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How To Dissolve A Business Quickly And Effectively?

Here are a few key points to consider, should you ever need to dissolve a business quickly and effectively.

Ya-Fan Wong

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Most business advice out there is on how to start and grow a business. And although this is crucial for obvious reasons, it’s also good to understand how to dissolve your business, should the need ever arise. Sad but true, not all businesses will last. In fact, between 70% to 80% of small to medium sized start-up businesses will dissolve within the first three years, for whatever reason.

Here are a few key points to consider, should you ever need to dissolve a business quickly and effectively:

Know your options

There are two ways to dissolve a business. Closing or dissolving a business means that your business is ceasing to operate due to either:

  • deregistration; or
  • Liquidation.

Related: The Legalities Of Shutting Down Your Business

Deregistration vs Liquidation

When a business deregisters with the Companies and Intellectual Property Commission (“the CIPC“), it implies that the business is no longer registered and has no legal standing since it’s not doing any business, nor has any assets or liabilities. In essence, the entity concerned is removed from the CIPC database and ceases to exist once the CIPC application process has been finalised.

On the other hand, when a business undergoes a voluntary or compulsory liquidation (also known as “winding-up”) it involves the process of selling all the assets, paying off creditors, issuing any remaining assets to the main or parent company, and then simply closing the business. Liquidation or the “winding- up” of a business may happen in various ways, including the following:

  • when a business is unable to pay its debts;
  • as a result of a legal court process;
  • by application of the creditors; or
  • voluntarily, i.e. by application of the members.

Advantages of proper dissolution

As long as your business exists, it is liable to pay taxes and other fees. If you want to avoid those unnecessary expenses, it is important to ensure that the business is dissolved properly. Until you do so, your business will be held liable to file all relevant tax returns. Failure to file these returns will result in heavy penalties and fees associated with the late filing.

Another consideration to take into account, is that even if you have already stopped your business operations, legally the company/close corporation, directors, and officers (in some cases also shareholders/members) will still be considered as personally liable for certain aspects of the company business – unless you file cancellation legally.

Related: 5 Different Types Of Businesses

What happens to the employees of the company?

There is obviously a need to protect the employees of a business that is undergoing dissolution. In the past, the termination of contracts of employment meant that employees were not considered as dismissed and therefore they did not receive any protection or benefits the law offered e.g. severance pay in terms of the Basic Conditions of Employment Act or the right not to be unfairly dismissed in terms of the Labour Relations Act.

The amendment to Section 38 of the Insolvency Act applies to the insolvency of individual employers who trade in their personal capacity and to companies and close corporations wound up due to insolvency, with the effect that:

  • contracts of service are suspended on the insolvency of the employer from the date of the winding-up order;
  • during the suspension of the contract, the employee is not obliged to render any services to the employer, and the employee is not entitled to receive any pay or employment benefits arising from the contract;
  • the employee whose contract has been suspended is deemed to be unemployed and is entitled to claim UIF; and
  • an employee whose contract is suspended is terminated due to the employer’s insolvency is entitled to claim compensation for loss suffered by suspension or termination of the contract of service.

Furthermore, the trustee / liquidator may not terminate contracts of services unless he has consulted with:

  • persons as required to by virtue of a collective agreement;
  • a workplace forum;
  • a registered trade union representing affected employees; or
  • the affected employees themselves.

If the trustee / liquidator has not already terminated the services of employees, the contracts will automatically terminate after 45 days of the trustee / liquidator having been appointed.

Related: Small Business Start-up Guide

An employee whose services has been terminated in this manner is entitled to claim severance benefits as if he/she were dismissed for operational reasons, from the employer’s insolvent / liquidated estate in terms of section 41 of the Basic Conditions of Employment Act. Also in terms of section 197A of the Labour Relations Act, if a transfer of business takes place between an old employer and a new employer in the circumstances above, the new employer is automatically substituted in the place of the old employer in all contracts of employment in existence immediately before the old employer’s winding-up.

In conclusion, dissolving a business doesn’t have to catch you off guard or end in a power-struggle. If done properly, it can be a quick and simple process. Talk to a legal professional from the start, be transparent and make sure you follow the necessary steps.

Ya-Fan served his articles at Dommisse Attorneys and was admitted in 2015. He is currently in our Corporate and Commercial division, and is responsible for the firm’s company secretarial unit, offering a value-added service to clients, beyond just the incorporation of a company, to include maintaining of share and director registers and assisting with annual returns.

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4 Common Myths About Leadership That Can Hold You Back

Alignment with your values and belief systems is the foundation of becoming an effective leader.

Malachi Thompson

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To be a great leader in today’s world, being a brilliant knowledge expert or technician is no longer enough. Even harder is trying to learn the golden rules of the wrong and right ways to be a great leader. The amount of content spouted in countless books and resources is overwhelming let alone confusing.

To be unstoppable leaders for our businesses and our people, tuning out from the noise and distractions potentially misguiding us is pertinent now more than ever. Pay attention to any presence of these four myths and make guiding your people a more soul-enriching journey that they and you will want to continue well past your leadership term’s end.

Myth 1: Great leaders are highly ranked individuals

Richard Branson proves a classic example of how great leaders can get to the top without having ivy-league school connections and astounding qualifications. Having had enough of struggling at school, Branson dropped out of the highly reputed Stowe boarding school at the age of 16 to start a magazine called Student. The first publication sold $8000 worth of advertising. We all know the Virgin story from there on. Then there are the likes of Rachael Ray, food industry personality whose empire has amassed a $60M fortune without her having any culinary qualifications whatsoever.

There’s a common entrepreneurial DNA that runs through the veins of such leaders. An avant-garde vision, tenacity and patience seem to be common underlying themes for many. For others, it’s about making sacrifices and taking risks that could cost their life to serve a cause extending far beyond serving their own needs.

Related: 22 Qualities That Make A Great Leader

By publicly speaking out against the Pakistan Taliban’s extremist rulings, one of which of was to prevent females from accessing education, Malala Yousafzai became a target. At 15 years of age, a masked gunman boarded her school bus and shot her in the head. She survived and many months of rehabilitation spurred her determination to fight for every girl to have the opportunity to attend school. The work she achieved through establishing the Malala Fund with the undying support of her father, earned her the Nobel Peace Prize in December of 2014.

Whether from desperation or a happy place there is always the genesis of a passion driving a persistence to go against the grain and to continue the fight. Often there’s no formal training, qualification or certification in sight.

Myth 2: Following a certain checklist of behaviours will make you a great leader

The ‘fake it ‘til you make’ adage has become a common throw-away phrase consultants and coaches spout as a means to quickly build confidence. Following advice to merely emulate the behaviour of those you admire and respect can pose grave risks, especially when you become a leader by default as opposed to by your own audition. Smart teams can smell falsehood and copycats a mile away. Your integrity will often be scrutinised and your jury will constantly evaluate the values and principles you lead by. One foot wrong might end your leadership term just as quickly as it began and not necessarily by your team’s choosing.

Imagine being tasked with driving credit card sign-ups yet you yourself struggle to make repayments on your own overdraft. How long can you resist your inner conscience? You’ll feel the tug every time you invite a customer to sign up and at every request to your team to follow suit. At some point, you’ll be struggling to face yourself see in the mirror.

This article was originally posted here on Entrepreneur.com.

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9 Ways To Get Employees To Buy Into Your Vision

Your business is your dream come true, now it’s time to include your employees in your vision to drive future success.

Nicholas Bell

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Your vision statement is the foundation of your business. It is the baseline against which all strategic planning is assessed and the benchmark against which all results are measured. However, as important as it is to have a vision when it comes to business success, it is equally important to get your employees to buy into this vision to ensure that success.

Here are nine ways to get your employees to buy into your vision by making it their dream, as much as it is yours…

  1. It must be believable – Your company vision needs to be within the realms of possibility otherwise people just won’t believe in it. It must be steady, achievable and relevant.
  2. It must be inclusive – Employees need to see how they can play a part in achieving this vision to make it relatable and inclusive. If they don’t understand what the business does, they won’t care how well the business does.
  3. It must be reinforced – Talk about your vision all the time. Don’t assume everybody has read it or is familiar with it as new people may not have seen it and older people may have forgotten. Constant communication is critical to ensure everyone is, literally, on the same page.
  4. It must be transparent – Make sure your communication around your vision is open and clear. Talk about it with clients, with all staff members, at all meetings and keep on talking until everyone understands it. When a vision is tangible and accessible it is far more achievable than when it is ethereal and vague.
  5. It must be practical – Don’t make flamboyant statements that are almost impossible to achieve like, ‘We will be number one in X!’. Be practical. It doesn’t matter if you’re not number one, it does matter  that  your vision is practical.
  6. It must be shared – Connect people’s careers to the vision by creating opportunities for them. Show them how the work they do is tied back to the vision and the business. If the business is only about profit and customer, then employees often don’t see how they fit in or why they are important. Create opportunities for them and they will be inspired to achieve your vision.
  7. It must be people-centric – People make up the core of your business. It is bigger than just one person or one idea. So, give them something to aspire to with a realistic, practical and human company vision.
  8. It must have purpose – Embed your vision and its values into the way you do business. The way you treat your employees and your customers and the choices you make should all reflect your vision.  Take it beyond just ‘We want to make money’ and show how your vision positively affects your community and others.
  9. It must be visible – Put your vision on doors, in emails, on letterheads, in proposals. Show what you stand for at every opportunity. Employees need to feel that there is a cohesive plan for the future. This will not only drive engagement but it will keep them steadfast when times get tough – they believe in the ship too much for it to sink.

Related: 22 Qualities That Make A Great Leader

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What’s Your Number? How To Unpack Company Valuations

Business is booming. Investors want in. But how do you put a price on the value of the company you have built with your own hands?

Louw Barnardt

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Company valuations is such a hazy part of the scale-up journey of a private company. Putting a price tag on a business is both art and science. At the end of the day, the number that makes the headlines (if ever disclosed) will be where willing buyer and willing seller meet.

But how do you , as business owner,  go about setting your asking price? Before approaching investors, it’s a good exercise to determine your own valuation range for the business. Choosing the right valuation method is the first big question. The answer has many parts to it, but the most important driver is the stage of the business.

Let’s look at some of the most commonly accepted valuation methods in our market:

Earnings Multiple

Applicable stage: Established, profitable companies

Listed companies, institutional players and private equity investors normally invest in a company for its cash flow profit that can contribute to their portfolio income. More often than not, companies will be valued based on their current earnings (bottom line profit after tax).

This method can only be used for companies that consistently make a profit. A multiplier will be chosen based on the company’s perceived risk. Younger, more risky businesses will likely have lower multipliers (as low as 3 and 4) and high growth, well established, lower risk companies will get higher multipliers (8-15).

Sometimes small adjustments are made to current year earnings (like non-standard, non-repeating income statement items) after which the valuation is set at Earnings times multiplier equals company valuation.

Related: 7 Factors That Influence Start-up Valuations

Discounted Cash Flow (DCF)

Applicable stage: Post-revenue start-ups, growth companies and established businesses

The most commonly used method in practice, the DCF method argues that a company’s value is determined by the future cash flows that it will yield to investors.

The starting point is creating a five to ten year cash flow forecast for the business. This is no small feat. In order to create a full financial model – income statement, balance sheet and cash flow statement – for the next decade requires a lot of work, both from a strategic and technical perspective.

Investors love this model because if forces the owners to put a clear strategy and expansion plan for their business into numbers. It will include dozens if not hundreds of assumptions – all of which can be scrutinised for reasonability. The result of financial model will be five to ten years’ worth of projected cash flows. These amounts are then discounted to present value at a discount rate that reflects the company’s risk and expected cost of capital.

The sum of the discounted future cash flows plus a terminal value (that represents the value after the five or ten year period of the model) then represents the valuation of the company after some final small adjustments for things like existing debt in the business.

Revenue Multiples

A revenue multiple valuation approach is focused on the market for similar businesses and is underpinned by your company’s current turnover. It seeks out the sales price of other similar companies in the country or worldwide, adjusted for size, stage and market differences.

A company that sold for R100 million at a turnover of R50 million would have a two times revenue multiple (valuation/revenue). If the average revenue multiple for similar companies is in a certain range, this multiple is then slightly adjusted and applied to your business.

If the average sale in your industry has been two times revenue but you are growing much faster than the average with a better competitive advantage, you can argue that two and a half times revenue is a more applicable number for your business. Revenue multiples are often used as a reasonability check in the market for the current asking price.

Related: Why Start-ups Like Uber Stumble When They Scale

Other methods

Most established companies are valued using one or a combination of more than one of the above three methods. At start-up stage, there are a number of other methods like Cost to Replicate or the Scorecard Method that early stage investors look to. When a company is simply in too early stage to practically value it, seed stage investors would also consider SAFE Agreements (Simple Agreement for Future Equity) – an instrument that determines that the percentage of the company the investors are buying with their investment. This is only determined when the Series A round is raised at a future date and under certain conditions, generally at a discount to the price the series A investors are paying.

Company valuations are complex. Many of the above technical factors play a role. A lot of it also comes down to the salesmanship of the owners and the negotiating capabilities of the parties. In ‘How Yoco Successfully Secured Capital And The Importance Of A Pitch’, the Yoco team speak about the importance of the right approach in their recent R248 million fundraising

Don’t go into this process without seeking some kind of expert advice. The price of the wrong valuation is simply too high. Make your numbers and your arguments bulletproof and you will be on your way to defending a strong and exciting valuation for your next raise!

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