Managing Wealth: 5 Lessons to Learn from the VG Siddhartha’s Letter

Just a week ago, who wouldn’t want to be like Mr. V G Siddhartha?   Mr. VG Siddhartha was a catalyst business tycoon and founder of the most successful coffee chain in India (Café Cofee Day), an early investor of successful IT company (Mind tree), owner of 10000+ acres of coffee plantations, founder of India’s largest exporter of green Coffee (Amalgamated Bean Company), well connected within corporate community (director of GTV, Mindtree, Liqwid Krystal, Way2Wealth and Ittiam) and connections with bureaucrats (son-in-law of Karnataka’s Chief Minister) as well as highly regarded, followed and admired person as an energetic entrepreneur (2003 “Entrepreneur of the Year” award winner), investor (many businesses) and a billionaire (net worth of $1.2B as per Forbes 2015 list).

But then, what suddenly forced a successful Entrepreneur towards self-destruction? What are the 5 lessons successful entrepreneur or anyone should learn from this incidence to sustain wealth for multiple generations?

1. Tax evasion vs. Tax Planning:
In September 2017, the Income Tax department raided V G Siddhartha’s home and offices and allegedly found Rs.650 crores of concealed income. The IT proceedings continued for a long time (still pending in 2019) and included attaching his shares and creating liquidity issues for Mr. Siddhartha.

Lesson Learnt:
Comply with ALL laws fully and pay ALL the taxes ethically. Plan your taxes but do NOT evade. When a person (an entrepreneur) is growing and bootstrapping, he tries to save every penny and may be inclined not to follow tax and other laws. This would usually snowballed after a decade and comes back when the person achieves success taking a big bite of his time, money and peace. So, plan your taxes and comply with all tax and statutory obligations with transparency and full disclosure.

2. Selecting the Right Partners for Business:
Mr. Siddhartha felt pressure from one of the investors to buy back the shares, even if he had partially completed the transaction from funds personally borrowed from his friend.

Lesson Learnt:
It is critically important who you choose to be your business partners or stake holders. Your investors, advisors, partners, colleagues, employees, suppliers, customers, lenders, borrowers, and other stakeholders in the business should be carefully selected and should work with a common goal. Understanding their personality and objectives is supreme. Saying “No” takes a lot of courage but sometimes, it is the best thing to do.

3. Managing Debt:
Cofee Day Enterprises (parent of Café Coffee Day) had a total debt of Rs. 6547 crores vs. net worth of Rs. 2529 crores on March 31, 2019. In addition, Mr. Siddnartha had taken a personal loan from a friend. The pressure from PE investor for buy back and his investments being attached by the IT department created severe liquidity crunch for him.

Lesson Learnt:

  • Personal borrowings should be separate from business borrowings. There should not be any personal debt.  And the business borrowings should be avoided as much as possible or taken only if it makes business sense and that too up to a limit that is manageable i.e. upto 25%-33% of net worth. Also, borrowing for investment is not recommended.
  • CASH IS KING: Cash flow and liquidity management is extremely important. The focus should be on keeping sufficient cash for emergencies and earning cash profit rather than book profit. World’s greatest investor, Warren Buffet’s company Berkshire Hathaway has cash balance of $112B (Rs. 7.7 lakh crore) as on Dec 31, 2018.

4. Importance of Qualified Investment Advisor:
Ms. Siddhartha was the Chairman and Managing Director of Way2Wealth, an investment and financial services company managing client’s wealth. Unfortunately, he could not manage his own personal finance and investments. He was a masters in economics, worked in finance company in Mumbai and was overseeing coffee plantation, running coffee chain as well as many other businesses and no time for managing his own wealth.

Lesson Learnt:
Managing wealth is a serious business and having a dedicated, qualified investment consultant / advisor is extremely important as it could make or break the entire family fortune. The Investment field is very dynamic so an advisor should be capable, knowledgeable and experienced in investments, taxation, analyzing domestic and global economy trends, risk management, estate planning, domestic and global compliance, etc. The advisor should be qualified, have integrity and ability to provide simple solution to complex situations and he should not be afraid to disagree with the investor.

5. Peace of Mind more is important than all the Money in the world:
Even if Mr. Siddhartha had positive net worth (assets more than debt), he felt tremendous pressure from lenders, investors and income tax department. Even if he had money, family, friends, connections, he reached a tipping point where he could not take any more pressure.

Lesson Learnt:
A good night sleep is more important than few crore rupees and peace of mind is more important than all the money in the world. If mind is at peace, you can conquer the world but if the mind is tensed, even a small negative thought can conquer you. So, while earning money is important, being alive and enjoying life is much more important.

Summary
In summary, plan your taxes and do not evade; be selective while selecting your stake holders; manage cash flow, liquidity and debt; have a qualified, competent, dedicated advisor for managing investments; have a peace of mind and enjoy your life to the fullest. Thanks.

About Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India)

Mr. Jigar specializes on NRI Investments and Taxation. He is proud to be one of only 21 CFA Charterholders in India working as consultants. (In 2011, when he became CFA Charterholder, out of 97,173 CFA Charterholders in the World, only 697 Charterholders were in India and only 3% work as consultant; Source: www.newcfa.org). He received his MBA (Finance) from University of Illinois, Chicago, USA, CPA from USA and a Chartered Accountant from India. Jigar has over 15 years of professional experience including more than 4 years with KPMG USA’s Risk Advisory Services. Currently, he provides Wealth Management and taxation consulting serving clients from USA, UK, Americas, Europe, Middle East, Asia, Africa, Australia and India.
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One Response to Managing Wealth: 5 Lessons to Learn from the VG Siddhartha’s Letter

  1. Penuel says:

    Good Analysis and advice to follow through. Thanks

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