This is what insurance is made for. There is also the risk of losing your partner and not having the ready cash to payout their estate and end up with an auction or fire-sale of the company – or one of your partner’s parasites on your board, constantly pestering you to declare dividends or to employ them. Look at buy-and-sell or keyman policies to generate that cash flow when you need it. (Much of this insurance is a business expense anyway). Retirement: Your company is not necessarily your pension. Don’t abdicate the responsibility for your old age to the (often mistaken) belief that you can sell the company and make yourself a nice little nest egg to retire on. Plan your wealth assuming that you will make nothing from the business at any time in the future. I’m sure the pandemic has taught most entrepreneurs the painful lesson that ‘stuff’ can happen over which you have no control and is not your fault. Don’t be a blinkered fool – look at everything that could happen and prepare accordingly. Always have an investment to the side that you can fall back on if everything unravels. (Only some of those risks can be insured for.) This really ties in with the mindset of the company being the be all and end all pot of gold at the end of the rainbow. I know entrepreneurs and business founders in their 30’s and more importantly those now in their late 50’s and 60’s and the reality is that there are too many factors in the broader environment beyond your control for a business to sustain you solely, whether it’s lack of funding, market downturns, supressed revenue – the list goes on…and it’s for this reason that we advocate for diversity to allow for the creation of multiple streams of income, especially those that are tax efficient tools in the grander of scheme of financial planning, like an RA.  Contingent liability: Every time you, and your partners, sign a surety of any description (overdraft, loan), you can be held ‘jointly and severally’ liable. What does this mean to the bankers? They have the option to go after the whole lot from ANY of the partners. They ultimately will claim from low hanging fruit such as a deceased estate because they know the bucks are going to be there, and the executor has no option but to pay them and try and get the money back from the other partners. They haven’t quite got to the level of SARS just yet – those blighters will keep peaking at your bank account and when they find funds whip them out. Usually the day before payday. Succession planning: This should go in the business plan from the very beginning. Are you going to sell? When? Are you going to want to extract the equity (selling the company, or part of it) or just take the dividends into retirement? Irrespective of your age – this should be built into your plan.  Neglecting Personal Financial Goals: I find that entrepreneurs, particularly those that are just starting out and getting down to the grind fixate on the sole success of the business – almost a tunnel vision approach. Now obviously passion, grit and commitment are what set those that succeed apart from those that generally don’t, but in my experience it’s often at the expense of their personal financial planning, such as a diversified portfolio and a contingency of insurance benefits. An Entrepreneurs greatest asset is essentially their ability to build a thriving source of income, which is why you and I are both such firm advocates for income protection, which is ultimately the single nutrient that your entire ecosystem cannot survive without. Underestimating/lack of aware of Tax Obligations: Failing to plan for taxes can derail the balance of a thriving wealth ecosystem. I find that many entrepreneurs, particularly the younger ones find this element of a financial plan to be a very murky one. I’ve seen situations were failing to plan for tax payments have resulted in cash flow shortages. It’s crucial for an Entrepreneur to have a pillar of professional support from a good tax practitioner and a financial advisor to guide in how to be tax efficient, both as a business entity and in a personal capacity.  Your choice of Financial Advisor as an entrepreneur is probably more important than if you are an ‘employee’. Financial Advice isn’t all about asset allocation on a tidy pile of wealth and then leaving it to the asset managers while the advisor sits on the beach sipping mojitos – your advisor should be there helping you understanding your personal and business needs and dynamics, mitigate risk, protecting you from yourself, optimising your tax and perhaps most importantly helping you watch your consumption so that you have wealth that you can squirrel away – and yes, she can help you grow. Also consider that as an entrepreneur as you become successful you are going to need a helping hand in ensuring that not all your new found cash is ploughed back into another venture which ultimately doesn’t change your risk profile. As entrepreneurs get older, so must their risk profile also change. Ensuring that these investments are liquid, transferrable and available becomes important. The podcast of this post is available HERE or on all good podcast platforms like Spotify. Articles and Blogs: Two Pot pension system demystified NEW Keeping your legacy shining bright NEW Financial well-being when dealing with Dementia and Alzheimers Weathering the storm Pruning your wealth farm Should you change your investments with changing politics? Taking a holistic view of your wealth Why do I need a financial advisor? Costs Fees and Commissions The NHI and what to do about it New-Normal for Retirement? Locking-In Interest rates – The inflation story Situs – The Myths and Reality Tax Residency – New Rules new headaches Are retirement annuities dead A new look at retirement Offshore investing – an unpopular opinion Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |