Amit Mehta’s Business is Hit by New Technology
Mr Amit Mehta is a businessman from Mumbai running a midsized printing business. He is considered well to do within his circle of friends and relatives. His Gujarati genes are responsible for his business acumen and enterprising nature. He comes from a family of traders and business used to excite and energise him.
He is blessed with a boy and a girl and his wife is a homemaker. He is around 58 years old, his first born a daughter, is married and settled and his son is working in a software firm. As is the tradition in Gujarati households, he did not pressure his son to join the family business. He is a shrewd man and there are some reasons why he accorded this freedom to his son.
The last couple of years have seen his business facing tough competition from multinational firms. Technology had changed the face of his business and he was finding it difficult to compete with them. He just could not match the competition’s quality and price points. He realized that there was a paradigm shift in the business and it was just a matter of time before he would have to down his shutters.
The choice for him was to take a huge loan and upgrade his press and employ expensive technicians and designers. He was a man who had taken risks in life. But this time his business instincts warned him that he just did not have the wherewithal to take on the might of new technology.
His son would have been a helping hand to him but he did not see in him the fighting spirit required for business. He believed that the structured and organized software industry was more suited to his son’s temperament… Although his sons take home wasn’t fabulous he saw better future for him in the industry and wanted him to continue his life abroad.
He was at a crossroad in life where he knew that he had to wind down his business and find some alternative means of income. It was not by choice but by necessity as the orders were dwindling day by day.
Amit Mehta’s Financial Position
Amit Mehta’s lists of assets were as follows. His house where he lived was located in an upscale locality. A workshop in an industrial estate, which if sold, would fetch him some value and also a one storeyed house in his hometown. He had some fixed deposits with banks and had a small fortune of gold coins which he had regularly invested in whenever liquidity permitted.
Like most business men of his community he had an account with a share broker and regularly traded in shares. He traded in good quality stocks and also bought some shares on tips from his broker.
His cash flow form business had been dwindling was getting to be a drag on his good lifestyle. He still had to provide for his sons study abroad for his masters and for his wedding expense. The situation wasn’t grim. But the timing was. He would have to hang up his boots unexpectedly; whether he was ready or not, partial retirement was ready for him.
The thought which kept him awake at nights and which depressed him was the fact that his financial state would have been excellent but for one event in his life.
Amit Mehta’s Crisis Point
Ten years ago he had a heart attack and the doctors had found multiple blockages in his arteries. He underwent a bypass surgery, which in itself burnt a hole in his pocket, unfortunately complications arose from the surgery and his situation became critical. He had an extended hospital stay and the cost spiraled. His health insurance covered barely 25% of the actual cost incurred.
He did eventually recover adopted a healthy lifestyle and is fit and fine now. To meet his hospitalization he needed money in a hurry. At that point in time he liquidated a sizeable portion of his equity portfolio. Whatever good quality stocks he had accumulated he sold and was left with duds in his demat a/c.
The house where he lived could be sold but his plight was not that horrendous that he had to be without a roof over his head. Real estate prices were stagnant and he was loathe to sell his hometown house at a low price. He had to pay maintenance on it and was unable to get a suitable tenant to atleast cover its upkeep. He was raised with the belief that gold is an asset, which is sold as a last resort. So the gold coins were languishing in a bank locker.
Asset Rich and Income Poor
Amit Mehta was a classic case of being asset rich and income poor. He had assets but they were not working for him. He was stumped and Mr. Amit Mehta was not a guy who gets stumped easily.
Amit Mehta had a friend who completely trusted a financial advisor with a keen foresight on investments. He asked his friend to introduce him to the financial advisor.
The financial advisor explained to Amit Mehta the concept of liquidity, investments and markets and told him that when he disposed of his blue-chip stocks to pay for his surgery, he made the fatal mistake of not replacing the stocks he sold by liquidating some of his gold and fixed deposits investments and his hometown house. Growth comes from being in the right business and not from unproductive assets.
The stocks which he sold had appreciated and had become multibaggers and the most amazing part was that the return was tax-free. Whereas the physical assets he was left with had depreciated somewhat in value over the years, on an inflation adjusted basis.
Mr. Amit Mehta had no choice but to sell his hometown house and liquidate all his gold holdings. He retained some of his fixed income investments as it was giving him some returns. He also held on to his workshop as he had a desire to start another business from the premises.
Mr Amit Mehta turned his life around after his health scare. He learnt a lot of valuable lessons then about diet and exercise . He is sure he will restore his financial health too. His goal in life now is to bequeath a large portfolio of stocks to his children and grandchildren. This goal has renewed his zest for life and he is slowly getting there, with the help of his financial advisor!.