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Was it debt or equity?

It’s unlikely there would be disagreement about this one, right? If a friend or family member has advanced cash to help your business through expansion or a cash flow glitch, it’s either debt or equity. It will always be obvious which, right?

Well not necessarily.

Here is a scenario that rears its head regularly – particularly in entrepreneurial ventures:

Your venture is in its early stages, and needs cash. You have exhausted your own resources – and the business is not yet an attractive proposition to the bank. Enter what many people call the “Three F’s” – friends, family and fools.

Your Auntie Margaret wants to help you out – and she generously agreed to advance $50,000 to your business. You graciously accept, bank Auntie Margaret’s cheque – and proceed down the rocky road to success.

Time goes on, and a few years later your venture may have been wildly successful – or otherwise.

Here’s what can happen next:

Just after you have successfully sold your business to a large competitor for several million dollars, you get the call from Auntie Margaret saying “Remember back when I invested in half your business? Well when do you think I can expect my share of the sales proceeds?”

Or in an alternative reality …

Just after you have closed the doors and liquidated the company after losing everything and grudgingly accepting that the venture was misguided or “ahead of its time”, you get this call from Auntie Margaret: “Remember back when I lent YOU $50,000?  Well it’s gathered quite a bit of interest now – and maybe it’s time you started making me some monthly repayments.”

Either way, there has probably been a serious misunderstanding of the nature of the investment.

Friends and family are a major source of business finance – in fact US Angel Investor Bill Payne reports that in the USA, friends and family of business owners invest around US$60 billion per annum into businesses.

It is likely that a proportionate amount is invested into ventures by friends and family of business owners in New Zealand. And a characteristic of these advances is that they’re often not documented – and often the terms are not even agreed verbally, much less committed to paper.

So my message is this:

Make sure any investment by friends, families or fools is clearly documented – and that all parties are very clear about whether the investment is a debt or equity, as well as the terms of the investment.  Is the investment a personal loan from Auntie Margaret to you personally – or is she lending money to the business?  Does she expect her investment back if the business fails?  Is there any interest payable?  When does Auntie Margaret expect to see her money back?  Has she invested in shares in the company which will see her rewarded if the business is succesful – but will see her walk away with nothing if it fails?

A one page signed agreement is often all you need to save a lot of anguish later.

Robinson Asphalts

Robinson Asphalts have been a feature of the Northland contracting industry for a long time. This is a genuine family business, with Peter and Joan Robinson establishing the business in 1972, holding the reins for 20 years and then passing the baton in 1992 by selling to the next generation – current owners, Alan and Annie Johnston.

The truth of many family businesses is that the generations following the founders often lack the fire and drive necessary to stay ahead of the pack. Sure, they may survive – but often only on the strength of the legacy left behind by the founding generation.

But that scenario couldn’t be further from the truth for Alan and Annie Johnston at Robinson Asphalts.

Contracting is a tough industry. The overheads are high with the skilled team, vehicles and specialised equipment necessary to do the job – and the tendering process is highly competitive with big players pricing projects to the bone just to keep the business working through lean times.

So what’s the secret to Robinson Asphalt’s continued success through thick and thin?

We reckon it’s all about Alan and Annie staying true to their values. We have all seen company “Value Statements” full of nice words – but in the case of this business, the team lives and breathes their values. What the Robinson Asphalts values boil down to are these:

• Always seeking continuous improvement. One only needs to spend an hour with Alan, Annie, or their key team members to see that four decades on, these guys still truly care about striving for incremental improvement their business. Their success at the Northland Business Excellence Awards in 1999 and again in 2009 confirms this.

• Being positive, loyal and considerate business citizens. You don’t have to look that hard to see the Robinson Asphalt’s brand out in the community – for example as major sponsors of the annual Allen’s Kid’s Triathlon and Northland Rugby.

• Ensuring there is a culture of employee involvement. A great business cannot be built by the owners in isolation from their team – and a big part of Robinson Asphalt’s success is down to the team buying into Alan and Annie’s vision for their business. Responsibility is delegated throughout the team.

• Demonstrating customer focused service. It wouldn’t be possible to survive long in this industry without being focussed on delighting the customer. But a visit to the Robinson Asphalt premises soon shows that this team is dedicated to meeting the needs of its customers.

In the case of Robinson Asphalts, their values statement truly is the cornerstone of their modus operandi – and it shows.  And we believe that for Alan, Annie and the team this is the difference between mediocrity and success.

Check out Robinson Asphalts online here >>>

Northland Business Angels

Respect to Calvin Green for pulling together the “Northern Business Angels”, which kicked off last night with a presentation from the granddaddy of American Angel Investor’s – Bill Payne.  There are 16 Angel groups around New Zealand – and now Northland has its own, which has got to be good news for local entrepreneurs with scalable innovations that can’t yet get the financial backing of a bank.

Click here for more info

Schnappa Rock

Schnappa Rock Bar and Restaurant is a Tutukaka Coast icon – up there with Dive Tutukaka’s blue and yellow boats, the Pacific Rendezvous motel up on the hill – and Sandy Bay’s Polar Bear Surf Competition.

Nick Keene and Esther Eves have been at the helm for the past four years.  But it’s not easy operating a successful hospitality business in a place like Tutukaka.  The crowds are seasonal with fishing, diving, surfing and holidays bringing the numbers on-season – and the much smaller local community forming the mainstay through the rest of the year.

If the tourist season lasted a full 12 months, anyone could do this, right?  But the challenge is wearing two different hats; giving the visitor population what they want – and also keeping the local community coming back regularly.  This creates a balancing act, as these are two very different markets with different requirements.

So what is the secret to Nick and Esther’s success?  Well we reckon it boils down to this:  they are obsessive about three things.  One, their role as great hosts.  Two, their team.  And three, their part in the local community.

The obsession with hospitality is obvious from the moment you walk into Schnappa Rock.  Nick will probably greet you himself and show you to the bar or to a table.  And if Nick isn’t there, the crew is impeccably trained and one of them will be right there doing the job with just as much style as Nick.  Nick leads from the front as a host – and he makes sure his relaxed and genuine style permeates through the whole operation.

Nick, Esther and Schnappa Rock are also very much a part of the local community.  If there is an event happening locally, Schnappa Rock will be part of the action whether it’s a fundraiser for the local Ngunguru School – or sponsorship of the Polar Bear Surf Competition.

Margins are tight and fixed costs are high in businesses such as these – so keeping a sharp eye on the numbers is essential.  Nick and Esther take a very close interest in the key numbers in their business – but not at the expense of a quality experience for their guests.

We believe that in a business that operates in a seasonal location and which is forced to satisfy two very different target markets, getting the basics absolutely right is even more critical than usua

Nick and Esther enjoy the visitor trade when it’s there – but they also maintain their strong local following by never compromising on their role as being great hosts, keeping the whole team at the top of their game – and being a big part of the local community.

You can check Schnappa Rock out online at www.schnapparock.co.nz