Monday, 14 March 2016

RULE 87: Don’t Surrender Equity


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Ogun State Governor, Senator Ibikunle Amosun with City People Magazine Publisher, Dr. Seye Kehinde

This is a Rule for anybody who runs a company, or who is a freelance and is thinking of setting themselves up as a sole trader business. Essentially the point is not to give away bits of you or your company.
The aim of the exercise is to preserve wealth so don’t surrender equity (shares or a stake in your company) or you’ll be paying someone a share of your hard work, time and energy. Better to give them money, even if it is with interest, rather than a share of you.

In a later Rule on spending your money I’ll tell you to ask for equity, but that’s different - that’s you as a lender of money. The shoe is on the other bank account then, so different rules apply. There is a misconception that having total control of one’s business is a bad thing and many business advisers will advocate giving away equity as a good thing.

 “But I have noticed that the really successful wealthy don’t do this. They hang on to every bit they’ve got. They may borrow and take out loans and run up overdrafts but they don’t give away equity”.

But I have noticed that the really successful wealthy don’t do this. They hang on to every bit they’ve got. They may borrow and take out loans and run up overdrafts but they don’t give away equity.         .
Advisers will suggest steering clear of a bank loan because the bank can close down your business so quickly. A business angel will lend money instead, but they will demand equity.
If you do have to surrender equity then make sure you swap it for:
• Business skills and acumen
• Hands-on directorships
• A freedom-from-hassle agreement so you can run the business the way you want
• A realistic percentage so you don’t give away too much
• A buy-back clause so you can buy back the equity for cash at a later stage when you are cash rich.
I run a company and have some shareholders but the shares they hold don’t give them voting rights. So, although they do get some equity, they don’t get control, and in fact the shares were given as a reward for advice rather than money I borrowed. 
Only take money into your business from people who have experience of your business and understand its ebbs and flows and industry-related problems and remember, never give voting shares away to anyone. 

From The Book; The Rules of Wealth by Richard Templar
(Read Rule 88 of Rule of Wealth tomorrow on Asabeafrika)



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