Proprietorship, Private Ltd. LLP or Partnership..??

1. Proprietorship, Pvt. Ltd. LLP or Partnership..?? Finance & Business Basics Anjana Vivek; beanie@venturebean.com

2. VentureBean Consulting Private Limited At the start: The Foundation At the start: Setting up and Incorporation Strategic Financial Planning Financial Forecasts Valuation and Value Creation For More Agenda 2 2

3. VentureBean Consulting Private Limited BEFORE YOU START: The Foundation • WHAT is your Dream? • Dreams get you started Best .. LARGEST.. .. first.. .. contribute.. .. impact.. .. change.. 3

4. VentureBean Consulting Private Limited BEFORE YOU START: The Foundation • WHAT is your motivation .. for this Dream? NAME FAME MONEY IMPACT …. OTHER 4

5. VentureBean Consulting Private Limited BEFORE YOU START: Reflections • WHAT is the stage of your business/idea now? • WHERE do you want to go from here? – Short Term: In the coming Year – Medium Term: 3-5 years from today – Long Term: 10-15 years • Does the Long term map/connect to your Dream? 5

6. VentureBean Consulting Private Limited Finance and Business Planning • WHAT does the growth plan mean in financial terms • Finance is the Language of Business • The dreams need to be communicated in this language 6

8. VentureBean Consulting Private Limited Setting up / Incorporation of the Business Multiple options for Setting Up, for example: • Sole Proprietorship • Partnership • Limited Liability Partnership (LLP ) • One Person Company (OPC) • Private Limited 8

9. VentureBean Consulting Private Limited Setting up / Incorporation of the Business • Reflect on which option would suit for the short term, medium term and long term • Separate business from you, though you may leverage on your personal brand & expertise; for example: creating a separate bank account for business • Some actions are stepping stones to larger actions, i.e. starting as a proprietor and later setting up a company. Understand the following implications of your actions o Business o Legal o Tax • Some actions taken for business cannot be reversed; for example: setting up a company is to be done with thought as closing it is a difficult task 9

10. VentureBean Consulting Private Limited Setting up / Incorporation of the Business Each comes with • Requirements for registration • Ongoing compliances • Advantages • Constraints • Financial impact • Business impact • And more… Spend time in thinking through options and Select Preferred/optimal option with Due Care 10

11. VentureBean Consulting Private Limited Example: Partnership vs. Private Limited Co. • Liability: A partnership implies being liable in an individual capacity for actions undertaken by the business. If a company is set up, the founder is liable only to the extent of capital/ownership/stake in the business. • Perception: Typically, a corporate entity may be perceived as more serious and may find it easier to get business and the Brand perception is higher. • Funding: If the business grows and you need equity funding, you may have to set up a corporate entity, as such funding is typically given to a company • Immediate costs: Cost of setting up a company is more than setting a partnership. You need to weigh the short term against the long term costs and implications 11

12. VentureBean Consulting Private Limited Setting up / Incorporation of the Business Regulatory aspects are to be considered, these include, but are not limited to: • Filings with concerned statutory authority, which differ, you may need to file with multiple authorities • Tax registrations and filings • Industry specific requirement, which is high in the case of the food and health industry • Company specific requirements, for example if there are overseas tie-ups and foreign sources of funding, you may require special permission • Benefits available to you in certain cases 12

13. VentureBean Consulting Private Limited Setting up / Incorporation of the Business • Take care to check which of these laws and filings are applicable for your business by consulting professionals such as CAs, CS, lawyers as well as your mentors • Understand the details of the regulatory costs, for the initial registrations as well as regular filings • Do not forget to Factor in as fees to professionals while budgeting and planning 13

14. VentureBean Consulting Private Limited Setting up / Incorporation of the Business MOST Importantly: • Understand this is a On-Going, regular requirement and process and not only a one- time activity • Laws and regulations are periodically updated/changed, you need to be on track with current laws and regulations 14

15. VentureBean Consulting Private Limited Setting up / Incorporation of the Business • Compliance and adherence to legal and statutory requirement is as important to your business as the idea and project is. DO not neglect this, just as you should not neglect personal health and hygiene along with professional/business/work activities • Spend time in thinking through options and Select with Due Care • It would be wonderful to see Ethical, Caring Made-in-India businesses, you can be one 15

17. VentureBean Consulting Private Limited Strategic Financial Planning Three dimensions of time: • Short term: Typically 1 year; month-wise; more easily available, fewer assumptions • Medium term: Typically 3-5 years; Estimates and Guesstimates… trends • Long term: Typically 10 – 15 years; less numbers Action – minute to minute (Plan): Balancing Act between planned activities and unplanned sudden requirements.. 17

18. VentureBean Consulting Private Limited Financial Planning Translate into Financial Numbers: • Survival • Sustainability This should be reflected upon for short, medium and long term: • Short term – Balancing cash burn for the year/quarter/month/week/day plus investment where returns can come in the future, SEASONAL factors • Medium term – Survive and grow • Long term – Futuristic, trends and how your current growth is aligned to these 18

19. VentureBean Consulting Private Limited Financial Planning Four items to think about: • Revenue • Profits/Costs • Cash / Cash Burn • Value PLUS • Sources of Funding • Uses of Funding 19

20. VentureBean Consulting Private Limited Strategic Financial Planning • Projections need to be achievable and realistic in the immediate term.. may get into dream zones in long term • Periodically FLIP back and forth between time zones, i.e. look at the short term vs medium term vs long term impact on key decision making • As you plan, keep an eye on the volatile business environment, changing patterns, disruption, expectation of the future in a few years and more • As you work, check for patterns, consistency, thought process.. 20

21. VentureBean Consulting Private Limited Projections are just … projections • Periodically compare: Projections vs. actuals • Try to see where the difference between reality and projection is and the reason for this – Is the difference due to errors in assumptions made – due to ecosystem changes or..?? • This helps you – understand your business and yourself better – get a better sense of how well you can project – project better the next time around • Update the projections to reflect reality, this is a continuous and iterative process 21

22. VentureBean Consulting Private Limited Strategic Financial Planning • Forecasting is like a game of probability.. of scenarios and chance.. with a dose of reality thrown in • “To Trigger Thinking” you may also like to prepare with different scenarios in mind – Pessimistic, realistic and optimistic – Boot-strap and funded – With alternate business models; impacting strategy and cash flow – And more.. 22

24. VentureBean Consulting Private Limited FINANCIAL FORECAST: Overview • This is based on and driven by your business model • It helps to spend significant time thinking of your business strategy and business model • A business model develops and evolves over time – it is not static

25. VentureBean Consulting Private Limited FINANCIAL STATEMENTS BALANCE SHEET: The State of affairs of the organization: • PROFIT AND LOSS ACCOUNT: Working results for a given period: CASH FLOW STATEMENT: Cash receipts & payments during a period: • If you do not understand the basics of financial statements please take time to learn basics. • Reference http://www.slideshare.net/rajnishsingh92351/understandin g-business-finance 25

26. VentureBean Consulting Private Limited Where the entrepreneur did not track finance • A services business took advance in cash. The founder, Tim Perry did not keep track of project- wise expenses, on a regular basis. At the time of finalization of accounts, 4 months after a project was completed, Tim found out that he had made a substantial loss in the project. He realised that if he had tracked expenses, he could have contained expenditure and perhaps even been profitable in this key project. • If you had been the founder what would you have done differently, to avoid the situation above? • How can Tim take corrective measures to address this loss? FINANCIAL STATEMENTS: Caselet

27. VentureBean Consulting Private Limited Where the entrepreneur did not track finance • Ram Kumar focused on sales and operations. He did not know how to read and interpret financial statements. After two years of business, there was a conflict between him and his co-founder Dinesh. Ram was given a statement showing loss in the business. Ram was shocked because he had expected the business to be profitable. He felt that it was his mistake in not keeping track of the finances on a periodic and regular basis. • If you had been the founder what would you have done differently, to avoid the situation above? • Is there any way in which Ram can address this issue? FINANCIAL STATEMENTS: Caselet

28. VentureBean Consulting Private Limited Look at • Various revenue streams • Capital expenditure (land, computers, vehicles, furniture etc.) • Revenue expenditure (Salary, raw material cost, maintenance and repair costs etc.) You may be able to convert a capital expenditure into a revenue and vise-versa .. HOW? FINANCIAL FORECAST: Overview

29. VentureBean Consulting Private Limited Think through • Requirements of cash infusions at different stages of the business • Resource constraints • Possible valuations at these stages FINANCIAL FORECAST: Overview

30. VentureBean Consulting Private Limited Think through • Requirements of cash infusions at different stages of the business • Resource constraints • Possible valuations at these stages FINANCIAL FORECAST: Overview

31. VentureBean Consulting Private Limited FINANCIAL FORECAST: Preparation • Uncertainties and unknowns can be captured through: – Scenario and sensitivity analysis – Templates that allow for different scenarios – i.e. optimistic, pessimistic, expected. For example making the changes in the input, the output financials should show the impact • Use tools available – i.e. spreadsheets • Link and create templates, suitable to your requirement

32. VentureBean Consulting Private Limited FINANCIAL FORECASTS • Key elements in a forecast – Revenue – Costs: operational, sales and general administration – Capital expenses – Working capital expenses – Earnings – Tax, interest and other costs – Sources of funding – Uses of funding • Reference http://www.financialexpress.com/news/forecast- financials-in-a-business-plan/83853/0 32

34. VentureBean Consulting Private Limited Strategic Planning – Creating value • Alliances and partnerships, whether relating to advisors/mentors or to operations or to investment should lead to value creation not value depletion • Understand financial and non-financial aspects of business and transactions and impact on growth and sustainability • Most importantly, is it adding to your brand perception in the market or depleting from this 34

35. VentureBean Consulting Private Limited Strategic Planning – Creating value • Preparing for alliances and partnerships across the life cycle, this includes – Partner identification – Due diligence review – Forecasts and valuation (with and without deal) – Negotiation, acceptable and non-acceptable terms (deal breaker and deal maker issues) – Other deal terms and conditions – Deal closure – Post deal integration – Exit plan if required for eg. for VC 35

36. VentureBean Consulting Private Limited Valuation • Based on – Tangibles and intangibles – Data and assumptions – Subjectivity and objectivity • Many methods of computation including but not limited to – Multiples of revenue, earning, user base etc – Cash flow based, discounted – Exit valuation – Cost based • Must factor statutory, accounting, tax implications 36

37. VentureBean Consulting Private Limited Valuation • Driven by markets including flavor of season, competitive scenario, team at helm etc. • Driven by percentage of stake offered, negotiation etc. • Driven by demand vs. supply • Deals can sometimes be structured to accommodate valuation perceptions; by linking to future performance etc. • For more on valuation: detailed notes are at http://www.slideshare.net/anjanavivek/valuation- basics (from the popular set of the TOP 4% and 5% viewed on SlideShare in 2013, 2014) 37

39. VentureBean Consulting Private Limited VentureBean Thanks You The VentureBean Knowledge Hub: Insights and more @: – http://www.linkedin.com/company/venturebean-consulting-private-limited – https://www.facebook.com/VentureBean-Consulting-Private-Limited- 387846908091034/ – https://twitter.com/VentureBean – www.slideshare.net/anjanavivek About VentureBean VentureBean, a Business Growth Consulting company, is focused on helping clients grow business; profitably. We work in multiple areas, from business planning to assistance in building business/revenue models, funding, funding strategy and more. We have been recognised in national and international media for our pioneering services. Over the last 4 years, VentureBean has worked with over 130 clients, across India and abroad. These are across industries and range from start-ups to large corporates. More about us, the work we do and our experienced team at www.venturebean.com. Contact For more information and inputs: beanie@venturebean.com 39

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