Thai company set up under 49/51 foreign/Thai split

He set up a company to administer the restaurant with paid-up capital of 20 million Thai baht (611,000 US dollars), which seemed more than enough for an initial investment and working capital. Because of the Thai regulations on foreign business ownership, he paid 49% under his own name and positioned his wife, Yingluck, as a 51% Thai nominee. All correct legal processes were apparently followed.

Thai wife manages chain as hubby hits the links

The day-to-day business of the outlet was managed by Yingluck while Kobayashi played golf on most days. The restaurant became very popular and expanded into several branches, all funded by the re-investment of profits.

Business, marital divorce leave proud investor with zero

Kobayashi was now very proud of his investment and celebrated by playing even more golf. This displeased Yingluck as he was not pulling his weight with any work on behalf of the restaurants. Disappointed with Kobayashi’s laziness, Yingluck sought a divorce, aided by her lawyer, Somchai. Somchai insisted that, in line with the registered shareholdings, 51% of the business should go to Yingluck, and 49% to Kobayashi. Of course, he was unhappy as Thai law supported Yingluck.

No one helps once-happy restauranteur get any return

Now he is left wondering when and how he can sell his 49% shareholding to someone willing to buy. Since the divorce, no one has come forward to buy his shares. No dividends have been paid to him. Rather large bonuses have been paid to directors, but he is now not a director. Meanwhile, the restaurant chain has gone from strength to strength in profitability and size. It turns out Kobayashi’s investment risk, inaction, the legal framework in which he was operating, and the lack of a path to sell his shares will leave him waiting for his return on the investment forever. To rub soy sauce in his wounds, his heirs might even be levied an inheritance tax on his holdings.

Andrew’s takeaways – Avoid these errors to become a better investor

Don’t start a business that’s illegal from the start

Many countries, including Thailand where this story occurred, have limits on the foreign ownership of companies. You may find it very common for foreign investors to set up structures suggested by lawyers to overcome these laws. But no matter how safe they may feel; the reality is that most of these structures go against the intent of the law. Of course, many people operate these kinds of businesses for decades with no problem. But if things go wrong, such structures can fall apart. In this situation, the structure was legally snatched away from this golf-hungry Japanese investor.

Nobody’s going to make money for you forever

You may find yourself in a situation where you are investing with someone who is doing a great job with your money. When faced with such a situation most people stop monitoring that investment. And eventually, things go wrong. In the above story, the investor felt comfortable and confident that his business partner (his wife) would be looking out for his interests, but eventually, things turned sour.

Be careful about doing business in a country you don’t know

It may seem exciting, and the opportunity may seem great, but doing business in a foreign country can be disastrous. Without deep knowledge of the language and the culture, things could be happening around you that you don’t even understand. It doesn’t mean it’s impossible to be successful, I have had my share of success in Thailand, but it means the trust between business partners is even more critical. Trust is probably the most important thing needed to be successful in a foreign country. Make sure to surround yourself with people you trust.

It rarely makes sense to go into business with your wife

It’s not impossible, and I’ve heard of success stories, but success in business with your spouse brings a whole new level of pressures and stresses on your relationship. The emotional roller coaster of business can be amplified by the personal emotions experienced by both of you. My advice? Enjoy your time in business and enjoy separate time with your spouse.

Our CoffeeWORKS story

How we made a partnership of friends work

Against all odds my best friend Dale and myself together built CoffeeWORKS. We are proof that doing business with friends can sometimes work. Three things helped us stay together: that we were in a foreign country so we really had to rely on each other, that from the beginning we said we would put our friendship above money, and finally that we agreed to place “principles before personalities”. This last point meant that if we were in a discussion about the strategy for the company that we agreed it was not all about one of our opinions winning. We both accepted the fact that we would be better off in the long run if we were able to compromise rather than try to “win” in a discussion. Over the years, our staff has witnessed our heated debates, but they always heard us say that we place “principles before personalities”, and therefore they saw us stop and come to a final agreement each time.

Mistakes in this story

1. Failed to initially research

• Inadequately researched type of investment
• Lacked knowledge of regulations

2. Failed to properly assess and manage risk

• Failed to diversify
• Bought an illiquid investment
• Lacked influence over management

5. Failed to monitor their investment

• Abdicated responsibility for their financial future

6. Invested in a start-up company

• Invested in a start-up that lacked a clear leader
• Invested in a start-up that lacked various sources of funds
• Invested in a start-up that lacked a clear business plan
• Invested in a start-up that lacked adequate financial controls

The post Silent Restaurant Partner Finds His Voice Too Late After Too Much Golf appeared first on My Worst Investment Ever.

Too many carrots in one basket

Fortunately, we had a big break when we signed a deal with Fitness First centers to provide 10 of its prime branches with our raw juices. We were contracted to deliver 1,200 bottles a month, which meant monthly revenue of 120,000 Thai baht (THB 100 per 250 milliliters). Sadly, not many Thai customers understood the considerable benefits of drinking raw juice. It also seemed almost impossible to succeed from leaving the product to sell itself without a salesperson present.

Stock longevity and margin problems effect operations

Moreover, the juices’ shelf life was only five days, and that was in a refrigerator that maintained the bottles of juice within a strict temperature range. We spent nearly all of our money producing the juices and the sales were low. Nevertheless, we decided to continue with Fitness First because we believed having one of the top-five global brand fitness centers on our client list would boost our reputation.

Cash flow problems squeeze life out of funds to keep business running

However, around about that time, we ran out of money for further investment to scale up to the point enabling us to sustain operations or make a profit. In the end, we had lost more than 50% of our original investment. We tried to survive by setting up a kiosk-type channel on-site (Fitness First), selling juice by the glass, but that strategy failed to save us and we ended up selling to an English investor, who noted however that our branding was quite good.

Business scale, marketing, branding and customer awareness are vital

We learned that only the right business size will lead to a beneficial investment, that marketing and branding are vitally important, and that product development is one thing that cannot be ignored. Finally and crucially, understanding customer needs and behaviour are at the heart of a consumer goods enterprise.

Andrew’s takeaways – Avoid these mistakes to become a better investor

Logistics and inventory matters more than you think

It is often the case that new start-up companies place little focus on both inventory and logistics. When my best friend Dale and I set up our CoffeeWORKS factory in Thailand we spent the bulk of our money on the factory and the roasting machine, and did not think much about the inventory. But, when we contacted the green coffee-bean supplier, we found that he required a very large minimum order and since we did not have any history with him, cash on delivery. Those two things nearly killed our business.

In the above story, the perishability of the product was a major issue; this caused the product to need to be refrigerated and delivered often. Compare this to protein or energy bars that might be sold at a gym. This idea was not impossible but the cost of implementing it would probably cause it to fail.

Ignore working capital at your peril

Our recent research shows that about 60% of assets of companies around the world are long term, with the remaining being short-term, current assets. It is natural for traditional start-up companies to forecast their cash needs for long-term assets such as machinery and the like.

From my experience, most start-up management teams miss the current asset items. There are three main current asset items that a company must plan for or risk running short of cash: accounts receivable was on average has accounted for 13% of total assets, cash 10%, and inventory is 9%.

Mistakes in this story

6. Invested in a start-up company

• Invested in a start-up that lacked a clear business plan
• Invested in a start-up that lacked a competitive advantage
• Invested in a start-up that lacked adequate financial controls
• Invested in a start-up that lacked various sources of funds

Learn about the six ways you will lose your money and how to avoid them here.

The post Start-Up Entrepreneur Runs out of Investment ‘Juice’ appeared first on My Worst Investment Ever.

Throwing good money after bad was an exercise in sunk cost and saving face

And the reason it was a bad investment was that after I started investing, I got into a cycle of giving them more money when they were desperate. And, it ended up being an exercise in sunk cost and the social difficulty of saying “no”, an exercise that ended up being quite expensive.

Andrew’s takeaways – Avoid these mistakes to become a better investor

Fundamental questions to ask about a start-up before investing in it

To avoid the above story when you look at investing in a start-up, I suggest you put it through the following test. But, don’t do it alone! Because you will be overly optimistic, I suggest that you test it with your most skeptical friend, oh, and write it down. If you get a “No” answer as you move through these questions just drop the whole idea (I learned this from my own losing start-up investments!) Question 1: Do you trust the person/people running the start-up? 2. Is the idea good? 3. Can this team execute the idea?

Ensure there is more than one funding resource behind a start-up

It is too easy for a start-up to rely on the original person who brought money to the deal. Sometimes the money source thinks that they can hold a larger share of the business if they don’t bring in other investors. But this thinking can lead to the trap of being the sole supplier of capital. Before you put money in a start-up, work with the founders to identify the next sources of funds. Then require the management team to pitch to these sources, go with them, see how it goes, then use that information to determine if you will invest.

Mistakes in this story

1. Failed to do their own research

• Failed to do their own research

6. Invested in a start-up company

• Invested in a start-up that lacked various sources of funds

Learn about the six ways you will lose your money and how to avoid them here.

The post Being the Money Man for Friends appeared first on My Worst Investment Ever.