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Business Landscape

Depressed Economy Leading To Business Bust-ups

Palmer looks at the most common causes of business bust-ups and how to avoid them.

Gary Palmer

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business-problems

News that our GDP had shrunk by 2.2% in the first quarter of the year, coupled with downward revisions of growth forecasts, are casting a pall on the investment climate. Deals are not only drying up, but there has been an increase in business partnerships bearing the brunt of the economic pressure.

After the initial flush of economic goodwill post the inauguration of President Ramaphosa, we’ve seen a flurry of business owners looking for finance to buy out their business partners.

We have had a number of attorneys and accountants refer dissatisfied partners to us who are looking to exit partnerships. When the economy slows – as we have seen over the last few months – many partnerships begin to show signs of stress. All too often partnerships are seen as tools of necessity and those who rush into these deals without properly exploring the common values between parties will not fare well when things get tough.

What many don’t understand is that undoing a partnership is not as simple as they may think and will come with legal and other costs over and above the finance to buy a partner out.

Related: Government Funding And Grants For Small Businesses

The most common causes of business bust-ups (and how to avoid them) are the following:

1. Misaligned expectations

This occurs when potentials partners don’t share a common vision of where they want to go, how they want to get there and what each wants from the deal.

Misaligned expectations of a business venture will result in disagreements sooner rather than later as they impact every strategic (and even some operational) decisions. It is worth considering a mediated session between partners before the deal is even drafted.

2. Effort Resentment

Another problem creeps in when one partner feels like they are tasked with doing all the work. Resentment around how much effort is put into the success of a venture is not something to be taken lightly – irrespective of it being based on perception or fact. Most contracts will be clear on the value of the equity each partner has, but many ignore the value of sweat equity and how that will be measured and factored into the deal structure.

3. The Golden Rule

Many partnerships are based on one individual who puts in the lion’s share of the capital and another who is committed to doing the day-today work. Effort resentment extends beyond the deal negotiation. When a contract between partners is drafted it reflects a future which is not yet known. As the venture progresses, reality will set in and the division of labour agreed at the outset may not match day-to-day business in year three or four.

It is sometimes useful to draft partnership agreements as you would a lease. Give it a three- or five-year timeframe, with clear deliverables and then, at the end of the period, reassess the partnership and allow for renewals or re-negotiation. Having a sunset clause in your partnership agreement removes the soul-crushing feeling that you are trapped in an unhappy relationship with no chance of escape.

Related: How South African Small Business Owners Can Overcome Economic Uncertainty

4. Honour amongst thieves

Although seldom encountered, there are some partnerships which fall apart because someone is doing something blatantly untoward. Finding out your partner had their hand in the till can be devastating but in tough financial times, such as we are currently experiencing, some people will resort to desperate measures.

5. Absentee landlords

In many cases, a partner may have committed capital to a venture and even agreed to joint expectations. But other work commitments (or a lack of interest) means they disappear from operations for extended periods. No-one wants to work with people who are uninterested in the future of your company. However, the truth of the matter is any breakup has associated costs. Unwinding a partnership can cost more than setting it up and this should be considered before going down that road. Many investors are involved in multiple ventures with the same partners and exiting one deal may result in prejudicing the future of others.

While no-one can predict how long the economic slump may last, minimising the potential for partnerships falling apart requires a meeting of minds. This means agreeing to a common set of values and ethics which will govern how the business is run.

Partners need to agree on how they see the world if they hope to make a success of the business relationship. Thereafter, they should explicitly voice their expectations of how the venture will work, what they want out of it, and how they see their role in achieving that result. In some instances business partners have been together longer than they have been with their spouse. It makes sense to treat the relationship with the same care. More particularly, healthy partnerships will attract more investment and will be a key decision factor when it comes to raising future funding.

Gary Palmer is the CEO of Paragon, which he founded in 2009 during the last big financial crisis, and has grown into a provider of finance to established entrepreneurs. A CA for two decades that includes tenures at Ernst Young UK and Investec SA, Gary has a comprehensive understanding of the financial levers for business growth.

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Business Landscape

We Need To Unite For A Better Entrepreneurial Future!

Here are my key entrepreneurial tips from The Passport Showcase.

Godfrey Madanhire

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entrepreneurship

In our modern world, where nationalists walk the street and xenophobic beliefs are on the rise, as a Zimbabwean serial entrepreneur and motivational speaker, I’ve identified that we need to bridge this division and unite us all through celebrating our diversity.

We need to come together not because it’s the right thing to do, but because united, we can work towards a profitable future.  However, before this can happen, we need to change the global mindset. That’s why I transformed my book The Passport into a showcase in which performers from across the continent took part and showed off their talents.

While preparing for the show I noted some important lessons that I learnt along the way. Here are my key entrepreneurial tips from The Passport Showcase.

Success can’t happen in a vacuum!

Setting up The Passport Showcase took a lot of collaboration. As an entrepreneur and a believer in a united Africa, I’ve learned you can’t operate a successful business if you’re not willing to work and deliver services to everyone. It’s for this reason I invited fashion designers, artists, and dancers, to come together and educate us about the dangers of xenophobic beliefs through their art forms.

We need to be able to blend skills and overcome our preconceived notions, in business and the arts, so that we can achieve great things.

Related: As An Entrepreneur, Be A Motivational Leader To Your Staff

Education is the key to every problem

It’s a part of starting any business; educating the public about your company and quickly converting them into consumers. Arguably the same was true of the showcase, creating a truly unique experience to inform the public about celebrating diversity.

Helping individuals understand that acceptance is key for a better future is critical for business expansion. If any of us want to expand our businesses, we need to be able to engage with different markets – who won’t chase away the unknown.

Be different

Identifying a new opportunity is one of the fundamental building blocks for a new business. Finding unique solutions is a truth that echoes across corporate industries and the arts. But change can cause concern and adverse reactions.

On our continent, ideas that disrupt the norm are needed to catapult our brothers and sisters to a brighter future. But this can only be achieved when we celebrate our diversities and collaborate.

Related: 8 Books Every Manager Should Read To Become A Better Leader

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Business Landscape

9 Ways To Elevate Your Small Business To The Next Level

The South African economy is strongly supported by the nation’s entrepreneurial spirit, which encourages a culture of growth and development in communities.

FedEx

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With the unemployment rate currently at 27.71%, people of all ages and backgrounds are looking for an opportunity to work.

Although many entrepreneurs have enjoyed great success on their small business journeys, choosing to start your own business comes with many risks. One of these risks is the financial burden it can bring. While there are various challenges faced by small businesses, it is possible to overcome these and jumpstart your business with these useful tips from FedEx Express, the world’s largest express transportation company.

1. Connect with customers

As a small business owner, it is important to know who your customers are, where they spend their time, what they are looking for and how your business can meet their needs. Times have changed and waiting for customers to come to you is no longer a feasible business strategy. In today’s evolving business environment, entrepreneurs need to be approaching their customers and building strong relationships with them to form a lasting impression. If your small business cannot grow its customer base, it cannot grow profits.

2. Network

Attending networking events will allow you to find professionals and other small business owners who offer services your business may require. Many small business owners get this critical aspect of starting a new business wrong by networking purely to gain customers, not realising that networking with other business can assist you in acquiring the services you need to continue the growth of your business. Small businesses have a lot to gain through networking at the right time and at relevant events.

Related: Licensed To Thrill: Meeting The Global Demand For Merchandised Products

3. Use social media

There are a number of social media networks and social networking platforms that can drastically grow your business, however, it is important to understand your customers and identify the channels they prefer to communicate on. By implementing a comprehensive social media strategy, you can ensure social media works as a driver of new business that positively promotes your service offerings.

4. Build customer loyalty

Building customer loyalty begins with great customer service. Great customer service starts with a positive customer experience and first impressions are vital in this regard. If a customer has an enjoyable experience when using your services, it is likely they will return and use your services on an ongoing basis. By ensuring your business has a user friendly website and informative brand collateral, new business prospects will increase and those who have experienced quality customer service from your business are likely to refer you to friends and colleagues.

5. Ask for help

All small businesses face challenges, particularly in the early operational stage. This is why asking for help from your peers/mentor who may be more experienced than you is critical. Tapping into the mind of someone with more experience and a broader knowledge base will ensure you learn and acquire the skills needed to make a success of your business. The FedEx Small Business portal offers business owners useful advice that will assist you on your small business journey. Visit www.smallbusiness.fedex.com for tips and success stories that will inspire and help you to grow your small business.

6. Hire the right people

Each person that forms part of your business needs to share the same vision with you that will drive growth. Your workforce will be responsible for the success of your business therefore, ensuring your staff remains motivated is important. When hiring a new employee, implement a check list that includes traits that you feel are imperative to the culture of your business.

Asking out-of-the-box questions in the interview will also assist you in determining if the potential employee is a suitable candidate to fill the open position.

7. Manage cash flow well

Many small businesses close due to cash flow problems. Managing money spent versus money earned is critical as it provides you with a clear indication of whether your business is running at a loss or whether you are excelling. If your small business is losing money, you can implement a strategy to iron out the issues that are contributing to this and identify ways that will ensure your business generates profits.

Related: How Online Embroidery Shop Trish Burr Found Business Success With Support From FedEx Express

8. Work to build success

Work to make a success out of your business with your employees by being involved in the everyday activities that are critical to your businesses success. Being involved will ensure employee morale remains high while allowing you to identify areas that need improvement.

9. Find inspiration

There will always be someone who has been in your current position, even if it is a different business to yours. Learning how they made a success of their business during hard times will provide you with the knowledge you need to succeed as a business owner. Starting your own business is a learning experience made easier by speaking to others who inspire you.

A business can safeguard its success if it continues to innovate. For example, e-commerce has changed the way the world conducts business, and the rise in technology has made it easier to interact with customers quickly and across borders. With economies becoming more interconnected, companies large and small are now able to access markets that were previously unattainable. E-commerce will assist small businesses in establishing their territory in the market and as a result, guarantee growth and longevity,” concludes Higley.

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Business Landscape

How Algorithmic Forecasting Can Improve Business Efficiency In Challenging Economic Times

Harnessing the power of predictive analytics, in-memory computing, and artificial intelligence to forecast risks will help entrepreneurs stay ahead.

Carryn Tennent

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Algorithmic Forecasting

The ability for businesses to accurately predict risk and develop insights has traditionally involved manual drudgery, spreadsheets, and been confined mainly to the finance department.

With the advent of new technologies such as predictive analytics, in-memory computing, and artificial intelligence (AI), smart Chief Finance Officers (CFOs) are harnessing their power to automate the process, free up human capacity, and get deeper, more accurate insights.

The success of any business, from small start-up to large enterprise, depends on how accurately they can predict future performance, as well as recognise and respond to warning signals.

Deloitte recently launched a report titled Forecasting in a digital world, the sixth in its Crunch Time series for CFOs, which delves into the advantages of algorithmic forecasting and why it will change and challenge the way businesses look at and consume data.

There is a shift away from having people gather, compile and manipulate data, to handing over the menial work to the machines – which employ data-fuelled, predictive algorithms to sift through historical data and use statistical models to describe what is likely to happen in the future.

It is a process that relies on warehouses of historical company and market data, statistical algorithms chosen by experienced data scientists, and modern computing capabilities that make collecting, storing, and analysing data fast and affordable.

Algorithmic forecasting is a well-oiled machine, with more than 80 percent of the work happening automatically. Every piece of financial data a decision maker could want is available on their device and all they need to do is ask—literally.

How it change the workforce

While it seems like the machines are taking over, humans are not left entirely out of the process. The success of algorithmic forecasting depends on collaboration with the machines and among people from different teams, including finance, data analytics, and business.

The business finance talent model should evolve to keep up with changes in how work gets done and that will likely require a different mix of people than what organisations have in place today.

However, once they hit their stride, these teams can move across the range of forecasting needs, embedding capabilities in the business and driving integration. These teams are integral to establishing an algorithmic solution that can work for the business, bring insights to life within the organisation, and support continued business ownership of the outcomes.

Related: Workflow And Business Efficiency – 5 Strategies You Ignore At Your Peril

How it changes the workplace

The new teams required for algorithmic forecasting to succeed and the pulling of human resources from other departments will need the workplace to evolve into a more collaborative space, banishing outdated silos.

Forecasting is not limited to finance but all functions, from marketing to supply chain to human resources – basically all functions that need to predict the future to drive important decisions.

While CFOs may not lead function-specific forecasting, they should help shape these forecasting initiatives since finance will inevitably use the outputs they generate.

A shared forecasting infrastructure — even a physical Centre of Excellence (CoE)—can help improve collaboration and coordination while providing efficiencies in data storage, tool configuration, and knowledge sharing.

The beauty of algorithmic forecasting is that once the work is done to solve one specific problem, the same process and capability can be extended and applied in other areas.

Algorithmic forecasting doesn’t create anything out of thin air and it doesn’t deliver 100% precision. However, it is an effective way for getting more value from planning, budgeting, and forecasting efforts.

A commitment to algorithmic forecasting is both cultural and statistical. Making it happen involves people working with technology – neither is enough on its own. Every company will make its own unique journey from its current approach to planning and forecasting to an improved approach.

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