Written by Prof S.Suryanarayanan
(This case is written based on queries raised by serious students who wanted to satrt a venture)
Sunny decided to be independent. Enough of working for someone else. One fine morning he walked to his boss and handed over his resignation letter. In spite of his well-meaning boss persuading him to reconsider the decision, he was relentless and the boss accepted his letter.
Sunny was an engineer and an MBA graduate. He joined a large industrial group in Mumbai.
He stayed in Mumbai for about ten years. He changed his job in different companies within the same industrial group. The last job was a company manufacturing coated fabrics to be supplied to furnishings dealers and manufacturers, automobile industries and such end users. He had opportunity to interact with many dealers, small industries, advertising consultant and such other professionals. He was appreciative of their entrepreneurship spirit. Over a period he developed a desire to be an independent business person. However he was clueless.
One day he decided that instead of keeping thinking about how to start a business, he must quit the job and be serious. His friends advised him that step will be dangerous since he will have no job and no business to pursue. After serious conversations with his close friends he decided to start a trading business. He approached his boss and discussed whether he can be a dealer for the company. After some thinking he was given an approval to be a dealer in an area which was unrepresented by the company.
Sunny got the approval to be a dealer, but he needs money. He had hardly one month salary as saving. He needs money for business and to run his family. He needs a location where customers find convenient to visit his place. Rent can be high. He needs to purchase the material to stock and display. He needs minimum interior decoration. He needs at least one assistant to start with. Other Office expenses. Challenging to raise funds, not impossible.
Sunny started reviewing options before him. He can approach a bank for a loan; conditions may apply. The company that supplies the material may give one month credit, since he is old employee. He can try sales on cash only; but challenging. All office expenses and salary are straight cash flows, no credit. Sunny knows, in reality, purchases will become cash only and customers will demand credit. In addition he may have to stock inventory , may be for two months since customers need varieties to choose. Sunny did back of envelope calculation and found that he needs initial capital of minimum of 4/5 times of monthly sales. If he wants to ,say, Rs 1 lack sales, he will need 5 lacks of investment. Sunny said to himself he must make a minimum of Rs 30000 per month profit to start with, very nominal considering the efforts required to develop sales and customers. At 10% sales margin, he will have to make sales of Rs 3 lakhs per month. This results in investment of Rs 15 lakhs. (In current period 2026, this amount is very low. But we are talking of the period 1990s). All these calculations are back-of-envelope and must be formalized and authenticated on excel sheet.
Sunny approached a local branch of a nationalized bank for a loan. The bank, after scrutiny, of background of Sunny extended loan as two parts- 1. A cash credit of Rs 2 lakh against credit bills and 2. Rs 2 lakh against mortgage of stock held at his stores. The bank may enhance the loan limit at later stage based on his performance- turnover of the limit. With Rs 4 lakhs loan from bank and Rs 3 lakh credit from supplier, Sunny could arrange funds for Rs 7 lakhs. he cannot use his savings since it is required for family expenses.
Now Sunny realized that without sufficient saving he has plunged into business- trading though not on high scale. Sunny’s close friend Atul sat with him and discussed how to move further. Atul was his colleague in the same company Sunny worked. Atul’s father was a business man dealing with steel, cement and building materials. Atul suggested to Sunny to start the business with a target of sale of Rs 1 lakh per month initially. Plough back the margin earned into the business and slowly increase the sale. If he demonstrates good turnover of the credit limit, the bank may enhance it. The growth will be slow but he can survive.
Can Sunny grow bigger at any time? If he does not grow big, is it really worth doing such business with his background? Discuss what Sunny should do?
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