Small business owners such as chaiwalas (tea sellers), paanwalas (beetle shop owners) or the friendly neighbourhood kirana (grocery) store guy are currently an underserved segment and represent a great opportunity to IFAs who can relate to their needs, aspirations and behaviour.
Mumbai-based Paresh Shah of Paresh A Shah Financial Advisors, who caters to this segment, believes that advisors should talk the language of small business owners to get business from them. Sharing one such incident, he recounts, “While chatting, my chaiwala (tea seller) told me that he sells 1000 cups of tea a day. When I asked him if he could set aside earnings from 100 teas for his children education and marriage, he readily agreed. Similarly, I have asked my regular vadapav-wala to invest at least one hour of his earnings in mutual funds for this retirement. These investors do not want to know about mutual funds. However, if you speak to them in their language, they will invest in mutual funds.”
Cafemutual spoke to a few leading advisors who cater to small business owners.
Small businesses are vulnerable to many risks. A contingency fund can be a back-up for tough business conditions like interruption of the business due to a disaster, death or disability of the owner and loss of business property.
Mumbai-based Ritesh Sheth of Tejas Consultancy believes that a contingency fund takes care of their finances. “Every small business has its cycle. For instance, a stationary shop is mostly profitable when schools reopen. The shop owner invests in new books to sell and if something goes wrong, the owner will incur a loss. A contingency fund takes care of such mishaps."
Insure your client's personal life and their business. Shah feels that small business owners require general insurance schemes such as fire insurance and shop insurance apart from life insurance.
What happens to the business if something happens to your client? How will he transfer his ownership? Will someone take over the business or someone from family will run the show? Succession planning answers these questions and enables an orderly and cost-efficient transfer of the business to the next generation.
Cash flow management
Small business owners do not have a fixed income. Advisors should keep in mind to manage cash flow in such a way that they can manage their ongoing expenses efficiently.
Jaipur-based Rajesh Sodhani of Sodhani Investments feels that cash flow management gives advisors an idea of how much money small business owners can invest. "I suggest to such clients to park their funds in liquid funds over the weekend to help them make some money from idle cash. In addition, I recommend they rotate 75-80% of their investments in their own business,” he says.
Retirement plans for small business owners is complex, as they do not have any formal pension system.
Jabalpur-based Ajay Jain of Swaraj Wealth feels that a small business owner needs to prepare for the time when he can no longer work. “Unlike the salaried class, small business owners do not get a pension. Retirement planning makes sure that a business owner has sufficient money to rely on and is independent," he adds.