Want to Retire Rich?Avoid Mistakes!
This is a series of articles that I am writing for entrepreneurs with inputs from businessmen, industrialists, venture capitalists, PE funds, bankers…So let me tell you some of the mistakes that entrepreneurs do:
- Most of them do not have a Retirement plan! It is not that they think they need a retirement plan, but they are hoping to sell their business for a few crores or rupees and use that money to retire! Many of them do not even know that their business is worth NOTHING without them and their accounting and tax shenanigans. God bless and help them.
- They do not pay themselves at all! Forget paying themselves first, they do not pay themselves enough. Here is a catch – they might be living off the company by charging almost all the expenses to the company. However once the company has other shareholders this becomes difficult and embarrassing. However, they do manage to camouflage their personal travel, hobbies, etc. into business expenses.
- Most of them do not know what they are spending – the camouflaging takes its toll – they tell you that their expenses are Rs. 40k a month, but their real expenditure could be Rs. 2L – most of them being charged off as business expenses. Largely travel, conveyance, food, telephone bills are easy to charge off as expenses. Not only is this morally wrong, but it also means these businessmen have no clue about how much they need for their personal life expenses.
- Taking too much money from the company – this is the opposite of the previous point! Some people can just blow all the money from the company and leave the company in dire straits. This again means that they have no money for retirement and honestly there is nothing to sell.
- Many small businesses have no sale value without the entrepreneur and his accounting and tax shenanigans. Oops. Even listed companies which claim to be Board Driven! A case in point is a company with a market cap of Rs. 200 crores – a lot of due diligence has happened, but there is no sale happening.
- When a friend started his working life in 1999, his boss FORCED him to do a SIP – thanks the Mutual fund house in which he was working. This has created so much wealth for him (he is just 45 years of age) that his portfolio is now 3x his provident fund accumulation and is enough for him to retire. Entrepreneurs do not normally have such bosses, friends or advisors.
- The byline for my book “Retire Rich” is “Invest Rs. 40 a day” – which if compounded over say a 40 year period could be worth crores. If he/she were to increase this amount by 10% every year, this could be in 2 digit crores. Not bad at all EVEN with inflation chipping away at the value of the rupee.
- there could be more…..pls put it in the comments column…
Karthik Raghuraman
Many small business owners give no importance to accounting.they actually don’t know how much money they are making.Even worse they could actually be making losses and not even know it.
Prakash Krishnamachari
Well written, in general there needs to be a Plan B and a Plan C (if the start up fails, if the sell value is very low with respect to the expectations etc).
Mohit
Sir, as an admirer of your blog and small businessman myself, I tend to disagree with a few points (1 and 5 are correct though) –
(1) small businesses are “re-investing” in equity – of their own company! Which better company to buy shares of, than the one being run by you?
(2) even then, new-age small entrepreneurs (below 40) including myself and a few others from my peers; do invest in SIP/ Equity/ NSC etc. The reasoning is we have all witnessed stock market euphoria in 2000s and so, do not mind a side hustle for making it big via some share purchases.
(3) Suppose a small businessman goes out of business at 52, where do you think the money “which he did not take out” over the years went? It was in business itself right? Either he purchased assets which are in company’s name or increased the size of his business (more debtors/ cash at bank etc). They did not evaporate in the air. So he can always sell those assets – debtors, machinery, etc etc and have a nest egg for self. Some take out cash and invest in jewellery/ property which is also a part of their personal balance sheet if not company’s.
(4) most imp – but for this I hope they are all keeping a track of their initial capital. If someone starts out a business at 25 with 1 lac capital, and his business has 50lac (be it in form of debtors or plant & machinery) in 10yrs, then he has made a 50-times return while also running his household. Now just like stock markets, he realises that business has plateaued; and 35-36 the business networth has only grown to 51L or 52L (ie a return of 2-4%), they need to be wise and hard enough and take the harsh call. Again speaking for myself and my friends/peers; everyone seems to be keeping track of it.