Life In Transit Part 1: THE SHOCKING TRUTH
Updated: Nov 17, 2019
We all know of someone who started a bus company, owns a bus company, or used to own a bus company. This is mainly because Africa's logistics sector holds so much potential and presents a significant opportunity for anyone willing to build his or her business in the industry. With a growing population of over 1 billion, the continent has a legion of people and goods that are on daily transits. Millions of commuters travel every day across the continent and require transportation. The potential of the transport industry to a well-organised entrepreneur can be limitless. Moreover, we have all seen family wealth spring up successfully from the transport industry.
You may also be wondering why so many of these businesses fail and never surpass the 1st generation (founder) successfully. Why does it all lose its wheels and fall apart? Most people are quick to blame the bad roads and the lack of administrative and infrastructural support from the necessary authorities in the industry itself. These arguments all hold water. However, when we look deeper into the problem, we realise that it is other internal factors specific to the businesses that contribute significantly to its failure.
Meet, Mr. Mbanje, a bus owner. He started this business from the humble beginnings of just one small kombi, also known as a minibus, which he used to drive himself. He built up his business gradually by adding more minibuses to his first one and eventually selling his small fleet of minibuses and buying a bigger bus. What motivated Mr. Mbanje to buy the first minibus was that he wanted to create a platform for his family to be more financially secure. He was tired of struggling to put a meal on the table. When he first started his business, his wife was a teacher based in the rural areas, and she had to commute every weekend to see her family. He made the route to and from his wife's workplace his minibus route, so that he could keep his family together. Mr. Mbanje had been employed as a supervisor at a prominent manufacturer, but, he had quit his job because he was not able to sufficiently pay all his bills in the struggling economy. So, he used his payout from work to contribute towards buying this first minibus. Driving and managing the minibus became his whole life.
Mr. Mbanje is married in community of property, bound by Marriage Act [Chapter 5:11]. From this marriage, Mr. Mbanje has three sons and two daughters. When Mr. Mbanje left his formal job, the family had to rent three small rooms in a high-density suburb as a sub-let. It was a tough decision, but all monies were now focused on and directed towards building their business. Many sacrifices are made during the set-up of the business, and as with any boot-strapped business, losses are experienced, and monies are borrowed from numerous sources and well-wishers.
During this time of setting up, most businesses overlook the future forecasts and focus on the present. As a result of this approach a few decisions made in the beginning of operations, without professional guidance may affect the family in the future. One such choice made by Mr. Mbanje is, when he registers "his" business, he calls it "Mbanje and sons," to the exclusion of his daughters. Mr. Mbanje also puts his older brother as a co-director of the company, because he does not believe that his wife should have shares in the company he is building. However, his wife makes a notable contribution. 50% of the start-up capital Mr. Mbanje uses to set up his business, comes from his wife's personal savings as a "loan." He utilises this money to buy his first minibus. The verbal agreement is that "they are doing this for their family", and once they make more money, his wife will get back her funds. However, as better times come around, all this is forgotten, and everyone embraces the financial gains of the business.
This may seem like a normal situation, and nothing seems amiss. However, This situation is a very difficult one if not regulated or looked into by professional advisors. Firstly, ownership of a business can be a blurry and relationship-ruining experience because it erodes trust if no contracts or visible outlines are agreed upon. When most businesses are started and incorporated, relatives and friends are put on legal paperwork as directors, trustees, and shareholders. So in some cases, loans are not documented. This may initially be seen as assisting each other, but when wealth is amassed, some of these situations become sensitive. For example, the loan may be obtained from a family member or a friend who then requires repayment plus interest or requests a loan from the business owner that is significantly larger than the amount initially given to the business owner. Also, in cases of placing "placeholder" directors and trustees, these individuals may require excessive remuneration from the business.
In some cases, you have people refusing to give up their shareholding or demanding compensation for their contribution ( this may only be the contribution of having their names on company documents). This goes without overlooking that, all legally operating entities have their own tax implications that may apply when you want to change status. When starting a business, no matter how small, try to think into the future no matter how near or far that future may seem. Consider all options. Moreover, wherever possible, have formal contracts written out and ensure you honor these contracts. A loan, whether between spouses or siblings, is an exchange of funds. If at a later date you decide to expand operations and you need a loan from the bank, and your "creditor" decides to lay claim on your debt, this may be off-putting for a potential investor.
Also, in terms of estate planning, company shareholding can heavily influence the running of your company if you no longer have the ability to manage it. Your will or estate planning documents should state clearly who should receive your shares and what is to be done with your company equity. You must also consult with legal advisors about the status of your estate and how it influences your company. In the legal sphere, you and your company are not an extension of each other. You need to understand the implications of limited liability so that your loved ones continue to benefit financially from the company. Moreover, it is necessary to know what will happen in the case that you cannot sign for financial or operational matters. Your business should be able to operate whether you are there or not.