Summary: Anirudh Gupta offers investment planning tips for Small & Medium Enterprise (SME) owners, keeping in mind their unique challenges and opportunity costs they face. Read further to learn how you can optimise your investments portfolio.

“Failing to plan, is planning to fail.” This famous quote by Alan Lakein, perfectly describes the importance of planning, especially for business owners. If there is one thing even more important than the plan - it is what drives this plan. This is particularly true for investment planning which requires clear focus, medium and long term goals and aligning your plan with your business goals.

In the case of SMEs there are certain considerations when it comes to investment planning:

1. Income is not as predictable as a person with a monthly salary

2. SMEs may not be inclined to taking money out of the business

3. They often have unrealistically high expectations from the investment market because they think of themselves as traders and not investors

4. Their focus may be simply on next week’s trade

5. An absence of a longer view when it comes to money is common

Consequently, investment planning depends on the above and how well the investor i.e the small business owner, understands the risk associated with the investments. Risk management is not about avoiding the risk, it is about mitigating the risk to one’s risk tolerance.

A good investment plan factors in the following:

• Winning plan: Many SMEs do not have their investments done to prioritise safety, liquidity and growth. Their investment strategy is haphazard and many SMEs have suffered on account of lack of long-term planning. A winning plan takes care of liquidity, taxation and growth needs.

• Focus on key goals: Key goals are generally well conceived. However the investment instruments to get there are not exactly the optimal choice.

Eg: One of our associates has a reasonable amount of real estate. However he keeps adding to it. He thinks that it will secure his family. However real estate is illiquid and hence it might pose a risk when in need of financial liquidity in near term.

Identify whether you are a trader or an investor

Many people confuse trading with investing. They hear a success story of a friend at a party, and decide that the payoff is better with trading. Many of them face disappointment as they are not well prepared. Payoff in our opinion depends on:

• Your understanding of the investment

• Patience with ups & downs

• Focus on key goals

This keeps the process objective. As per our experience, it is important to separate trades and investments as that helps to allocate more prudently.

Preferably invest in listed instruments

There are many exotic products, however if the instrument is listed then the chances of getting liquidity faster and when needed becomes crucial especially in a SME context where liquidity not only affects survival but also growth.

This is relevant advice for mutual funds or hedge funds, wherever liquidity is available.

Once you have devised an investment plan, stick to it! That is the key to success over time.

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