Monday, August 22, 2022

Too many local companies function like this.

 There are a lot of people who are in business under the guise of entrepreneurship but don't really understand why they have set up their entity the way they did. What do I mean? Let's take a closer look. 

  • Many register business names due to the following reasons. It is cheap and easy. They don't have a plan for how their entity should be set up to protect them. 
  • Many do unlimited/general partnerships. They want to get into business and figure this is the best way to do it. They know precious little about the exposure they're inviting into their lives. Again there is no plan. 
  • Those who incorporate sound more when asked like the popular saying "the devil made me do it". The attorney/accountant says that they should incorporate and give them some overview as to why this is necessary, but there's no strategy. This is clearly reinforced when a deeper dive into the company is taken. 
In all instances, there is insufficient planning and not a comprehensive understanding of why they did it. The sentiments are more emotional than strategically sound and practical. 

Here are some findings based on observations: 
  • The investment in setting up the businesses in whatever form is ill recorded. Therefore equity is always questioned/questionable. 
  • There is scanty knowledge of the statutory requirements and how the use of the various business formats can benefit/disadvantage the business person.
  • Business owners use incorrect terms for identifying elements of their business. For E.g. they speak of partners in an incorporated set-up. 
  • There is often no tax planning. The entire aspect of taxation is reactive rather than proactive. 
  • Incentives for establishing certain formats for business are little understood. This is clearly apparent when they seek financing and begin to realize the limitations they encounter. 
  • Businesses mainly embark on planning when there's a crisis as opposed to being proactive. 
  • Business owners can put their funds into the business but are uncertain how to get them back out to facilitate additional investments. 
  • They are unclear of/have no understanding nor knowledge of capital gains. 
  • They don't understand the use or benefits of using various types of shares. 
Given the number of people who have studied business, isn't it time we become more sophisticated in our approaches to the business establishment? We need to stop taking the easy way out. Implement systems that can save and in some instances earn business owners and investors money. 

There's so much more than can be told. However, it's best to get consultations that are best suited to you. In a climate of growing expenses, isn't it time that we grow our wealth of information and prosperity? I think so. Please stay tuned. 

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