When I see young men (and women) start a business on their own – I ask them for details about their team. Not many of them mention an IFA – even if they are investing in mutual funds. I know why. The IFA is more a form filler than a real, holistic, full view holding Financial Adviser as some of us think they should be. An IFA is an Independent Financial Adviser / Registered Investment Adviser who will help you with your financial goals, asset allocation, risk anticipation, etc….
As a businessman many of your decisions – which form of organisation to start with (sole prop, partnership, limited company,…), to how much salary to take (if any) etc. is not something that you can handle. You need a team (about that later) and one very important person in the team is an IFA who can stand up to you.
This guy aged about 32 (married to a 30 year old) was quitting his job and starting a business. Of course he had no IFA, but his father (a retired insurance professional) was handling his finances. No, it was not handled too badly, but it had many components missing.
He had come to me for raising money for his business. He got no money, but he got a lot of life changing gyaan. I am sure he was happy – I saw him make the changes!
When you are 32 and have zero business experience, you also have no experience in handling medical insurance, term insurance, credit card debt. Hey his FATHER was USELESS in all these matters (oops did I say he was in insurance?). I then had to pen this article….
- You actually do not know what one illness can do to your business! If your parent ran up a Rs. 10L medical bill, your business will suffer. Removing money from the working capital of a fledgling business is not the smartest thing to do. Borrowing to pay medical bills is also stupid – it means you did not have enough (or appropriate) medical insurance.
- The Entrepreneur does not take a salary – for whatever reasons – and this puts stress on the house cash flow. It also means that all your other goals take a back seat, and this can cause stress in the family life.
- If you are a 27 year old female with RICH parental support and your partner is a 43 year old male with a wife and 2 kids, OBVIOUSLY your financial requirements will be different. It takes an IFA to plan your cash flow.
- If you have never ever done budgeting, cash flow management, debtors monitoring – you will need a CA to be doing that in your business. You will need an IFA teaching you how to do THE SAME THINGS in your personal life.
- Planning salaries, taxation, office administration is boring enough. Will you find the time and inclination to manage your own personal finance ESPECIALLY if your business is growing at a fabulous pace?
- I remember setting up a Term insurance plan and a pension plan for a Law firm. The younger partners wanted the term insurance plan in place and the older partners wanted the pension plan in place. Believe me, it is complicated. As a young entrepreneur you will not do it. You will keep postponing it …and suffer the consequences.
- If you have always handled a salary, welcome to the world of earnings volatility. It is not easy to manage the cash-flow of an entrepreneur. So an IFA will suddenly be talking to you about the virtues of a liquid fund, a ultra-short bond fund, a pension plan – things which you may not know.
- If you think you can figure it out on the internet, welcome to numbo jumbo. “Why indexing is great for you” and “Indexing does not work in India” are 2 articles you will find on this very blog! How are you going to handle all this? Similar story in personal taxation, medical insurance, cash-flow management! Phew. Please concentrate on your business.
- Forcing you to diversify your portfolio is also important. You will tend to ignore important aspects of your personal finance because you are “busy”. Making a will for example will take a back seat.
Well I can think of many other things which an Ifa can and must do – but before you select one make sure he knows all this stuff. If he is just going to carry a form and fill it –you might as well do it online. Oops go search for a better adviser. Now.
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