Getting into business with friends or family maybe unavoidable and even uncomfortable but it will require some serious planning to protect your investment and reputation. Initial capital contributions should be put periodically into an investment account (a statement generating saving account in any convenient bank branch) for recording purposes, out of which comes amounts invested in public and private debt instruments (bonds, notes, bills and loans), public and private equities (shares in business) and remaining with an amount representing cash 10-20% of the total portfolio (amount contributed).Ideal Structure: 40-45% invested in debt, 40-45% invested in equity and cash reserves of 10-20%. Within the debt section of the portfolio, subdivisions are represented by time (the life of the instrument) by quality (the rating of the instrument) the longest and highest rated instrument get the biggest percentage. Within the equity section of the portfolio, subdivisions are represented by influence (the authority to access management reports, set policy and make decisions), the instrument in which there is the greatest control gets the biggest percentage. The Cash Reserves increases as new contributions are made or interest and dividend income is paid, allowing for new debt and equity investments to be made to maintain the percentages.
The security and exchange commission, along with other regulatory bodies, are charged with the responsibility of protecting investors in publicly offered debt or equity instruments. Private debt or equity (loans to or helping out friends and family) instruments are not given the same treatment. Private debt investment; many experienced business people take the position never to lend money, give it away (which is call charity) or pay for some inconsequential service. Private equity investment; takes a very serious business approach sustained by legal documentation as required.
Private equity investment; a builder bidding and winning ‘supply and construct’ contracts or a farmer preparing lands for crops or building pens for animals, both have invested time and effort into their respective business but with no tangible assets to mention, cannot raise debt funding. The sale of 10-20% of their business, via cash, asset transfers or loan guarantee, at fair value can give them the necessary collateral to access loans and other funding programs. The decision to invest is primarily based on a feasible business plan but ultimately rests with an analysis of the key person to execute the plan.
The builder is a builder, the farmer is a farmer, and hence the support systems must be provided. CONTROL, a comprehensive management system by T.A. Jennings & Associates Company Limited, or any other system that can easily produce up-to-the minute management reports, automatic price changes when any input cost changes, automatically calculate and print pay slips, manage shareholders records and much more, must accompany the initial investments and guide all further decisions.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
