finances

Entrepreneurs in 2012

With the year 2012 coming to an end, I have been thinking for quite some time about entrepreneurship now. In fact, currently I am thinking about bootstrapping my own setup with a friend. Having said that, it is interesting to note how entrepreneurship has changed its face in the society.

There used to be a time when having a government job would automatically include you in the elite of the society. Every family would aspire to raise their son to have a government job. To know that you are going to be having your own business would mean years of hardship and minimal chances of making it big ahead.

However, as the License Raj has come to an end and the government has slowly liberalized over the past decades, entrepreneurship has changed over a new leaf. It has started becoming synonymous with capitalism and everyone who goes to the IITs or IIMs dreams of starting their own firm and making it big one day. I share that dream – a dream which I hope to make real some day.

The infographic below shows how entrepreneurship was in the year 2012. Almost half of the entrepreneurs who had managed to survive and scale into becoming SMEs are optimistic about the year ahead. Yes, 2013 is going to be a good year.

DNA-infographic

But being optimistic does not mean taking inadvertent risks. It means being prepared … being prepared for the good, and being prepared for the bad as well. Yes, it means insuring against the bad, and thinking along the lines of business insurance.

The thing about start-ups is that many firms do not realize the sheer amount of business risks they face day-in day-out. All these risks are called as operational risks. The risk we face in day to day operations. It could be a simple thing such as forgetting to file the taxes, or neglecting to buy the software license of some critical software that you require. In India, start-ups do tend to cut corners … not to make the quick buck, but to avoid the load of paperwork that comes with it. I am sure that would be the case in other countries as well.

Take a look at this infographic I found through Hiscox Business Insurance. It was here that I learnt about the myriad of business risks. Now the question is, why entrepreneurship is the road to success? Well, take a look at the top internet billionaires list. Almost all of them have touched their first million in the past to years, and their first billion in the past 5. That clearly displays the power of a good idea can launch a start-up to stardom.

These things cannot happen without proper preparations. Take a look at the top 4 billionaires on that list, 3 of them work for Google, one is the CEO (the man with the plan), the two others are the founders. A good idea will attract funds, yes … but a good idea requires excellent execution skills and proper risk mitigation tactics to avert calamities. So entrepreneurs, dream big and prepare for the worst!!

Bollywood doesnt know finance

In case if you have seen any of the following movies then you will agree with me that almost all the protagonists in Bollywood do not know what are the different debt instruments available in the market these days.

Take the movie Om Jai Jagdish, or Hum Hain Rahi Pyaar Ke … or any movie where in the villain somehow coaxes either the hero’s family or woe be gone, the hero himself into an unsecured loan. Then when the hero is near bankruptcy, forces the hero to sell all family heirlooms and property in the classic filmy neelami. Fortunately, since all bollywood movies need a happy ending, the hero somehow pulls through by sheer dumb luck or hard work (or a script writer’s blessing).

But in real life this is vastly different. Yes, there are people who take unsecured loans, and yes there are people who declare financial bankruptcy. But there are easier debt solutions out there than doing an all out public auction or going bankrupt!

Here is one – an individual voluntary arrangement (IVT). An IVT is a solution wherein the repayments can be lowered, the interest rates can be kept constant and it can more importantly stop the creditors from chasing our hero. Now all he has to do is click for an individual voluntary arrangement. He has to fill in some simple forms and within a few months, his bankruptcy problems will atleast be averted. This form of debt management has been around for some time now, and is making headway in the UK. In the past year or so, BBC reports suggest that many individuals are opting to go this way instead of simply declaring bankruptcy.

You can find more about IVT, simply google for it or find the wiki on this. Now if only our Indian heroes were that smart and could keep up with the times! Not only would it save so much heartburn for their family, but would also save so many reels of trashy melodramatic cinema!

Financing Retirement for Seniors

Some time back I had written about equity release, and I wanted to talk about several things at once in that post (possibly the reason why I ended up sounding a bit cautious and a bit enthusiastic at different points in that post). In order to avoid this confusion, here is a simpler post … equity release is the perfect retirement financial vessel for senior citizens.

This article is aimed for senior citizens who might have been aware of this instrument but are scared of taking any kind of action to ease their livelihood. The idea is to help you make informed decisions instead of blindly signing on the dotted line.

A lot of seniors face the same question – who will support me in the later part of my life? Well … now that question is answered … its to use your house as a vessel to fuel your future income.

In case if you have not thought of any source of passive income, then this question might put people in a quandry.

Once the value is arrived at, then the next step should be finding the right firm whom you can come to terms with. Here you need to ensure that the people you end up transacting with are open, friendly and willing to put your concerns to rest. A smart idea would be to see if the financial organization is not putting any undue pressure on you to use up your release amount faster.

Once the terms of agreement are mutually agreed upon, then you simply have to enjoy the benefits of your home and the income generated from your house’ sale.

It’s like having your cake, and eating it too!

Equity Release: Debt Instrument

Just when you think, what will these crazy bankers think of next … and boom comes the latest financial instrument ready to stupefy you … with its sheer ingenuity and innovativeness.

This latest debt instrument I came to know recently from a friend in UK is the equity release. Lets take a case of a country home in the UK which has a bit of mortgage attached and the owner wishes to make some new purchases. The first condition of this instrument is that the owner has to be above 55 years of age and the value of the house needs to be higher than the mortgage value. This difference is called the Equity of the house … now private financial institutions will provide these house owners with a method to slowly sell their house for a part payment on that equity value.

What’s so great about this opportunity is that the house owners are not on the streets trying to sell the house directly. Take for example, this equity release from Age Partnership, the ownership will be transferred only after a long long time … until when the house owner has access to a ready pool of funds. With the minimum age requirement of 55, and the average age in UK rising to 78, this means that the house owner has typically a good 20-25 years access to this pool of funds, which otherwise would only be made accessible post the sale of the house.

Thus, finances which would have opened up very later … and mostly by the inheritors, are now suddenly available to the house owner itself. This is great news for elder citizens who are having a hard time trying to maintain a lifestyle. This instrument clearly benefits both the institution and the individuals … a win-win instrument. I wonder, does this idea seem as good as those CDO’s back in 2008.

PS – The problem of all such financial instruments is the same – lack of regulation. With this, we can be sure to see the same … without any overseeing authority to stop malpractice, rogue institutions will realize the loopholes in the system (or lack of one), and exploit this. Any system without regulation is bound to the same problems. So the CDO statement back there really is not fair, but it’s always a risk to consider!