By: Johan Van Zyl
In this short video Johan van Zyl, Chairman and Partner in South Africa, discusses 'What is the right level of diversification away from your business?' and the important factors you should consider.
There is no right answer, but doing nothing is also not
a good option. The first factor to consider is the size of
the business and What proportion of your total wealth that
represents? Clearly when one is starting out
in business, this is less of an issue, but as the
business grows and represents a higher proportion of
your wealth and becomes more, valuable the
risk of losing everything is
Second, the next factor to consider is the risk versus the
reward of reinvesting in your business. Can
one generates a higher return outside the business
possibly, when your business faces, maturity
growth starts laying the
sector's mature. The competition increases, you
may be able to generate a better return outside your business.
The next factor to consider would be the geography
in which your business operates, while it may be
possible to diversify from within.
Business into other countries into other sectors,
you are still within one legal
entity. The next factor to consider would
be around succession planning as an entrepreneur. Reaches,
retirement age, one has to consider the leadership
of the business. Is there someone from within the family that
can take over the reins? If not one
should look at bringing in an outside CEO or possibly diversifying,
even further away from the business.
The best way to diversify would be following a
disciplined approach, considering how much to reinvest into
the business and any surplus cash being
paid out by way of a dividend. We find, it's
best to do this on an annual basis and reinvesting
that money into an Investment Portfolio. And
that wealth will grow significantly over time
as it compounds another way to diversify would
be looking at the gearing within the business owner-managed
businesses. Typically.
Very low levels of Goering. So it may be possible to
approach some banks for some debt financing, which
could still be at relatively conservative levels. This
would allow one to take further Capital out the business by
way of a special dividends owning a business is
often a very emotional affair at Sonic Fleming.
We work very closely with our families to ask
some of these difficult questions and to encourage them
to diversify away from the business over time in
order to reduce the risk.
Ask for the family.