The last few weeks have resulted in lots of ruminations, yet, little by way of analytical expressions. For starters, read a fellow professional & friend’s blog-post extolling the virtues of celibacy (well, avoidance of debt) to which I only managed to pen my thoughts in the ‘comments’ page thus -
“….Debt is a financing option, which if one may say so is commonly mis-understood by both users and non-users alike. To explain further, first focus on the word option – did the borrower use debt as a means over an alternate option or was it the only option? When using a credit card, is the use, an option (with the presence of other alternatives) or a pure leverage to increase buying power? Can debt be used to accelerate wealth creation without increasing risks? Like atomic energy it all depends on the end-use which is needless to mention dependent on the level of understanding of the user or his advisor.”
Again, in another of the same columns, a discussion on whether you really need an advisor to plan your finances or you can do it yourself was discussed with a conclusion nudging you towards a - you can do your own thing. Now the problem with these guidance(s), are, that they are subjective and one really needs to understand the nuances of the game to be on-the-ball. I will make this easier to understand, shortly.
Let me recall another very personal discussion with a client & friend (in that order, strictly). Since I am responsible for the outcomes of his financial plan and how it benefits him, I also as an extension take a friendly interest in his non-financial decisions which may have some impact on his financials going forward. This gent is a professional engaged with a reputed organization but has recently decided to foray into financial advisory himself born out of an acute interest in helping friends & colleagues with their personal finances. He thinks (until the end of our meeting) that if this new activity starts paying-off (financially worth his while) he might think of making it a full time career.
He was open to my questioning him with a straight-face – Is financial advisory a core-competence for you? And, Do you see yourself earning decently in this dog-eat-dog competitive environment? His answers to both the questions were a resounding ‘No’! We did not have to debate this further.
Let me explain this line of thinking further – students of the make or buy decision-making theory will find this familiar territory. In any professional’s life-cycle, there is a period of steep learning growth, a period of steep earning growth, a period of consolidation, eventually leading to a plateau-ing of first the learning, then the earning and eventually the decline of both. Somewhere along this life-cycle you will find a ‘transition point’ where returns on your intellectual balance sheet will be overtaken by the returns on your financial balance sheet. It is till this point in time (if not always) at least, that you should outsource the advisory for a fee. If you have a doubt consult me, I will remove your doubts.
VC or PE (venture capital or private equity for the uninitiated) funding is fast catching the imagination of the entrepreneurial class in India. The VC or PE investor picks up a stake in the company of the entrepreneur and this injection of capital (which the entrepreneur could not have done on his own) is expected to provide a boost to the growth plans of the business the successful implementations of which is aimed at creating win-win solutions for both the promoter and the investor.
While this may be becoming popular, entrepreneurs need to ask themselves some basic questions – Is the cost of the external equity investment affordable? If bank funding were available which is more preferable? If bank funding is not available what are the reasons for the same?
In most cases of dilemma in decision-making asking the right questions is all the difference that is there to a right decision. The panacea lies in a patient and structured approach.
