Sunday, 15 November 2015

Why You Should Invest In A Business? Read This Before You Make A Small Business Investment

“Don’t work for money, make money work for you”  - Robert Kiyosaki.

While the monthly paycheck at your job is a steady source of income, you must not stop at a single source. You should build financial assets which can grow over time and generate long term wealth. With the current inflation rates and growing consumer demand, your expenses will soon outgrow your salary hikes.

There are various ways to invest in financial assets. Common ways are investing in fixed deposits, mutual funds, gold, real estate, stock markets, etc. Investors who are a little adventurous invest in the stock markets. A dismal 2% of Indian investors invest in the stock market, compared to almost 50% in the US. While every form of investment has its own advantages and risks, the best long term investment has been stock investments. Investing in publicly listed companies provide, what we call a “passive form of investing” in a business. As a retail investor, neither can you play an active role in shaping the company's future nor can you participate in any decision making process for the company. On the other hand, investing in a small business provides a way for the investor to be actively involved with the business owner and shape its future. What’s better than investing in a business which operates in an industry you are passionate about?

Small business investment is probably the best form of equity investment where you can play an active role in growing your invested capital. It could be a simple main street business like a restaurant / beauty salon / supermarket to a complex manufacturing unit or a software business. The satisfaction of adding value to these businesses and helping them grow excites many investors.

But how and where do you find such businesses? It is important to pick the right kind of businesses to invest in and also speak to many business owners before you make a decision. One of the primary factors to consider is the passion you have towards the industry. This will dictate your involvement and the level of impact you can have on the business. After assessing your interest in the sector, you will have to assess the business on several other scales before taking the plunge.

Business Growth - Is the business on a growth track or is it ready for growth? You could get this information from the audited statements of the business.

Profitability - Does the business have large enough bottom line or does it operate on a very thin profit margin? Is there a way where you could improve the profit margins? This could help you determine how resilient the business can be during business cycles.

Promoter background - Investors should do a background check of the business owner either by hiring an external agency or reference checks for fraud, tax evasion and criminal record. There are several reports such as CIBIL, RBI defaulters list, etc which can be accessed to find financial defaults committed by them. It is important that you do basic due diligence on the promoters before investing in them.

Macro view of the sector - You should study the macro perspective of the sector and geography before making an investment. What seems like a good investment in one location may be a dying sector in another location. It is advised to connect with as many business owners as possible in the industry and related industries to get a perspective of how the industry is shaping up.

After these basic parameters have been scrutinized, most investors go by a gut feeling/belief that the business they have identified will go on to become a successful and stable business. Once you invest in a business, you have the option of working closely with the business owner with the shared vision of taking the business to the next level. Clear communication and objective ways of measuring outcome should be enforced so there are no misunderstandings. If the investor has complementary skills, which could be in the form of marketing, branding, technology, logistics etc, it should be used to the business’ advantage and this can accelerate growth.

In conclusion, small business investment is a safe option with high returns and give you the satisfaction of playing an active role in something you are passionate about. But identifying the right sector, business and building a good relationship with the business owner are key to making such investments successful. After all, which industry do you think produced the largest number of billionaires in the world? Investments"

Monday, 9 November 2015

Is It The Right Time To Buy A Business In India?

India is expected to have the fastest GDP growth rate among emerging markets, beating even China if it grows by 7-8 percent per year. Interestingly, the SME sector in India has been outperforming with an even better growth rate of 10 percent per year. With the government’s focus on development and reforms this is expected to further increase. According to an E&Y 2015 survey taken from 505 “global decision makers” earlier this year, 62% said that they are looking to either enter the Indian market or are planning to expand their business. In fact, FDI in manufacturing has increased by a staggering 221% from January-June of this year. NRI deposits in the country has increased by 48% during the first few months of 2015. This makes it the right time to be in business in the India. 

Yet, it’s not easy to start a business from scratch because of the complexities involved in setting up a business. India ranks at a dismal 155th position among 189 nations in ease of starting a business. What is one of the most deterring factors when it comes to starting a new venture from scratch? Will your business idea find the traction you expect? Will it turn out to be as profitable? These are some of the questions that have to run through any realistic business owner’s mind.

There is one way to circumvent this problem. Instead of taking a huge risk and starting a business from scratch, you can simply buy an existing business available for sale. If not, you can even invest in a company which you are passionate about and get a stake in return and mould it the way you want. By doing this, you can inherit the goodwill that the company already has, along with the customers with whom relationships have already been made and get experienced staff and management who are passionate about the business. Since processes are already in place, you can start operations and start reaping the benefits from day one. Also, you do not have to bear the risk and costs of setting up the business.

You can enroll on secure online platforms which make introductions between business buyers seeking to buy a business and business owners / brokers who are seeking to sell a business. Most common opportunities include websites for sale, restaurants, bars and cafe for sale, IT companies for sale, commercial shops for sale, manufacturing factories for sale and even industrial properties for sale. Top locations where such deals are more prominent include Bangalore, Mumbai, Chennai, Delhi, Ahmedabad, Hyderabad, Pune, and other metros. Some websites also provides free guideline valuations so these opportunities are priced at fair valuations. Depending on the size of the business and industry, business takeovers are priced between 5 lakh rupees to 50 crore rupees and buyers can filter out opportunities as per their preference. If you are seeking to invest in India, partnering with sound SME businesses, which operate in industries which you are passionate about, is probably the best way to make an enriching investment.