Funding (part 6)

Hello, hello! I had a long and tiring week hence I am suffering from red eyes and lack of sleep, but nevertheless:

WELCOME to yet another exciting part of Funding Saga. This is a time it is all about Partnerships and Bartering. One is straightforward the other is not. Or at least not to me… sooooooo

Partnerships

Regardless of whether you are a genius of thought or you are a ‘doer’, you will find that along the way you will need supporters. The people who are not only doing what you are setting them to do but also support you along the way with an idea, action and thought. If you remember any of the previous articles, where I talked about ups and downs of Friends & Family, or Donations, or Investors, you would know by now that getting people on board caries its benefits and risks.

This time we can cover partnerships.

let me give you an advice: DO NOT FORM A PARTNERSHIP JUST FOR THE SAKE OF IT. (talking from experience)

If you have been seduced into the idea of partnership make sure that you have the right person next to you. Imagine that you are starting a new company. You made the entire area know who you are and what you do. You have used your logo and your branding on all supplementary materials and are now willing to kick-start full-scope service delivery. You are under strain and pressure and running out of time and mental capacity to meet deadlines and in need of help. You relied on your partner to pick up the pieces on the way but he/she is not doing anything else and just expecting you to be the lead and the exec.  You won’t be able to pull out at that stage because you know that it will kill your entire business and your early brand. You will be forced to carry out the work on behalf of 2 people and he/she will still get his/her share of net income in the end, even doing **ck all.

 

Pros / Advantages :

  • Depending on the taxation system of your county it might become tax-beneficial to form a partnership. Under the partnership, you can use your combined tax-free personal income allowance to minimise the tax liability (***subject to National Tax Law + income level)
  • Two-Head giant. Your partner might have skills and qualities you are lacking and you are supposed to support each other on the way. Having two heads is better than one! More thinking! (but also more arguments!) Also, you have always a trusted extra pair of hands, which is able to undertake the duties of day-to-day management of the company.

 

Cons / Disadvantages:

  • “Hello, I am Mr Mule!” Your partner might be super active and committed at the start but once the real work will start he/she will turn very lazy and you will end up doing all the necessary work yourself. Imagine the two of you have co-started the company and co-founded it with £10000 each, then the business is requiring to move into the next phase and you are the only one doing the entire work. You are meeting third parties, making connections, looking for funding, seeking clients and delivering the service. Your partner does not do a thing even when you ask him/her nicely and always complain that they are too busy or too “can’t be bothered”. You might literally drag him like a mule on the lead to have something done.
  • Consequences of the decision taken by one will affect the other. In the ideal world, you would have the mutual agreement not to make any decisions by yourself and the policy of your partnership structure will outline the roles and responsibilities of both. But some opportunistic people might step over the policy and take an advantage of your time off on holiday or busy with other stuff and decide to commit to a bad deal or an expensive contract.
  • If the matter will go to court – both partners are 100% liable for loss or damage or whatever the claim might be for. Bear in mind that you will need good lawyers if you would want to argue that it was not yours, but your partner’s decision, etc. Good lawyers – expensive lawyers.

 

Bartering

This is the less straightforward half of today’s publication. Funding through Bartering is complex and ancient. Before any form of formal currency introduced our ancestors #ancestors have engaged in all kinds of trade agreements. Most of the trade was based on the principle of supply and demand where one party was able to provide a product to another party in return to the product which another party was able to provide to the first one.

The simplest example of a bartering deal in our modern day and age will be:

You need an electrician to check your wiring over and he quotes you for £300, you say that instead of the British Pound Sterling you will offer him 2 whole lambs for Christmas (worth £150 each). If he agrees then you barter his service for your goods with no cash involved.

 

I personally think that currency is trying to add all goods some value. Those who know the history would not be surprised that back in the day when Gold was not known as a high-value commodity, gold nuggets were used to pay for daily needs of local folks, like livestock, food, clothes and resources. So we are talking about 10g gold nugget paying for 10 chicken eggs. So the currency has added value to each product and service type in the world and attempts to equalise “the gain to the loss” to avoid some high value goods being swapped for quarter-of-the-value goods just because this is the only thing one party has to offer to another, suffering high need in these goods in the first place.

 

Pros / Advantages:

  • No interest rate, no repayment, no liability. Most of the time bartering would be carried out on mutual grounds of “I can give you this for that” and both would stay happy. Quick, simple, little or no admin work involved
  • Virtually anything can go under such a scheme. E.G. “Hello mate, I have £15m Hotel in Italy which I want to swap for your £14m Villa in Romania, agreed?” (absurd, it is – but anything is possible)
  • Subject to you Charisma, Trading Skills and Luck you might strongly benefit through bartering when you gain back more in value then you give. You might talk someone into carrying out the work for you and paying for it with a ‘token payment’ saving a lot of money and time searching for a formal contractor.

 

Cons / Disadvantages: (I did spend some time thinking)

  • One might want to rely on the honesty of another party in quoting the right price for the goods/service offered but one might not know the real value of something in their hands and the other party may take advantage of you. For instance, you might swap old grandad chair for a fancy £15 plastic lamp, not knowing that this chair might be auctioned for £5000 because of its age and its rarity.
  • Unless you trust the other party, you might get duped and not get your promised stuff. You might carry out the decorating work for your neighbours but only get a 4-pack of beers in the end and end up loosing-out on time spent and money wasted on buying the materials.
  • Bartering is still considered a form of revenue and has to be disclosed just as if one would carry out a currency-transaction. Meaning that fair market value estimation done on the goods traded might end up higher than the value of the transaction itself and the taxable rate will be higher than the benefit received from the transaction itself.
  • Subject to your National Law on Trade there will be different rules applied to different types of bartering agreement executed. Hence why doing it on large scale purchases will involve the same amount of administrative work and liabilities.

 

I hope that was helful. Lets see what we have done so far?

  1. Bootstrapping + Friends & Family
  2. Commercial Loans + Commercial Mortgages
  3. Equity Financing + Government Funding Scheme
  4. Credit Cards + Donations
  5. Crowdfunding + Investors
  6. Partnerships + Bartering (the stuff you just read)

Part 7 is on it’s way to you!

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