Plan your loan as if you are planning a baby

By: Mukesh Pandey, Founder & MD, Rupyaapaisa.com 

It may sound strange, but it’s factually True !!

You would agree with me. Starting a Business is the same as if you are getting married. It’s like getting married to your dream of success in the business.

Be in any business we start, we put all our heart & soul into it to make it grow, build a team, and acquire customers to run it successfully. Is it not the same as what we do, to have & maintain a successful and blissful marriage?

Now comes the next level; after getting married for some time, partners feel like having a baby, which helps strengthen their bond. The Baby brings more stability and makes the family complete & fulfilled. Both the partners put their efforts like changing nappies etc. to nurture the child and see their baby crawl, then walk, run and have fun with them and their family.

The same goes with the business journey when we go for the expansion, we make plans, raise funds to ensure healthy cash flow in the business, and meet our day-to-day working capital requirements plus also be future ready to grab or handle any opportunity coming on our way.

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It’s interesting to notice the stark similarity……….. while planning a baby, how essential it is to ensure the health of the partner to be in good shape. It helps reduce the risk of pregnancy problems and related things that might be dangerous to the mother and the baby. We do all the planning needed to protect these health-related issues & more. 

In precisely the same manner while planning for a loan or raising funds for our business. It is essential to see the health of our business, prepare a complete cash flow report, analyze the end use of funds, and, most importantly, evaluate the revenue & profitability that we expect to generate before opting for any loan.

Planning a baby is undoubtedly a joyful activity for the whole family. We are waiting nine months eagerly to see the baby grow in the mother’s womb and be anxious but excited for the delivery day. But in these nine months, do we sit idle and do nothing? No !!! We start daydreaming and plan the next 10 – 15 years of our child’s future. We prepare and plan to ensure our child gets the best facilities in education, lifestyle, and a peaceful upbringing.  

In the same style, while planning to expand our business, we don’t just go out and put all our hard-earned money into it or start asking friends & family members to raise funds for us. We take the help of our chartered accountant and other important decision-makers in the business to plan a project report for our company that gives a forecast of the projected goal or the revenue after 10 – 15 years. We do the future analysis of all the products, check the market size, investments to make & the return on the investments and make all the needed efforts to make our venture profitable. Few smart ones even do the provisioning to calculate all the risks & rewards so that their plan is at low risk in any unfavorable situation and have a glitch-free smooth-running business.

The whole idea here is to convey to everyone that we must be extra careful, cautious but organized and informed at the same time before we plan to expand our business. It should exactly be the same way we care for our newborn baby.

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Following is the Expert’s Tip to achieve your desired results from your business successfully

Just focus on two things: Objective & Key Results (OKR ) before raising any funds.

1. Objective 

Know why you need a loan (There are different kinds of loans for various reasons.)

For example 

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• For day-to-day requirements- plan an OD/CC (Overdraft/ Cash Credit)
• For the export-import business — opt for a packing credit limit, letter of credit, etc.
• Even Invoice discounting to raise funds against unpaid invoices
• To buy any equipment or machinery -> take a machinery loan.
• For investment in infrastructure go for LAP ( Loan Against Property) when the first capital is needed, and profitability will come only after a year.
• Don’t have any collateral to pledge, go for an unsecured business loan

(Opt for this only when you expect to get immediate returns within 2/ 3 months)

2. Key results

Know what difference in the outcome this loan will bring to your business

– How the funds will be applied in business – If your Turnover is X today, what extra would you achieve?

– Calculate your interest expense on your borrowing and evaluate your profitability – Consider all the hard work and efforts that would be involved in business

– Don’t take a loan unless you ideally get a 1.5 :1 Ratio before taking a loan.

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For example, if you take a loan of 1Cr and pay an interest of 10 Lakhs, you must earn a profit of 15 lakhs separately in your business. i.e., 25 lakhs profit in total to make your loan feasible.

Most important TIPS to make a note of:

• Be prepared to handle any adverse situation like in COVID times.
• Formula to know your Emergency amount -> Calculate all your
• monthly obligations (Personal/ Business/ Other), Multiply it by six and

keep them separately in one account as FD. This is your emergency amount.

It’s a brilliant idea to take a loan to expand your business, but managing it smartly will not let you go under any undue pressure. You can handle the unfavorable situation in personal or business, and you will have the confidence to bounce back and repair any losses. 

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