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Risk Management

You’re Not Immortal. Don’t Forget To Plan For The Unexpected

The importance of life and dread disease cover in planning for your business’ future.

Wouter Fourie

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It always feels strange to talk to our business clients about expecting the unexpected however, after all, planning for the unexpected is what has contributed to their success.

These are people who think on their feet, are the hardest worker in the room and have the ability and resilience to pivot when something unexpected threatens their business.

We-recommend-tickWe recommend: Why Risk Management Matters

But many, most entrepreneurs perhaps, never plan for this in their personal lives. I am currently advising a new client who was diagnosed with terminal cancer. He is a successful business owner, with partners in the business, and now has to firm up his will and testament, while dealing with the stress of this unexpected diagnosis.

This entrepreneur does not have sufficient life insurance or dread disease cover to look after his share in the business, which has grown well beyond expectations over the last few years. It leaves him with the difficult task of negotiating an amicable agreement to buy out his share or transfer it to his family, after his passing.

Unfortunately, strange things often happen when money and partners mix. In one recent instance, a businessman left his share in a property investment vehicle, to his wife. This was her retirement fund, but she has seen meagre returns as the other partners used this vehicle to absorb all business costs, which means that it rarely turns a profit.

To protect your legacy and your family’s well-being in the unfortunate event of a dread disease diagnosis or if you pass away, keep the following in mind when you set up a business partnership or plan your will as an entrepreneur:

1. Don’t risk not getting cover

According to recent claim statistics by Sanlam, 60% of all dread disease claims were made by people between 46 and 55, not older.

Having a stroke or being diagnosed with a disease such as cancer could leave you uninsurable, which will put an unnecessary strain on your family and business partners.

2. Look for the correct cover

If you are diagnosed with a serious illness, you may not be able to continue working and you and your business could suffer.

We-recommend-tickWe recommend: 5 Infamous Risks Every Entrepreneur Must Face

You would look at dread disease cover, or an income protector, to protect your business and loved ones from the impact of not being able to work.

A life insurance policy is also very important to ensure that your family is able to maintain their standard of living, should you pass away.

It could also help your business partners with the money needed to purchase or sell your stake in the business.

3. Get it in writing

ink-well

Good fences make good neighbours. I have seen business partners sell the company assets to a new company – at fire sale prices – just to keep them from the deceased partner’s family.

Unfortunately, this is seldom a concern when business partners buy life insurance on the life of the other partner, and they contractually agree that the pay-out amount will purchase the deceased partner’s share from his family or estate.

4. Start small, but start now

Life insurance or dread disease cover is far down the to-do list when you are struggling to build your business. Bear in mind however that no business starts out as a R100 million business hence, you do not need thousands of rands of life cover from day one.

Start with a small amount, but make sure the contract – as discussed in point three – is water tight. Then make sure you review your cover at least annually, but preferably more often while your business is growing rapidly.

We-recommend-tickWe recommend: Taking the Risk Out of SA’s Supply Chain 

A competent financial planner such as a CERTIFIED FINANCIAL PLANNER® professional is ideally placed to help you understand what type of cover best suits your business needs and what value would be sufficient. In addition to this, they are able to assist you with the appropriate paperwork to secure your interests and that of your family.

MD of Ascor™ Independent Wealth Managers, CERTIFIED FINANCIAL PLANNER® professional, Registered Professional Accountant (SA) and Registered Tax Practitioner. With 14 years’ industry experience, Wouter started his career as Internal Auditor before establishing his own accounting and tax consulting practice in 1997. In 2005, the Ascor™ Group was born after merging with Pro Deo Auditors to provide a “one stop professional services company” for comprehensive financial services. He is a member of the FPI Investment Competency Committee and a non-executive director of the FPI Board.

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Risk Management

Are You Focusing Too Much On The Little Details (And Forgetting The Bigger Picture)?

To what degree do outside influences impact your business’s success? As a business owner, should you be focused on your business, or taking a macro view of the world?

Nicholas Haralambous

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Entrepreneurs live in the daily grind of their businesses. This is unavoidable but can often be fatal. Day to day we think that the little things matter more than the very big things do. A little thing like the floor of your office or store being mopped daily can become a huge issue if not done.

Sure, these things are important because they create a culture of care and pride, but what you might be missing while you watch your team mop the floors is the macro-economic climate shifts that happen more rapidly than you think.

Step back to move forward

Early in the life of a new business the only way to survive is for the founders to do absolutely everything. From designing a logo and launching a strategy all the way through to writing tweets and emailing customers when there are issues.

This makes sense when you’re building a business, your team is small and your cash is tight. However, as you grow, it becomes important to let your people do their best and take on the day to day work.

Related: Expanding At The Speed Of Stress

As an obsessive entrepreneur it’s often hard to let go of these little details. Day to day operations will always be integral to the growth of your business and an important part of someone’s job in your organisation. However, it shouldn’t be yours if you are taking care of the big picture.

As the leader of your business you need to take a step back from the grind and look at the world around you.

To truly understand the positioning of your growing business you need to understand your country, continent and world.

You should understand the economic position you’re in as well as that of your province, country and even the markets that might directly influence your sales. Get a good understanding of the political stability of your country and the world.

Finally, you should figure out if there are any large- scale impending disasters. If disaster is imminent, like Zuma pillaging a nation and tanking an economy, then you have to get your head out of the floor mopping and into the high-level strategy of survival and preparation for disaster.

Move the needle

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Every day there are 24 hours that you can fill. You can choose to work during that time and faff with the things that were once important, or you can figure out what is going to move the needle in your business.

What is going to really help you survive and grow in the years to come? Founders, CEOs and leaders need to be thinking about the next three, five and ten years. Let your team worry about today. Let the smart people you work with make today and tomorrow and next week work.

Chances are, the things you are doing in the hours/minutes aren’t saving your business or moving the needle. It’s the things that you plan for the next six months that affect the next five years.

Related: 8 Rules To Build Wealth When You Weren’t Born Into Money

Don’t live in a bubble

It’s easy to fall into the trap of thinking that you live in an isolated country or region that isn’t affected by world events. Unfortunately, no matter how hard you close your eyes and hide your head under the pillow you can’t avoid the fact that your business exists in a globally connected environment.

At Nic Harry we were affected by the Brexit events that unfolded in the UK and Europe. British shoppers were scared and didn’t spend their money when they were on holiday in Cape Town over the peak holiday season. I was so busy preparing for the seasonal uptick that I missed the link between a huge global event and my sales.

You live in a world that is filled with online shoppers and tourists who visit your business whether you know it or not. Prepare for the world to start having an effect on your business more and more.

Broaden your view

I am always fascinated by the narrow view of the world many entrepreneurs display. I may sell men’s socks, accessories and style but that doesn’t mean that the mining sector doesn’t affect my business.

Related: How To Plan, Prioritise And Get It Done Now

Even if you were an entrepreneur building a business in Antarctica I would urge you to read about oil prices, political world events and the intricacies of overfishing in the South American seas. Being well rounded and having a broad view of the world and your business can only make you a more robust thinker who sees more angles to exploit, protect against and thrive on.

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Risk Management

Why Adversity Is Actually The Best Thing For Your Business

There’s been a lot of talk about privilege lately: What is it? Who has it? Who doesn’t have it? I have a slightly different take on privilege and prefer to frame it as the privilege of adversity.

Allon Raiz

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Studies across the globe show that the minorities in all contexts have higher rates of entrepreneurial activity than the incumbent majority. There are a host of reasons for this, but one of them is that adversity creates resilience and self-reliance that are vital for entrepreneurial success.

Every successful and exponentially successful entrepreneur that I have met or read about has transitioned through a baptism of fire. They have overcome insurmountable obstacles and used the lessons gifted through their experiences to rocket their business to the next level.

Related: Approach Adversity Head-On

The Five Gifts Of Adversity

A sense of where your true limits are. These are always far beyond what your belief system believed them to be. The experience of testing your limits breaks the preconceived notion of where your limits are or were.

Confidence. Once you have overcome an issue, the experience of overcoming it builds a high level of confidence that should the issue reoccur, you will have the ability and resources to overcome it. For example, if you lose your biggest client and manage to keep your business afloat, the next time you lose a big client you will not panic or become despondent, but will instead kick into action and claw your way out again.

Insight. Insight as to which of your non-financial resources you can tap into. When the chips are down and money is nowhere to be found, it’s amazing how many resources you will now perceive around you that can potentially help you transition to success. These resources come in the form of advice from friends, access to new markets through networks, credit from suppliers, and free promotion through networks, to name a few.

Your relationship with your own resourcefulness. The experience of not having resources but somehow manufacturing some out of thin air, recalibrates your sense of your own resourcefulness, which in turn builds a level of confidence that should you be dropped off in the middle of the desert with only a matchbox and a magnifying glass, you will survive.

Related: Learn to Adapt In The Face of Adversity

Faith. A level of faith and a belief system that there is always a way to overcome a problem. This is true no matter how overwhelming the problem may be. The more you overcome impossible problems, the less you’ll believe in the existence of impossible problems.

So instead of worrying about who has privilege, who doesn’t, or what privilege actually is, use the lessons gifted to you when overcoming insurmountable obstacles to propel your business forward.

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Risk Management

The Principles Of Cession: A Powerful Business Tool

Relinquish your rights with these quick and easy tips.

Nicolene Schoeman-Louw

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In terms of South African law, the legal concept of cession was defined in Johnson v Incorporated General Insurance Ltd 1983 (1) SA 318 (A) and in FNB vLynn1996 (2) SA 339 (A), as:

“…an act of transfer to enable the transfer of the right to claim to take place.F Accomplished by means of an agreement of transfer entered into between the cedent and the cessionary and arising out of a justa causa, from which the intention of the cedent to transfer the right to claim appears or can be inferred and from which the intention of the cessionary to become the holder of the right appears or can be inferred.”

In simple terms, according to the online Oxford Dictionary, cession is ‘the formal giving up of rights, property, or territory by a state’. According to the online Free Dictionary, it is ‘the act of relinquishing one’s right’.

Related: BBBEE Employee Share Schemes – Should I Or Not?

This means that cession is clearly distinguishable from contracts because it does not create obligations and is also distinguished from delegation and subrogation, which do not involve the actual transfer of rights.

Valuable tool for business

Cession is a valuable business tool because it allows businesses to cede assets that can be ceded by transferring them − completely or not − when there is no cash available to secure a transaction or assure performance. However, it is essential that the parties involved understand and express their needs rather than blindly signing documents that do not enshrine their true intentions.

Legal requirements for a valid cession

According to van der Merwe et al 2002, the following requirements must be met to affect valid cession:

  1. A right inhering to the cedent
  2. Agreement between the cedent and the cessionary to give and accept transfer of the right
  3. Compliance with any formalities set by the law.

1.1. A right inhering to the cedent

Existing rights versus a spes

According to FNB v Lynn 1996 (2) SA 339 A, our courts have to date followed the approach that only existing rights may be ceded, and not rights which amount to nothing more than an expectation or spes. The determining factor in this approach is whether or not the right falls within the cedent’s estate at the time of the cession.

However, according to Muller v Trust Bank 1981 (2) SA 117 N, there is another theory that deviates completely from this approach and deserves a mention. In terms of the doctrine of cession in anticipando, cession of a spes may happen provided the cedent and cessionary conclude both a contract (obligatory agreement) as well as a transfer agreement to affect cession. Upon the materialisation of the right, when the right actually comes into existence, cession may take place.

There is no formal objection to this approach and our courts have not indicated that they are completely adverse to it. Nevertheless, there is no precedent to date that guarantees cession can be enforced based on this common law doctrine.

Personal right

Accordingly, any personal right may be ceded provided it already falls within the cedent’s estate and is capable, in law, of being ceded. Therefore, this even applies to rights that have not yet come into force or effect − such as vested rights (for example: the rights of the beneficiaries of a family trust before its dissolution); contingent rights (rights which are subject to a condition); and/or the right to receive your pension pay out upon reaching the age of 65 years.

Related: The Correlation Between Cash Flow Challenges And Risk

1.2 Justa causa (or intent)

A causa, or reason, for the cession taking place essentially determines the nature and extent to which the right is transferred between the cedent and the cessionary.

In the case of out and out cession, or normal cession, the right is usually transferred to the cessionary while the cedent has a reversionary right to cancel the cession and (re)claim the right, should it become necessary.

Whether or not total transfer of rights takes place in the case of security cession, or cession in securitatem debiti, has been widely debated for some time now. But, legal uncertainty prevails to a certain extent. The question remains as to whether security cession is only a ‘sue do’ or ‘theoretical cession’, where the cession is treated like a pledge of the right. In this case, no actual transfer of the right takes place.

The only logical explanation for this theory is that the cedent retains ownership but only relinquishes his ability to exercise or enforce his rights. Although the courts have, in fact, confirmed this construction may be theoretically unsound, some continue to apply this model based on the notion of an established legal precedent that has been applied for over 70 years. This was confirmed again in Grobler v Ootshuizen 2009 ZASCA 51, where the Supreme Court of Appeal held that security cession is nothing more than a pledge.

There is an opposing argument that this type of cession, regardless of the difference in causa, is treated as an out and out cession and transfer of rights. This theory is further supported by the case of Picardi Hotels v Thkweni Property 2008 ZASC 128, where the court held that a cedent who has not exercised his reversionary rights lacks locus standi in the enforcement or exercise of the right so ceded.

2. The agreement

Although an agreement for cession need not be in writing, a written agreement is always preferable. The only requirement set according to Botha v Fick 1995 (2) SA 720 (A) is that ‘mere consensus is sufficient to effect a cession’.

In addition, the cession must also be lawful and the rights of debtors should not be prejudiced. This does not imply that the debtor must be notified or that the debtor will become a party to the cession.

Formalities

In most cases, there is no need to comply with any formalities to affect cession. In some instances, however, certain formalities are prescribed by law. In the case of a mortgage bond, for example: it must be registered at the Deeds Office.

Conclusion

Cession is a valuable tool in business. That said, it is of utmost importance that the cedent and cessionary both understand the legal nature and consequences of their transaction, or cession, before entering into an agreement.

What’s Next? How to Protect the Future of Your Business.

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