Independence Day is a reminder that eternal vigilance is the price of liberty. Liberty to explore and build our potential into reality. In an era of extreme uncertainty, what matters is how organised we are both as entrepreneurs as well as investors. The first part many people take care of, second part is usually not paid attention to.
Business is the primary asset and the way to accomplish our deepest dreams. Regardless of this, the path ahead needs to be well thought out and focused upon in a meaningful manner. Let us start with the ground reality.
Commodity prices are likely to go up. This is the plank on which the planning needs to happen. Inflation is likely to eat into our savings. In this situation, it is critical to not only keep a tight vigil over costs but also identify opportunities from a long-term point of view. Therefore, in this context certain measures need to be incorporated in the planning. Many growing enterprises overlook these key issues:
1. Think holistically
In the words of Henry Ford, ‘Thinking is the hardest work there is’. Solutions depend upon our perception of opportunity. A key principle is to eliminate downside risk to the extent possible and the need to be careful in key purchases. For example, if you are a growing company and your yearly insurance bill is above 1 lakh rupees on office and equipment, you can get discounts in the region of 50-70% per annum. This can be quite a bit of saving. In this environment, where future demand is impacted, all cost savings only add to profitability.
2. Build your team
Covid has taught us to be extremely alert to changes in the environment. Regardless of how effective you are as an individual, things get better only with the right team. There is a reason why the term ‘dream team’ is popular. The dream team delivers in all situations and not only protects the downside but also builds the upside. This is so as teams would need to look at the situation more closely and build up solutions should things go wrong. A key principle is to look at changes in the external environment and analyse if crack teams are needed.
3. Sign the cheques yourself
As a business owner, you know the actual financial performance of your business. When the cheques are signed by you rather than somebody from accounting, the rates differ by at least 10%. This helps to keep track of the cash flow.
4. Invest in systems
Systems add to the predictability of your business. People keep changing within the company, however systems keep the business humming. This is the foundation stone of all Fortune 500 companies.
Once you follow the above steps, cash flow starts improving or at least key business issues start getting better. Thereafter savings can be converted to investments. Investing at your end requires a new mindset towards saving as well as investing. The key principles to look at are:
- We generally invest what we save. The key thing is to do vice versa. This helps to ensure that our financial goals are met. For example, if for some reason the markets have fallen then following this discipline not only ensures that you have more savings but also a higher capital level when the tide changes.
- This is a period of playing it safe as things can go wrong more quickly than it can go right. Asset allocation on the equity side needs to be more balanced and if leverage is there it needs to be eliminated as a downside there would ensure that your ability to spend sustainably is impacted.
Business as well as investing requires preparation. Luck is when preparation meets opportunity.