CrashProof 2007 Abridged

7/29/2019 CrashProof 2007 Abridged

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Second edition

CrashProofyour Business

Peter Carruthers


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Join Business Warriors for ongoing support from thousands of experienced CrashProofers

Please check the Foreword, and the last page.Page 2

CrashProof your Business

Foreword .......................................................................................................................................................... 5

Read this First ................................................................................................................................................... 6

How I got Here ................................................................................................................................................. 8

Introduction ................................................................................................................................................... 13

Some hard Questions .............................................................................................................................. 13

Business Success vs Failure ..................................................................................................................... 15

Why Business Advisors are often Wrong ....................................................................................................... 16

Bankers.................................................................................................................................................... 17

Business Plans and Bankers ................................................................................................................ 18

Bankers sell money ............................................................................................................................. 19The Banking Miracle ............................................................................................................................ 20

Money is simple .................................................................................................................................. 21

Accountants ............................................................................................................................................ 22

Why are you in business? ................................................................................................................... 23

Advice geared on tax efficiency .......................................................................................................... 24

Entrepreneurial Impoverishment ....................................................................................................... 25

The Most Important Entrepreneurial Question EVER ........................................................................ 25

Simplicity ............................................................................................................................................. 26Attorneys................................................................................................................................................. 27

Compartmentalise Business Risks .................................................................................................................. 31

Ideal Business Structure .......................................................................................................................... 32

Unlimited liability ................................................................................................................................ 33

Sole Proprietor ................................................................................................................................ 33

Partnership ................................................................................................................................ 34

Limited Liability ................................................................................................................................... 35

Close Corporation ........................................................................................................................... 36[Pty] Ltd ........................................................................................................................................... 37

Trusts ............................................................................................................................................... 38

All About Sureties and Securities ............................................................................................................ 38

Blank Cheque ...................................................................................................................................... 39

Why you won't win if you fight a surety ............................................................................................. 40

3 Parties Involved ................................................................................................................................ 41

Debtor ............................................................................................................................................. 41

Creditor ........................................................................................................................................... 42Surety/Guarantor ............................................................................................................................ 42


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CrashProof your Business Peter Carruthers 2007



Why Sureties are BAD ......................................................................................................................... 42

Excussion ......................................................................................................................................... 43

Division ............................................................................................................................................ 43

Eternal ............................................................................................................................................. 44

How easy it is to get entangled ....................................................................................................... 45

Never Returned ............................................................................................................................... 49

Domicilium...................................................................................................................................... 50

A Typical Surety Document What the Latin bits mean ....................................................................... 51

Do not sign Sureties ................................................................................................................................ 56

Financing Assets without Sureties ...................................................................................................... 57

Why is Traditional Asset Financing Bad for You? ............................................................................ 58

Buy in separate structure ................................................................................................................ 61

Opening new "divisions" in new legal vehicles ............................................................................... 63

Credit Card Budget Account ............................................................................................................ 64

Replace the Overdraft ......................................................................................................................... 64

Why Overdrafts are bad, and why banks love them ...................................................................... 65

Reduction of Working Capital ......................................................................................................... 69

Borrow against backing security personally ................................................................................... 71

Trade Suppliers ................................................................................................................................... 87

Landlords ............................................................................................................................................. 88

NO! ...................................................................................................................................................... 89

A Banking success story .................................................................................................................. 91

Client Financing ................................................................................................................................... 93

Reducing Surety Damage........................................................................................................................ 98

Limit to this debt only ......................................................................................................................... 99

Monopoly suppliers .......................................................................................................................... 100

Can the summonses find you? .......................................................................................................... 100

Retrieving Sureties ............................................................................................................................ 101

Trade Suppliers ............................................................................................................................. 103

Banks ............................................................................................................................................. 104

Current Debts .................................................................................................................................... 107

Selling or Buying a Company ............................................................................................................. 108

Compartmentalise Personal Assets .............................................................................................................. 110

TheTrust ................................................................................................................................................ 110

Compartmentalisation ...................................................................................................................... 111

Why does it work .............................................................................................................................. 112

Setup ................................................................................................................................................. 113

Inter Vivos vs Testamentary .............................................................................................................. 114


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Moving Assets ................................................................................................................................... 114

Donations ...................................................................................................................................... 115

6/24 month rule ............................................................................................................................ 115

Sale ................................................................................................................................................ 116

House ............................................................................................................................................ 116

The less you can afford to lose... ...................................................................................................... 116

What does it cost? ............................................................................................................................ 117

Life Assurance ....................................................................................................................................... 118

Build Cash Resilience .................................................................................................................................... 120

Nothing new under the sun .................................................................................................................. 124

Business Resilience ............................................................................................................................... 126

Set up at least 2 business bank accounts .......................................................................................... 127

Build your credit profile .................................................................................................................... 128

Gradually move existing facility to zero ............................................................................................ 129

Personal Resilience ............................................................................................................................... 129

Personal bank account at another bank ........................................................................................... 130

Credit Cards ....................................................................................................................................... 131

Testament/will at attorney ............................................................................................................... 132

Life assurance with independent broker .......................................................................................... 133

Action Steps .................................................................................................................................................. 134

Compartmentalise your Trading Risks .................................................................................................. 134

Compartmentalise your Assets ............................................................................................................. 135

Diversify your Financial Sources ........................................................................................................... 137

Restructure your Investment Portfolio ................................................................................................. 137

Identify your Sureties and Retrieve Them ............................................................................................ 138

Financing ........................................................................................................................................... 138

Vehicles ......................................................................................................................................... 138

Overdrafts ..................................................................................................................................... 138

Office Equipment .......................................................................................................................... 139

Trading .............................................................................................................................................. 139

Suppliers ........................................................................................................................................ 139

Landlords ....................................................................................................................................... 140

Franchisors .................................................................................................................................... 140

Recovery Plans .................................................................................................................................. 140

Read This Last ............................................................................................................................................... 140


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Foreword

Thank you. Not just for investing in this knowledge, but more importantly, for taking the decision to

expand your entrepreneurial skills. This book is the result of 12 years of consulting and training (more

than 25,000 small-business owners throughout southern Africa) and aims to show you how to take

back financial control and thwart the attempts of sundry attackers.

I hope you will have as much fun learning how to:

beat your banker,

protect your family,

protect your assets,

and compartmentalise your risks

(and all the other exciting stuff that we will talk about in this book)

as I had in investigating and developing the solutions.

You will find my story early on -- and you will see that I have already walked the road that most

entrepreneurs fear to tread. And I have helped hundreds of others down the same path - almost

always with lots of success. (Except mine, of course, but that's what inspired me to do this in the first

place.)

The format of this book follows the format of the seminar that has been so remarkably successful in

southern Africa. I have tried to lay everything out logically, but I welcome any comments on ways to

improve it.

The ideal way to work through this material is to start at the section titled Read This First. You can, of

course, dip in wherever you wish to. You will find that it's much easier to follow the flow however, aseach section builds on the previous one.

Sureties are evil.

That isn't a religious statement -- although the Bible does mention that signing sureties is a really bad

idea. A surety is drafted to favour your creditor overwhelmingly - and to leave you with absolutely no

rights. This document single-handedly is responsible for almost all the pain that you and your family

will endure if your business fails.

Speaking of which, here are some statistics. In the first year of operation, 50% of all start-ups will

close. (They don't even get a mention in the phonebook!) By the end of five years, 80% will be gone.And by the end of the first decade only 4% will remain.

Let's put that into perspective. Only 4 out of every 100 start-ups will survive one decade. To be honest,

I am not really interested in the business aspect of that statement. My mission in life is to protect the

families behind the 96 businesses that fail - because the pain is terrifying.

Not only are there multiple partners involved in many of these businesses, but each individual

business owner supports a spouse and children, and impacts on parents and siblings. When a business

goes belly up, that individual business owner will share an immense amount of pain with a lot of

people. And there is absolutely no reason for that to happen if that business owner has taken a few

simple steps to protect himself and his family.


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If I had known this stuff just six months before closing my doors in 1992, I wouldn't have lost

everything I had at that time - as well as another R2 million that I didn't have.

The book consists of a series of sections covering all the knowledge that you will need to CrashProof

your Business. You could also joinBusiness Warriorsand get onto the forum, where you can post

questions which will be answered by other Warriors. The forum has proven to be a useful resource forall of us.

Have fun. We take this business life awfully seriously, and we forget that we have a huge responsibility

to suck the juice out of every single day -- because, who knows, it might be our last.

I welcome any feedback. Once again, thank you from the bottom of my heart, for allowing me to share

these issues with you. I'll try not to abuse the privilege.

This book is dedicated to all the thousands of business owners who have attended the CrashProof

seminars since 1995, and who have helped me refine this material into a series of basic core thoughts.

But especially to those who have successfully gone out of business - without losing their shirts -

because they applied this simple stuff to their lives.

A few years ago a fellow attended the CrashProof seminar in Durban. He had received a 'summons'

from his bank manager to bring in his documents and face a reassessment of his overdraft facility.

Fortuitously, my fax inviting him to the CrashProof seminar had arrived that same day, so he delayed

his visit to his banker until after he had attended the seminar. It was a pretty full house that night.

The next morning, as I arrived at the airport back home, my cellphone rang. It was Brian, and he was

pretty excited.

"Pete" he said, "I have to tell you what happened when I went to see my bank manager this morning.

Armed with what I learned last night I walked into his office and before he even had a chance to say

anything, I said 'I want this, and that, and I want it this way!' He went pale.

"My God!" he said "You are the fourth person this morning to demand that!"

I like to believe that these strategies have had some effect on opening bankers to new ideas and to

better understand the needs of small business owners.

And finally, never forget that no matter what business experience you are having right now that, too,

shall pass. Business - like every other aspect of human life - is seasonal. This means that if you arehaving a really crappy time right now - this will pass. And if you're cooking with gas, nothing seems to

be able to go wrong, and everything you touch is turning to gold - this too shall pass. That's the fun of

this experience we call life.

Peter Carruthers

Tuesday 8.24pm
http://www.businesswarriors.co.za/http://www.businesswarriors.co.za/http://www.businesswarriors.co.za/http://www.businesswarriors.co.za/


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Read this First

By far the best way to experience this book is to read it sequentially.

This material works much better if you follow the sequence in which I present it, because some of the

concepts build on concepts I have worked through in a previous section.

I start with my personal story, because I assume you want to know something about anybody who has

the gall to try to tell you about small business issues - and because I feel you will have more confidence

in applying this material to your own life if you understand what road I have travelled to get to this

cyberspace place.

Then we look at a few general issues about this entrepreneurial life, and why all is not necessarily as it

seems on the surface.

This is followed by a discussion on why much of the professional advice we little folk get is BAD advice.

We look at a few myths, and the reasons for them, and we ask a few leading questions that you shouldbear in mind in future whenever you're dealing with your advisors.

After that we move to the meat - the first core concept -

Compartmentalising your Business Risks. In this section we will analyse sureties in depth: what they

mean; why they're so dangerous; how to structure yourself so that your risks are in a neat box; how to

borrow without sureties; how to retrieve them; how to nullify them; and a whole lot more. By the time

you have finished this section you will know more about sureties than you ever wanted to - but you

will be equipped with the tools you need to keep your business in a sealed cage - and away from you

and your family.

Then we look at techniques toCompartmentalise your Personal Assets- so that any fallout won't get

near your life savings. We'll look atTrustsand their immensely powerful role in your future, and we

will identify a few holes in yourlife assurance portfolio. [No, I am not going to sell you any more of it,

but you will probably want to restructure your existing policies after completing this section.]

After which we move onto the topic ofBuilding Cash Resilience.After all, the more cash resources you

have ready to meet any emergency, the less likely the firm is to fall on its face when it stumbles.

This is followed by a summary of theAction Stepsyou will want to dive into. I have tried to make this

as concise and practical as possible.

And, as in everything there is a conclusion - my request to you to be honest with yourself about why

we are in business as entrepreneurs - and what this really means.

At any time, if you get lost, or bored, or just plain lonely, then click onthis link, join the Warrior

community and go to the forum. Ask any questions and they will be answered quickly. Before asking a

question, though, please search the forum to see if that question has been answered before. This

saves us all time, money, effort, and embarrassment.

The forum has built up a base of frequently asked questions that anybody can search through to get a

rapid answer to something not covered in the core material. It also allows me to respond to you ifnecessary, in a disciplined way, without your e-mail getting lost en route to me -- something that can
http://www.trusts.co.za/http://www.trusts.co.za/http://www.trusts.co.za/http://www.businesswarriors.co.za/http://www.businesswarriors.co.za/http://www.businesswarriors.co.za/http://www.crashproof.co.za/crashproof/forumhttp://www.crashproof.co.za/crashproof/forumhttp://www.businesswarriors.co.za/http://www.trusts.co.za/


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happen quite easily because my personal e-mail box is deluged by more than 300 e-mails every single

day.

The forum is like a bulletin board which keeps track of any questions asked, and answers offered. You

are welcome to offer answers as well -- to any questions that have been asked -- if you have any

experience in that area.

I regularly mention breaking news regarding new legislation or government and banking behaviour.

It's taken almost two years to compile this material, all of which is completely meaningless if you don't

take the principles and apply them to your own life and your own situation -- starting now. By the time

you have worked through the core material, you should have identified five simple areas to attack. By

the time you have finished these five steps, I promise you that you (in your personal capacity) will be

impregnable. So will your business. That is a wonderful place to be.

Good luck.

How I got HereIn mid-1984 I was fired from my job as a project manager in a small firm - for daring to stand on

principle. Of course, I was a young twit at the time, and probably deserved it! But that left me with an

interesting problem - how to earn a living. I suspect that this same problem is what inspires most of us

'business owners' to venture forth for the very first time.

In this situation we usually have strong technical skills - in my case in software design and

programming - but very few business skills.

The end result was that in October 1984 I founded a small software company in Cape Town - Link

Technologies cc. With immense good luck (we were in the right place at the right time) we grew and

grew by leaps and bounds.

By 1989 we were widely regarded as one of the most admired Information Technology companies in

South Africa. (That's not by my reckoning, but based on annual surveys done by the computer trade

publications.)

Our business focused on linking PCs to IBM minicomputers - at a time when this was a new concept

and awfully challenging to consistently achieve. We were the first folk to successfully do this, and

managed to infiltrate this closed user fraternity rapidly.

One would think that's a recipe for success. The first major difficulty any small company faces (and

ours was no different) is money. Or more specifically cash flow - the balancing of cash coming in

from clients, with the cash going out to suppliers.

You get close to the end of the month and there are more days left in the month than there are Rands

in the bank account! Have you ever had that feeling?

So it's off to the friendly banker. We set up overdrafts, and used as many of the various financing

products available as we could. In addition to financing our clients, however - all of whom wanted 30

day terms, we still needed to import products from Taiwan and from the United States - and theywanted payment in advance!


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We went to a confirming house to balance our cash flows. They specialised in imports and exports,

and they gave us a huge contract to sign about 30 pages.

I dont know if youve ever had this experience - but you genuinely try to read the contract. You get to

the end of the first paragraph, and you realise you have a bit of a problem, because that first

paragraph doesn't have a single word in any of South Africa's 11 official la nguages! Its in Latin! Beinga prudent South African business owner what do you do at this point?

Of course you sign the document! We all do - without remotely understanding what were signing.

You are assured that it's the "standard contract". It is! But that doesn't mean it favours you in any way

at all. You are assured that everyone signs it. That's not quite true. Any experienced business owner

knows that this is a document you should read very, very carefully, before NOT signing it.

Bottom line - I signed the infernal contract.

And for two years there was no problem. One day this confirming bank that we were using

[Reichmans] was bought out by another bank [Investec]. And that's when my challenges started,because the new owners faxed me a one-page amendment to our original contract. That single page

was almost as indecipherable as the original 30 page contract.

The SA market was getting tougher at that time, and I was getting wiser, so this time I took the entire

batch of paper to an attorney for interpretation. [Attorneys use the word 'perusal' which is a frightfully

expensive word that means 'read'. Maybe that's why we regular human beings do not ask attorneys to

review documents before we sign them?] I wanted to find out what Id already signed, and why I was

being asked to sign something else.

Just as an aside, if youre in an existing business relationship and youre suddenly asked to sign a new

document (agreement/addendum etc.) chances are youre about to shoot yourself in the foot. This is a

really good time to get an attorney in on your act.

Wow! What a rude awakening. Not only had I signed the original contract from hell, but now the

bank was trying to strengthen its (already unassailable) position even further.

In terms of the original contract our bankers owned our firm. They owned our business stock; our

debtors; our furniture; our computers; our vehicles; our cash - everything.

On top of that, they owned me and everything I thought I owned. They owned my shares in my

business; my loan account; my house; my insurance policies; my investments; my life savings; andevery other asset my family thought it owned. And it was the same for each partner in the business.

If this bank felt that their investment in us was ever at risk, they had the right to walk into our

business; take it over and run it for their own benefit; and operate the cheque account [which was at a

commercial bank] until their account was paid in full. If anything went wrong, we (as individual

business owners) were going to be wiped out.

The only small aspect in our favour in this original contract was that they had to give us seven days

notice if they wanted repayment of the R600,000 they had loaned us! [Remember that this was in

1990, when R600,000 was a lot harder to come by than it is today. This would equate to about R2.4

million in 2002 Rands.]


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Thats what the one-page amendment was about. It took away the seven day notice period, and

replaced it with a 0 second notice period!

Foreclosure on demand! This bank could walk in at any time and take us out. When we realised what

we'd signed, we were terrified. So we paid them back in full over the next six months. In hindsight, not

a very prudent move, because this massively depleted our cash resources just as South Africa enteredan awfully exciting time.

This was in the late 80s and it was round about the time Mr. Nelson Mandela was released. This was a

wonderful event for South Africa, but dreadful for businesses selling any capital expenditure-related

products.

Our clients were all large organisations like Shell, Old Mutual, Momentum and the like, and they

decided to adopt a "wait and see" approach to the political uncertainty that was engulfing the country.

Everyone simply stopped buying computer equipment for a while. In reality, many of us were

expecting massive violence and social upheaval - and most firms were struggling.

Sales slumped. In fact, thats not altogether true. Sales kinda plummeted. Our Sales Director had, over

the years, acquired an expensive lifestyle funded by large sales commissions. So you can guess that

he didnt take too kindly to this slowdown. His solution was to set himself up in opposition to us,

taking one of our major agencies with him. This was despite a restraint of trade contract we had with

him.

Contracts in South Africa are interesting. You can have every right in the world, engraved in platinum

on your contract, but if you cant afford to exercise your rights in co urt, you have no rights. And it

costs a packet to go to court especially the Supreme Court.

We didn't have the R25,000 we would need for each day in court fighting to exercise our rights, and he

knew that.

The market stopped stone dead, as it simply got confused!

We took stock of our situation. At the time we had about R600,000 worth of liabilities and R500,000

worth of assets. If you have ever been involved in a business closure you will see that this represents a

reasonable degree of balance. We figured that if we were to close at this time we would do the least

damage to our creditors, our clients, and ourselves. So that's what we did - we closed the firm. And

that's where my business education really started!

How much do you think R500,000 worth of new computer equipment can be sold for? When I did the

initial figures I was a tad optimistic. I knew the products and the market, and despite the economic

downturn I was confident, that given a little bit of time, the stock would raise almost par value. My

worst guesstimate was R250,000. Even if I had to sell the stuff on a pavement in Braamfontein I knew I

could beat that.

But that's not how that game is played! And that's all it is - a game with very few rules - most of which

are honoured in the breach. [A nice way of saying they are completely ignored.]

When the stock went to auction it raised a mere R25,000!

I had recently relocated to Somerset West . I rapidly developed a remarkably intimate relationship


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with the local sheriff. He used to arrive on a Friday, drop off some paper, and take away some

furniture. And this went on for about 18 months. It sure was an exciting time.

One morning in July 1993, I sat on the floor in our lounge and spent an hour cursing. The local sheriff

had just cleaned out our furniture, and had even taken the watch off my wrist, to settle a tiny debt

with one of the banks. [The same bank who had recently borrowed R1 billion from the ReserveBank!] So I sat on the floor and howled. I was so distressed I even managed to add a few new

expletives to the English language. When my wife came home a while later, she sat next to me and

said "Peter, if this is God's Matric exam - you're failing. There's a reason for all of this, even if we can't

see it right now."

Since then I have worked on a simple premise - the reason all of that happened to my family was so

that I could show other business owners like yourself how to prevent it from happening to you. If I'd

had access to these simple techniques and strategies in 1992, I wouldn't have lost the few million that

I did, as well as the few million that I didn't have to lose!

At this time, my brother, Mike, was one of the leading brokers for the Southern Life AssuranceCompany. He was amongst their top ten salesmen, and he suggested I consider selling life assurance

products to small business owners.

[This strange breed of human being - small business owners, not brokers - represented a market that

the life assurance industry was desperate to penetrate. My business experience made it very easy to

identify with the challenges that these folk faced daily.]

For the next two years I wandered around trying to sell life insurance to business owners like you. I

had no problem getting appointments.

How can you resist an introduction like this? "Hi, my name is Peter Carruthers. My firm just went

bankrupt and I'd like to share some ideas about that with you."

Actually I didn't share a great deal, but I sure asked a heck of a lot of questions. How can you be sure

that you are safe if your business fails? What are you doing to safeguard yourself from sureties? How

are you financing your firm without sureties? Where are you hiding your assets? How are you

protecting your life savings? Which bank are you using? Who is looking after your will? And a whole lot

more...

I felt like a complete idiot having lost my business. My self esteem was lower than shark faeces. I felt

that nobody on the face of the planet could ever be as stupid as I was.

Over the next couple of years I analysed the structures and provisions of more than 300 small business

owners - in intense depth - to find out where I had gone wrong, and why.

Guess what? With just one exception, everyone was doing exactly what I had been doing - NOTHING!!!

In almost every case, the business owner assured me -- intensely earnestly -- that his circumstances

were different, and that he was in no danger of business failure. But the numbers do not lie, 96 out of

every 100 business start-ups fail in the first decade.

And then an interesting thing began to happen. The person that I had been speaking to would go outto a party on Friday evening, and discuss business with his mates.


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We men like to pretend that everything is going well. Meet somebody that you haven't seen for a

week; ask them how business is going; and you will always get the same answer, "Business is cooking

with gas! Never been better! The future is so bright I have to wear shades!"

After a few beers, the story changes. Ask that same question again and you are likely to get this

answer, "Oh God, I'm in such desperate trouble. I don't know where to turn."

At this point the person that I had been speaking to would say something along the following lines,

"You have to meet with Peter Carruthers. He is an expert on business failure!"

And that is how you become the country's leading expert on small business failure. I suddenly found

myself being inundated with calls from small business owners in desperate trouble. Each call was

identical, it went like this,

"Mr Carruthers, I believe I might have a problem." He would say.

"What has just happened that makes you suddenly believe this?" I would ask.

"The sheriff has just taken all my furniture away! I believe I might have a problem." He would answer.

I don't know about you, but if the sheriff is already taking your furniture away, you don't have a

problem. You had a problem. About six or seven months ago! And now it is too late to do much.

I was inundated with people in this position. My life became a constant hell of people begging for help

-- but asking far too late for me to be able to offer anything constructive. Unfortunately, that is the

reality. We stay in denial about how much trouble we are in because it is too uncomfortable to face at

that time.

I was reliving the worst time of my life in the lives of other people. And I was hurting.

Soon I was doing far more consulting than selling life assurance products. This is a bad business model,

because anybody needing consulting after they have closed their business simply doesn't have the

money to pay your fees. We call free consulting counselling! And that is no way to feed your family.

One morning I just could not get out of bed to face another day of other people's challenges.

My wife suggested that I take all the stuff I had learnt and convert it into a seminar for business

owners -- who were still in business -- to prepare them so that they never experience the kind of

challenges we had had. And that was the beginning of the CrashProof your Business seminar -- in 1995.

By 2003, almost 25,000 small business owners had attended the seminar, and had CrashProofed their

lives. They included people representing every aspect of industry in South Africa, every age group, and

both genders -- ranging from uneducated persons like myself to professionals (doctors, lawyers,

accountants, architects, dentists, etc) via a huge range of consultants (business, engineering,

marketing, Internet, sex, etc) -- and even a few bankers. (Each individual banker appeared astounded

at the antics of his competitors, and assured me that his bank was different!)

Unfortunately, the seminar process is extremely expensive -- as well as hazardous. Many groups of

business owners find it difficult to attend. Women, for example, are reluctant to travel at night

because of the security situation. We cannot afford to run the seminars in the smaller towns. Manybusiness owners are working far too hard, and cannot spare four hours for training. And finally, my


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diabetic status was taking strain with the amount of travel that I was doing.

And that is the reason for reassembling all of this material into this book.

I welcome your questions and your comments, and anything else that you might have to say related to

this topic. I will do whatever I can to make your reading a fun experience, but above all, a life changingexperience that puts you in a place where you are untouchable if anything goes wrong with your

business.

IntroductionMost of us entrepreneurs didnt choose to be here! It kinda happened en route to a real job and

career.

Almost all the business owners I have consulted with fell into owning their own businesses. It wasnt

really planned. At some point in their lives they were retrenched or fired or simply couldnt find a job.

So they began working for themselves.

They leveraged the technical skill they had [software, making coffee, fixing pipes, gynaecology,

architecture] and started to sell that skill to somebody [their first client]. As time moved on, they

found that other people also wanted what they had to sell, and they began to get busier. And the

busier they got, the more help they needed. So they hired secretaries, technical underlings,

bookkeepers, salespeople and a few other strange individuals and then they morphed into business

owners. Except that they almost all found that the business owned them and not the other way round.

When they analysed where all their time went, it was almost all spent in running on the technical

treadmill. They spent so much time honing their technical skills constantly making the product or

service even more excellent that they forgot to build a few simple business skills. And then they

found that they were in trouble.

If you look at your business efforts where are most of the problems arising? I am willing to bet your

investment in this book that they have nothing to do with the service or product you provide but are

all focused squarely on the business aspects sales, collecting money, managing staff, accounting,

cash flow, banking

Why is it that even those professionals that we know will own their own businesses doctors, lawyers,

architects, engineers, artists are offered almost no business courses while in school or college? And

where business courses are offered, they simply arent relevant to the needs of an individually owned

business.

A small business is not a little big business! It exists for a completely different reason than does a big

business. And it is subject to completely different stresses. The mere scale of a large business demands

formality and controls to protect the interests of the [many] shareholders and such structures cost

time and money. Yet the individually owned business exists for just one reason to prosper the

individual owner [or the few individual owners].

Some hard QuestionsExactly what will happen to your home if your business closes this month? Are you certain of that?


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And exactly what will happen to your furniture, and your investments?

And exactly what will happen to the assets your business has acquired over time?

And exactly how will you get an income next month if your business closes this month?

Exactly how will you open a bank account after that first judgment has landed?

I ask these questions because they echo my feelings in May 1992 as I closed Link Technologies cc - the

single act that thrust me on this new career path where I now teach folk exactly what will happen.

Except that I didn't know that at the time! And before it happened I reckoned I more or less had these

answers.

But I was a long way off. I didn't know how the game was played - how the assets of the firm get given

away for nothing; and how my furniture would be sold for the costs of their removal; and how

everybody I had ever bought from would be allowed to take a judgment against me without me being

able to defend myself. Judgments which ranged from R241-00 to R640,000-00!

And I didn't even begin to understand the soft issues: not sleeping because I had a wife and children to

feed; not wanting to see my friends because they didn't understand my challenges; not wanting to

speak to my family; not wanting to work because the challenges were insurmountable.

We're now more than 10 years later and most folk I talk to cannot conceive that their business might

actually close - because they feel that they're not that stupid. But lots of businesses close every day

[although it's usually more crowded at the end of the month]. And they usually close because

something outside the business happens: a strike; a change in tax law; a change in customs law; a

change in the Rand forex rate; a fire; a death...

This is why I need to ask you a few questions to which I don't have answers, but I'm hoping you do.

You see, as of today, I've given up trying to help people who are going out of business. It's harrowing.

It's frightening and it brings back all the old memories that I am happy to have moved beyond. And by

the time you need going out of business help you've run out of money. This means that you can't pay

for good help. I know this because that's been my experience. When you're going out of business you

need more help and support than anyone can offer - except maybe your church group. And free advice

isn't worth the money you pay for it. So here are a few questions to help you NOT go out of business.

What exactly will you do if your biggest client goes belly up? How will it happen? Will their last cheque

bounce? Will they just avoid your calls? When, exactly, will they tell you the bad news?

What exactly will you do if your business overdraft is recalled this month? How will it happen? Will you

get a call asking you to visit, or will the phone call just tell you that one of your deposits has bounced,

and therefore your outgoing cheques will also be dishonoured? Will that call be from your brand new

bank manager [who took office today], or from the person who has been supporting you these past

few years? What exactly will be your response? Which bank will you go to immediately to replace your

overdraft?

What exactly will happen to your business if you die this weekend? Who will open the office on

Monday? Exactly how will your spouse get access to money while your estate winds up? Exactly who

will pay the landlord, and deflect the judgment for outstanding rentals? Exactly who will deflect thejudgments that come in from everybody your business owes money to?


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What exactly will you do if your office/factory burns down this weekend and the insurance won't pay

because your bank bounced the short term premium today?

Or, exactly what will you do if the insurance company delays their payment by three months because

they're investigating?

How exactly will you continue to operate; pay your staff; put food on the table; pay the school fees;

and pay the bakkie instalments?

Business planning is an interesting paradox. The more you plan for a disaster, the less likely it is to

happen. Yet most of us simply lurch from crisis to crisis - too busy to plan, and too busy to succeed! I

have compressed 10 years worth of crisis planning into a simple five point plan in this book. Think of it

as an advanced driving school for business owners. If you follow these simple principles you won't ever

go out of business. And if you still choose to go out of business you will have exact answers for the

above questions.

A last thought. If I had known this stuff one year before going out of business, I wouldn't have had toclose. If I had known this stuff just three months before closing, I wouldn't have lost any money. And I

wouldn't have faced five of the worst years of my life. For what it's worth, the last judgment was finally

nine years later! This is not a nice road to travel. And nobody can help you on it if you don't take some

steps to help yourself now.

Business Success vs Failure

For most business owners, life is like an inflated balloon. As the business grows, the balloon gets bigger

and bigger. At some point it pops - at least statistics indicate that the overwhelming majority of

business balloons pop. And when that happens, everything that was in that balloon falls out, and all

that is left is a few shards of rubber - or terrifying memories. But here is a question. If so many

businesses fail - WHY do they fail?

After working in this field for the past ten years - a field littered with small business corpses - there is

only one factor that I find is absent in every single failure that I have seen. That same factor is present

in every single success that I have seen. In my simple mind, that makes it worth looking at. So what is

that factor?

I'm glad you asked. But you're not going to like the answer. Let me explain. As an entrepreneur, you

are my business hero. Every day you invest your life in your business - more hours going into the

business than going into any other aspect. And that time you invest magically creates money, which

supports your staff, the government, and your family.

Chances are that you're spending around 10 hours each day in the trenches. And chances are that the

rest of your thoughts are focused on trying to cope with cash flow challenges, staff goggas, design

issues and professional problems. You invest time in staying at the forefront of your chosen field. And

throughout this entire process, your family suffers because they don't see you much. But they know

that you're doing it for them.

And the harder you work, the harder it seems to get, doesn't it? No matter what you do, it always

seems as if there is a conspiracy to hold you down. You never seem to have quite enough money to

bail yourself out, clear the debts, and take a complete break. If it helps in any way - most of us

business owners feel like that most of the time!


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Take a break for a second and imagine this scenario. You're driving your car down the road when you

hear a weird noise coming from the front of the vehicle. Because you're in a hurry you don't stop.

Instead, while you're still driving, you open the bonnet and try and check out the engine. Of course,

the car wanders wildly across the road while you're trying to drive and peer into the engine

compartment. But, being pretty used to holding many balls in the air, you keep control [more or less].

You establish that the problem is with the front right tyre. So, while you're driving - because you're in ahurry [or have a deadline, or the month end looms, or the bank wants their money, or some other

urgent reason...] - you try and change the front tyre while the car is still moving! Sounds insane,

doesn't it? You'd never do something like that with your car, would you?

But that's what we're all doing with our businesses! Instead of stopping to check out the problem, or

at least stopping every 2 hours to take a break, we keep driving this business vehicle as fast as we can.

And real men don't need breaks, do they? [I use that term purely in its non-sexist form!]

And that's the distinguishing factor I mentioned earlier. The folk I see that are constantly under

pressure, or whose businesses close - are like those drivers who try and do everything themselves, and

simultaneously. As a result nothing ever quite gets finished, and they don't have enough time to eventhink about where they're going. They're simply too busy to see straight.

Here is a cold thought. If you have been in business for more than 2 years, and the business is still

struggling - then I bet if you look at where you're choosing to spend your time you will find that

99.99% of your time is spent on the job. I know it's going to sound insane - but I promise that if you

spend less time working on the job - and more time thinking about where you're going - you will

prosper. In fact, if you think through where you want to go - and look at what you're doing each day - I

bet you will find that most of your daily activity is actually conspiring against you getting where you

want to go!

Your business vehicle needs a driver. You're it! That means that you should get a mechanic to dealwith the problems - when they occur. Even if you know how to do everything - your job is to keep your

eyes on the road. And you can't do that while you're messing with the engine! I know mechanics are

expensive [accountants, attorneys, etc.] but don't discount the value of your own time. Time spent

messing in the engine, is time spent not driving - and the car is effectively at a standstill if you're not

driving. And mechanics - because they do nothing else - will always know more about engines than you

do. If you ask them the right questions, they will surprise you with some excellent answers.

The single factor that distinguishes the successes from the failures - the happy entrepreneurs from the

troubled business owners - is the amount of time they spend thinking about the business and the

future (as opposed to doing the technical stuff). The successful folk spend more and more time

dreaming about what they want to do, and putting in place the ideas and plans to get there. Theunsuccessful folk are too busy working to do that - and always will be too busy to be successful. Please

take some time out now to dream and plan.

Why Business Advisors are often WrongAn old executive was handing over the reins to a new, much younger MD. The youngster asked the

grizzled veteran for the secret of his business success.

Two words, my boy, two words.GOOD DECISIONS. Said the oldster. The new leader thought about

this for a while before commenting that this was all good and well, but how did one get to make such

good decisions? One word, my boy, one word. EXPERIENCE. said the departing boss. The newcomer

pondered over this Youre twenty five years older than me he said, How do I gain this experience?


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Two words, my boy, two words.BAD DECISIONS.

Most of us smaller businessmen have little formal business or financial training. Somehow or other,

weve gathered a few basic skills and we boldly leap forth where angels fear to tread.

Look at the average Joe setting up a business.

Hes either been retrenched or fired or retired early or he has resigned and now needs something to

do. So he gets an idea to make enough money to survive on.

He sets up his garage and starts producing somethinglets say bumper stickers.

Initially he has a little success and he just keeps plugging away until things begin to improve. Soon he

needs to expand. So he goes to chat to his bank manager to ask for advice.

About bankers they will never advise you to do something against their own interests. Your banker

will want to sell money to you at the lowest possible risk (and the highest possible interest rate). His

job prospects, his promotion and his career depend on him lending you money at a profit to the bank.

Effectively this means that his first concern is to see if you represent any form of risk. If you do, hes

not going to get his money backso hes not going to lend you money!

This has nothing to do with his bank! It has everything to do with him keeping his job!

The first major difficulty any small company faces is money. Or more specifically cash flow. The

balancing of cash coming in from clients, with the cash going out to suppliers. One comes close to the

end of the month and there are more days left than there are rands in the bank account.

Since we ourselves do not pretend to be financial experts, we turn to such people for advice. This

segment is to highlight some of the myths about the financial and professional advice we get.

Bankers

When a business needs money, the first place we usually go to is the bank. After all, that's where they

keep all the money. Most bank advertising focuses on how generous banks are when lending money to

assist you.

Yet most of us know very little about how banks really operate. And we know even less about the

subject of MONEY.

Money is pretty much the last taboo. We openly discuss our sexual challenges - the previous 'last'

taboo - but we never discuss money openly. Our income defines who we are as human beings in an

economic society - and divulging our incomes to anyone else tells them exactly our economic status.

That's why advertising works so well in persuading us to go into debt to buy material goods that reflect

a higher economic status than we really have.

In fact, most of us feel really guilty if we owe money to anybody. But your bank needs you to owe

them money in order for them to make a profit. Banks don't want you to pay their money back. They

regard your using their money as a successful sale! As long as you have their money you are paying

them interest. If you return their money, you don't pay interest. They don't like that because that

messes up their profits for the year.


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However, money is all about power. As long as you feel guilty, they have all that power. And as long as

you owe them money, chances are great that you will not fight with them too much when they mess

up -- which they seem to do rather often.

In this segment we will look at a few issues regarding approaching your banker for money. Please

understand that I am not trying to trash bankers. We small-business owners need them. But we alsoneed a far better understanding of what drives them and how they relate to us.

Bankers simply don't understand the challenges and issues that we small entrepreneurs face. We can

try to educate them but that is a hopeless task, Or we can simply learn to bypass the idiosyncrasies.

That's so much easier.

My first job was at a bank, and I spent my first few years qualifying as a CAIB[SA] - Certificated

Associate of the Institute of Bankers in South Africa - a qualification most revered by SA bankers.

Business Plans and Bankers

Almost every book that you read on small-business will focus on something that the author regards isabsolutely critical success of the business -- the business plan. I have no doubt that a solid business

plan is vital -- in the sense that it is prepared for YOU (the business owner) as a roadmap for the way

YOU want to go.

Yet most business plans are prepared in a hurry -- just to obtain financing. They are marvels of

guesswork, optimism and fiction. And when you present your business plan to your local bank

manager you're making the assumption that he understands financial statements. (At the risk of being

harsh, you're making the assumption that he can read! One of the reasons for the banks investing so

heavily in centralised intelligent software is so that they can operate branches with lesser skilled

personnel.)

When you place your carefully crafted work of entrepreneurial art on your bank manager's desk and

ask him to lend you money, does he analyse the documentation? 99% of the time the answer to that

question is -- absolutely not! In fact, at this time, your banker is interested in only one thing -- how

much you personally are worth.

Despite the fact that you are asking your bank to lend money to your business, in reality your banker is

lending money to YOU under the guise of your business. This allows him to charge you a ridiculous

interest-rate based on the fact that your business is a tad risky. (He doesn't have to work too hard to

achieve this because every business owner knows exactly how risky this entrepreneurial game is.)

When you read the next segment, however, you will understand quite how good bank managers are

persuading us to pay more interest on a loan that we should, even though their lending is more than

100% secured by the security that we offer.

The bottom line is that most business plans presented to banks are a complete waste of a Brazilian

rainforest, and shouldn't even be committed to paper. The best business plans that I have ever seen

are short -- usually just a couple of pages -- and represent the vision of the entrepreneur, rather than

trying to factor in every possible future detail.

We cannot predict the future. Why waste time trying? But a business plan that represents a goal or

direction that we should be moving in -- that sure has value.


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One other thing that is important to understand when talking to a bank manager, is that the bank

manager is not a bank. A bank manager is a human being with pretty much the same feelings that we

normal human beings have. We assume that a bank manager making decisions is doing so purely for

the good of his employer. We forget that a bank managers biggest fear -- just like ours -- is the loss of

income. Unlike us, however, the bank manager has just one client -- his employer, the bank. If the

bank manager makes too many mistakes, he loses his job, and his income.

While your idea might represent a wonderful "opportunity" for the bank, it probably represents huge

risk for the bank manager. He is more interested in protecting his wife and children, than in advancing

your prospects for infinite riches.

Bankers sell money

Imagine this scenario. You walk into your bank managers office because you need to borrow some

money to continue operating your business. You sit down and he says Do you have a home?

You say Yes, I do.

He asks, Whats your home worth?

You think about it a while and deduce that you can sell the house for R400,000, the bond is R200,000

which means that there is R200,000 worth of equity there.

So you say Its worth R200,000."

Does your bank manager then say to you Hold on a second, if your house is worth that kind of money,

why dont you just go and borrow the money from a building society, or from the bank that holds the

first mortgage on the property?

No, he doesnt.What he says is Thats reasonable well take a second covering bond on your home

and we can use that to back up an overdraft.

Hes not finished yet.

He says Do you have you any policies?

Yes. You reply.

What is the value of these policies? He asks.

"About a million rand." you respond.

No, not the life value what is the surrender value of those policiesthe cash value.

That is easy to ascertain. You just telephone your insurance company which could be Sanlam, Old

Mutual or Southern Life and you ask them what this value is and they will give you the cash value.

Does your bank manager suggest to you at this point that you might be better off by borrowing your

own money back from your insurance company?


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He does not do either of these because he is not a financial consultant. Your bank manager's job is to

sell as much money to you as he can, at the highest price he can, with the least risk possible.

And so, the bank manager presses on. Well, thats another R100,000 so now we have got R300,000

worth of security so we can probably lend you R100,000 on overdraft.

He then lends you the money on overdraft. At prime plus 8% because you run a very risky business.

Now, if you dont know what prime rate is, Prime is the base rate at which banks will lend to their very

best clients - typically these are stock exchange listed companies. Prime plus 8% - thats hugely

expensive.

Youre probably thinking Who pays Prime plus 8%????

Let me share a fascinating story. During the first year I presented the CrashProof seminar a young lady

(who had just been retrenched) attended. She received a retrenchment package of R120 000 and

decided to use this to start up a business.

She went to see her bank manager and explained her situation. He advised her not to risk her own

capital but rather to put it on deposit at his bank. She placed the money on fixed deposit at their

current credit interest rate of 10%. The bank manager then advanced her R100,000 -- of her own

money -- at prime plus 8% - which was about 25% at that time! She hadn't even thought about it until

she attended the seminar.

The Banking Miracle

In every bank managers office is a piece of furniture that bears a startling resemblance to a chair.

When you visit your bank manager looking to borrow money, your bank manager points to this piece

of furniture and says "Won't you bend over my barrel?"

You see, he knows that 9 out of 10 small-business owners wait until it's almost too late before they

look for the working capital that their business needs.

If you are one of the 10% who are ahead of this game, then you are under no pressure because you

will only be needing money at some future point -- not at the end of this month!

If, on the other hand, you DO need the money at the end of this month you certainly are going to bend

over the barrel. And if you have already written out the cheques, you are going to really bend over.

And if you have already posted those cheques, you are going to hug that barrel!

I will probably repeat this point often during this book. That's because it's worth repeating. Your bank

manager conducts between 10 and 20 negotiations about money every single day. You will typically

meet with a bank manager to borrow money once or twice each year. Honestly, who is going to be

better at this game?

I am glad we agree on that.

Now that you are fully extended over this barrel, your bank manager reaches into his desk drawer and

takes out a large Queen pineapple. He grasps it firmly on the green part, holding the large spiky orange

fruit aloft. He vaults over his desk and inserts the pineapple into a portion of your anatomy that

doesn't often see sunlight.


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It is called the banking miracle. It isn't a miracle that it is totally painless -- even though it seems that

way at first. And it isn't a miracle that you can still walk. The miracle is that you have just signed away

every single thing you own; every single thing you have acquired over your lifetime; and every penny

you will ever earn in the future -- in return for a small business overdraft. And the miracle is that you

feel so good about it!

Honestly, tell me that when you walked out of the banker's office you weren't relieved that you had

managed to buy another few months? You didn't feel great because you were such a fine negotiator?

(I might be going out on a limb on this one, but I was there as well -- signing every piece of paper I

could -- and feeling good about every one as well.)

Money is simple

Were programmed to fail financially. That doesnt stop us from slaving away every day to make

enough money to pay this months bills. The reality is harsh, however. Only one-person in every 100

will retire comfortably. Only 4 business start-ups in every 100 will survive the first 10 years. In fact, the

odds against us failing are as high as 160 to 1.

It starts from kindergarten. Were not taught about money in any course in our schooling system

from grade 0 to grade 12 nor are we taught about it at Varsity. Of course we can study Economics, or

Business Economics, but these are dry theoretical subjects that dont teach you about cash and how to

use it. [Apologies to our economist friends but are these people the soul of any party?]

As I write this it occurs to me that the only place that I ever learnt about cash [its history, its meaning,

its future] was when studying for a diploma in banking in 1979! And even then the course didnt offer

any assistance in budgeting for cash or investing for its growth. Why are the odds 160 to 1 against us

being personally financially successful?

Simple really we each spend more than 160 hours per month working to earn money but then

spend less than one hour per month looking after what weve already earned! Thats insane!

My personal recipe for doubling the chances of my personal financial success is extremely simple.

Spend more time looking after what I already have. After all, I can double my chances by spending just

one more hour per month [bringing the total up to 2 hours] and the lost hour is hardly going to impact

on my income earning capacity, is it?

One of the interesting things about being a business voyeur [often also known as a consultant] is that

you get to see all the stupid things other people do and relate them to all the stupid things you have

done! Why is it that we individual business owners believe that we can out-negotiate a banker when

we handle maybe 2 such negotiations each year, while the banker handles 2 before his tea- break on

any given day? And why is it that we, who know nothing about money, dont invest any time in

learning about it? How can we whine when we get screwed by those folk professing to look after our

money?

I never fail to be amazed by folk who abrogate their financial obligations to an insurance policy, sold to

them 40 years ago by a person whom they didnt trust, and which they havent analysed once since

they started the investment. Yet when they retire and the policy pays out just enough for a full meal at

MacDonalds they feel cheated. Why?

The measure of our success in business, as in most of life, is money. Its the scoring mechanism. Yet


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most of us know next to nothing about it. [Practical advice follows a little later, I hope.] Cash a word

derived from the Chinese is a fascinating subject. What other single thing carries such emotional

content. If you have no cash today, the month looms long and arduous, and this lack of cash is going to

influence the way you feel more than any other thing. But if your pockets are full and jingly, you feel

great and confident. Yet your full and jingly pockets might still be equal to someone elses poverty.

Money [or the lack thereof] is a factor in most suicides and divorces. When last did you see a rich,happy fellow end it all?

Maybe the problem is that the payment of this months bills is such an exciting activity? Not exciting in

the sense of a Springbok rugby test, but exciting in the sense of impending doom. [Actually, those are

very similar these days.]

So this task occupies our every waking moment and we simply dont think about the future. After all,

the future is still so far away. We get so engrossed in making our business efforts successful that we

forget about the life behind us. In effect, what most of us do [and what youve done if youve ever

signed a surety for an overdraft] is try to prosper our businesses, but we impoverish ourselves

personally in the process. Honestly, how can you be going forward if you sign away the family home toborrow R30,000 on overdraft?

If I cant understand how a particular investment works I say "No". No matter how attractive it looks.

My goal is simple. I want my savings to beat inflation by 5%. Boring really. But if I can manage to do

that I will have enough to survive until the age of 90. [Which seems to be better than most folk are

planning.]

Then focus on this issue of money - as opposed to the technicalities of business - for at least 2 hours

each month. How did the savings do this month? Whats changed in the financial firmament tax,

interest rates, exchange rates? How is the rand doing against other currencies?

Lastly, stick to the plan! Dont use the money for anything else. Hide it away where I can see it and

control it but not spend it. This article was inspired by the woman of my dreams asking me to explain

how she could have enough to retire on. So I created a tiny spreadsheet that calculated the effect of a

monthly amount saved, combined with a few assumptions on savings rates, tax rates, inflation rates,

and the monthly amount she wanted to draw when retired. Very sobering, but also very heartening.

Almost everyone I speak to says that they leave this stuff to their broker or financial advisor. Thats

really a bad thing to do. There are a few things in life you have to do yourself money is one of them.

Which brings me to something else of interest. 99% of us choose our financial advisor based on his/her

personality not on his/her financial performance! 75% of us never get a second opinion on any

investment decision. Is it any wonder we end up old and screwed.

Accountants

Your accountant spent almost his entire university career studying accounting for large businesses.

(Stock exchange listed companies, for example.) Since this is his entire knowledge base, he is going to

use the same skills and techniques on your small business with disastrous results.

He believes that your personal business is simply a smaller version of a public company. It isnt. If a

public company is like a pantechnicon, then your personal business is like a bicycle. It needs a

completely different approach.


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The techniques and advice for large businesses are completely opposite to that applicable to small

businesses like ours. Your accountant assumes that you have the same unlimited access to funding

that a listed company has. The financial ideas that allow a listed company to shave a few percentage

points off the costs and on to the bottom line make a lot of sense when the directors do not have to

sign personal sureties. But they are worse than useless when the true cost of that additional profit

consists of all the personal assets of each director of the firm!

Your accountant is usually focused on growing your business - but your focus should be on growing

you. Your goal is to make yourself wealthy, not to make your firm rich. (While the two concepts

should go hand in hand, they often dont.) Your accountant is usually employed by your firm not by

you personally. The easiest way for him to measure how successful he is, is based on the amount of

tax he can save for your firm. But that tax saving is usually at the cost of all your personal assets.

Many accountants simply dont realise that most of us small business owners do not want to

eventually list our companies. We simply want to enjoy a solid income combined with a reasonably

secure future.

Why are you in business?Whats the point of getting up in the morning, working for yourself and slogging your heart out for 18

hours each day, 7 days a week?

Is it to make your firm rich? No! Youre working for yourself to make yourself rich. Well, at least thats

the general idea!!

But your accountant hasn't been taught this. Almost all of his extensive education has been focused on

doing the numbers for large JSE listed firms. [In fact, he probably dreams of having large clients like

this because they pay well and on time.

Both his formal education and his articles have been done with large firms. So he has a clear focus on

what to do for such organizations, and how to protect shareholder values. And that's where the real

challenge comes in.

You see, if you are a large listed firm you have unlimited access to money - either by issuing more

shares, or by borrowing from banks. So you get to play with money to make your financial statements

look good. And it makes sense to finance assets or working capital because these funds are so easily

accessible.

Do you, as a small business owner, have such easy access to funds? Chances are that you don't. So

when your accountant advises that it is better to finance something, he is not thinking the process

through clearly from the perspective of a small business owner.

In order to finance anything, as a small business owner, you will be asked to sign a surety. That surety

will transfer every single asset that you have acquired in your lifetime thus far, as well as everything

that you will acquire in future, to your bankers - in exchange for them lending you some money.

Doesn't that seem as if you are going backwards?

It does, doesn't it? That's because you are!

I am going to show you how your accountant actively conspires against you personally getting rich.Don't shoot me if you are an accountant, please. This is simply my experience since 1992.


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Your accountant works for your firm - not you. In fact, there is a case to be made that your accountant

actually works for the government, and is merely paid by you. His job is to ensure that your firm does

not offend any laws - and he is obliged to report anything suspicious to them - or risk losing his licence

to practice. With that looming over his head, what are the chances, do you honestly think, that he is

going to give you much slack?

When we think of making money we tend to have 2 broad concerns. The first is to cover this months

bills. We usually have a pretty good idea of how much money we need to achieve this. And because a

month end is usually urgent, this is our overwhelming focus when it comes to making our money. But

this isn't the most important reason most of us are in business.

Most of us believe that our current business efforts will secure our future. We have a vague

unquantified goal of retiring at some future time. We expect to be able to sell our business at that

time and live off the proceeds for the rest of our lives.

This number is much more vague - for lots of reasons.

Firstly, most of us have no real idea of how much money we will need at retirement. We don't really

understand how inflation is going to affect the numbers, but we live in hope that we will have enough

at the time.

So most of us put our hearts and souls into building this business - and being encouraged by our

professional advisors to sign our lives away to finance the growth.

It's only once you have seen a 60 year old couple lose their business - just prior to their retirement -

and lose everything else in the process - their home and cars and life savings - that you realise how

important it is to re-look at this process.

I have counselled 5 couples in this situation over the past decade, and it is the most soul destroying

place to be. What do you do when you have no future, and you have no time to recover a future?

Advice geared on tax efficiency

Let me illustrate how easy we can get lost by looking at the way we structure a very simple deal. I want

you to imagine that you are about to purchase a motor car for your business. The motor car costs R200

000 so it is either a very small BMW or a large Golf! You approach your accountant and ask him to

advise you how you should structure this deal.

Your accountant will advise you according to what he is trying to achieve in advising. The answer tothat is simply this: he is trying to save you tax or he is trying to make the deal as cost efficient as

possible. He could also be trying to structure it so that it doesn't damage your business cash flow. He

will

CrashProof 2007 Abridged

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