loans

Choose your business partner – CAREFULLY!

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One of the best pieces of business advice I ever got was “You can’t do a good deal with a bad partner.”Having had many partners over the years, I can say that this statement holds true. So I thought I’d offer some personal experiences I’ve had with partners both good and bad. Finding the Right Business Partner by Robert Kiyosaki.

A new line of business

We’ve been considering expanding our business to include ‘after school’ classes for students as a way to supplement our main program and stench defections to other schools that already provide ‘after school’ classes. We have lost a fair number of good students on this issues, students who were making great progress in their language development, but whose parents didn’t quite understand what we were doing, and how our student development programs differ from the more ‘traditional’ programs.

After school classes
In Taiwan, there are many schools that provide these kinds of services; in fact, the ‘industry’ hires thousands of workers to provide for tens of thousands of students. We already know that this is a viable business. And, if we wish to grow our main program further, it may be something that the market requires us to do. However, none of the partners have the skill set to provide this kind of teaching to students, and we’re already quite busy anyway. Inevitably, this means we are forced to choose between hiring an employee or finding a partner.

Finding a partner
We’ve already investigated the possibility of finding a partner, and we found a person who might be very suitable. Unfortunately, she didn’t have any cash to invest in the business. While investing your labor is, indeed, a well recognized form of investment in many countries, it had repercussions for the person concerned. So she brought in a friend of hers, a self-confessed business woman, who had BIG plans, much bigger than we could afford, much bigger than we imagined, and much bigger than we felt viable in our market area.

Therein lies the problem: in finding one partner, we’d have unwillingly gotten into bed with two partners, one of whom was an unknown entity to us; and one who would certainly have wanted a larger piece of the pie.

Cashflow, cash low and rosy predictions
But that wasn’t the only problem: it is likely that the addition of an extra staff member and partner combined with the additional cost of running a business on life support would have drained our primary business beyond what we could have reasonably handled. We’ve always been quite conservative in our predictions from day #1. In fact, when the school managed to pay a full rent on its first three months in business and pay nominal salaries, too, we were all QUITE surprised. We’d budgeted for six months of full rental payments and expenses, until the business started generating cashflow.

Cash, loans, cashflow: Going, going, gone…
 In Taiwan, over the years, I have seen so many businesses come and go. In fact there are several slots on the main street near where we live that regularly change business. In some examples, the businesses are gone in just two or three months. In one location near here, the first business started out as a baby or children’s clothes store, then it became a woman’s clothing store, then it was empty for a while. Now it is a hair salon.

In other places, I’ve seen supermarkets open and close in less than six months, bakeries come and go, etc.. Perhaps in some cases, the business owners have misunderstood the market. In many situations, though, insufficient provision for cashflow while business is building has been the principle problem. Combine this with overly rosy income projections for the first six months, and you’ve got a recipe for disaster. In some cases, I suspect the initial capital was borrowed from friends, family, banks, etc., and once used, there was nothing to follow up!

It pays to be cautious…
So, choosing a partner who understands your business and your own situation, who accepts the risks of running such a business, and who has the financial wherewithall on their own account (without borrowing the cash) is crucially important.

Have you experience working with unsuitable partners? Or suitable partners? How did you find them? Did you deal with the problems?

Personal Loans: Do you have an action plan?

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You’ve all seen the ads: just call this number for low-interest personal loans or easy payment plans or “loan now/pay later”.

They sound attractive, and can entice people to borrow to purchase whatever they want. So, for many people, taking out these personal loans is a convenient way to purchase what they want, when they want it, without committing cash upfront to the purchase. Such loans go for all sorts of purchases: cars, hi-fi, skis, holidays, renovation, … But …

Yet, too often they give precious little thought to the structure of the deal, to looking around for the best interest rates or, worse still, reading the actual loan agreement, in their rush to secure financing for whatever they are about to purchase. In fact, it is quite likely that they spend more time researching the product reviews or service manual for their intended purchase than looking for a good value loan.

Now, as an investor+blogger, you will know that loans are not ‘evil’ per se. In fact, a loan at a good time can be a very good way to invest, e.g. it can allow early purchase of a service or product that can increase your personal productivity greatly (a car loan), increase the value of a house significantly (a loan for renovation), or even allow you to start a new business (an equipment loan).

But. as responsible people, we really need to spend the time to understand the nature of the loans, the latest interest rates and finance news, the terms of the loan as well as the term of the loan, and whatever penalties may apply. It helps us to manage our risk and provide planning options, both of which greatly benefit our wealth management.

So here is my action plan, for responsible borrowing:

When you have identified a product or service that you would like to borrow money for, create a time line of at least one month prior to the purchase of the item to secure a loan. Do NOT commit to purchasing just yet. And certainly, avoid using any affiliated loan that comes with the service/product (e.g. car loans are often sold along with the car), until you have completed your research.

The first week: Look for all the specific loan information you can find. Go to the bank and inquire. Search the internet. Read the ads on the newspaper. Make phone calls, if you need to. Collate your information.

The second week: Now, begin to analyze the information that you have at hand. Be prepared to read all the literature you collected. Create your list of loan priorities: rates, availability, terms, penalties, etc.. Prioritize that list. Then create your shortlist of appropriate lenders.

The third week: Begin the process of contacting the lenders. Check the rates they are offering, the requirements they have for loans (e.g. payment protection), etc.. Do not commit just yet. You may have several candidates that are at the top of the shortlist.

The Fourth week: Do not be afraid to walk away from a lender, at this stage. Do not sign any agreement if you are not happy. You still have other lenders that are on your shortlist. If you have the benefit of dealing with people face-to-face or on the telephone, information about these other lenders may be very useful when you need to negotiate the terms.

But be prepared to walk away if the terms are unfavorable to you, or change late in the process. Some lenders do this, in the hope that borrowers will not notice, or find it too late to change.

A final note: if you can delay purchasing and lending, this will stand you in much better stead. You no longer have a deadline to purchase within, BUT it’s likely that the lenders will have targets to meet to qualify for bonuses from their company. Therefore, if the lender starts saying things like ‘offer good for 24 hours’, s’ign now and we’ll throw in xxx’, or similar type offers, you need to be aware: they are trying to create a sense of urgency, and usually it’s for their benefit, NOT yours.

Sponsored by Select Loans.