8 May 2018, 15:28 — 4 min read
There are a few trends that I have observed in SMEs over the years that have led me to believe that the key to SME wealth creation lies in two things - the owner’s belief system and growth through business expansion.
Let’s try and understand what is the SME's belief system and explore ways of adjusting it to promote wealth creation.
1. Business is my greatest asset
Business definitely provides the bread and butter but most people want to go beyond that. The aspiration is always for the business to yield rich dividends. After GST and demonetization cash flows are becoming more structured. This has also led to shrinking of margins for some business owners. I recollect an old client telling me very proudly a couple of years back that his margins are in the region of 20-25% per annum. When I met him a few months back he said it was in the region of 5-7%.
Therefore one needs to look at one’s business model and wear an investor’s hat and then see whether increasing capital allocation to business is a financially prudent decision.
2. I prefer to keep all my money in business
This used to be a good thought. However with changing circumstances many in the second generation are questioning the value of being in business. They are opting for professional careers or new age businesses which may be less capital intensive.
A friend used to run a mid-sized textile operation. After evaluating that the capital can be deployed more profitably, he has only stuck to the business which is profitable and let go of many other business activities. This has saved his capital as well as ensured diversification from an investment perspective.
3. If there is a job to be done, I can do it better than anybody
One may be a domain expert in one or two areas. However running a business is all about teamwork. Many business owners do realise this. It is important to cultivate and build relationships at different levels to grow. These can be governmental, supply-chain related or simply being ready for the next opportunity.
Even if the above statement were true one cannot do multiple jobs at the same time with the same intensity. Invest in your network and your team to ensure growth.
4. Raise capital
Promoters are rated by their ability to raise capital and deliver value. One can choose to raise capital if one thinks that the business model can deliver value to shareholders.
Many options like the SME IPO are relevant platforms to get used to the compliance and the benefits of listing like better reputation, ability to attract talent on a long term basis through ESOPs (Employee Stock Ownership Plans).
5. Reluctance to invest in people, processes and technology
There is a reluctance to invest in people, processes and technology. This is because of possibly a lack of vision and unwillingness to invest in the present moment. It is important to have a broader vision and build the business accordingly. Only then can you do justice to the role of a business owner.
Sometimes we just need to be aware of the opportunity and sustain our enthusiasm.
To explore business opportunities, link with me by clicking on the 'Invite' button on my eBiz Card.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.
Posted byAnirudh Anand Gupta
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7 Sep 2021, 11:00