Entrepreneurs guidebook 2011, arkay & arkay

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A handy guide for entrepreneurs on starting up and building up. Smart advice on how to Manage their business and how to make things happen.
Startups and tech entrepreneurs who are unaware of the business side of the coin can use this guidebook to their benefit.

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Entrepreneurs guidebook 2011, arkay & arkay

  1. 1. E NTREPRENEURSGUIDEBOOK2011So you have a dream? You have been day dreaming of kicking that nasty jobgoodbye and ruling the world? Or have you started on the voyage alreadybut need a navigator to help you? This guidebook will provide you thebasics that you need to know and will point you in the right direction, tofollow your dreams
  2. 2. www.arkayandarkay.comSTAY HUNGRY, STAY FOOLISHThe following transcript is from a speech given by Steve Jobs, CEO andCofounder of Apple to graduating students from Stanford university -2005I am honored to be with you today at your commencement from one of the finest universitiesin the world. I never graduated from college. Truth be told, this is the closest I’ve ever gottento a college graduation. Today I want to tell you three stories from my life. That’s it. No bigdeal. Just three stories.The first story is about connecting the dots.I dropped out of Reed College after the first 6 months, but then stayed around as a drop-infor another 18 months or so before I really quit. So why did I drop out?It started before I was born. My biological mother was a young, unwed college graduatestudent, and she decided to put me up for adoption. She felt very strongly that I should beadopted by college graduates, so everything was all set for me to be adopted at birth by alawyer and his wife. Except that when I popped out they decided at the last minute that theyreally wanted a girl. So my parents, who were on a waiting list, got a call in the middle of thenight asking: ―We have an unexpected baby boy; do you want him?‖ They said: ―Of course.‖My biological mother later found out that my mother had never graduated from college andthat my father had never graduated from high school. She refused to sign the final adoptionpapers. She only relented a few months later when my parents promised that I wouldsomeday go to college.And 17 years later I did go to college. But I naively chose a college that was almost asexpensive as Stanford, and all of my working-class parents’ savings were being spent on mycollege tuition. After six months, I couldn’t see the value in it. I had no idea what I wanted todo with my life and no idea how college was going to help me figure it out. And here I wasspending all of the money my parents had saved their entire life. So I decided to drop out andtrust that it would all work out OK. It was pretty scary at the time, but looking back it wasone of the best decisions I ever made. The minute I dropped out I could stop taking therequired classes that didn’t interest me, and begin dropping in on the ones that lookedinteresting.It wasn’t all romantic. I didn’t have a dorm room, so I slept on the floor in friends’ rooms, Ireturned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 milesacross town every Sunday night to get one good meal a week at the Hare Krishna temple. Iloved it. And much of what I stumbled into by following my curiosity and intuition turned outto be priceless later on. Let me give you one example:Reed College at that time offered perhaps the best calligraphy instruction in the country.Throughout the campus every poster, every label on every drawer, was beautifully handcalligraphed. Because I had dropped out and didn’t have to take the normal classes, I decidedto take a calligraphy class to learn how to do this. I learned about serif and san seriftypefaces, about varying the amount of space between different letter combinations, about 1
  3. 3. www.arkayandarkay.comwhat makes great typography great. It was beautiful, historical, artistically subtle in a waythat science can’t capture, and I found it fascinating.None of this had even a hope of any practical application in my life. But ten years later, whenwe were designing the first Macintosh computer, it all came back to me. And we designed itall into the Mac. It was the first computer with beautiful typography. If I had never droppedin on that single course in college, the Mac would have never had multiple typefaces orproportionally spaced fonts. And since Windows just copied the Mac, its likely that nopersonal computer would have them. If I had never dropped out, I would have never droppedin on this calligraphy class, and personal computers might not have the wonderfultypography that they do. Of course it was impossible to connect the dots looking forwardwhen I was in college. But it was very, very clear looking backwards ten years later.Again, you can’t connect the dots looking forward; you can only connect them lookingbackwards. So you have to trust that the dots will somehow connect in your future. You haveto trust in something —your gut, destiny, life,karma, whatever. Thisapproach has never let You have to trust in something — yourme down, and it has made gut, destiny, life, karma, whateverall the difference in mylife.My second story is about love and loss.I was lucky — I found what I loved to do early in life. Woz and I started Apple in my parentsgarage when I was 20. We worked hard, and in 10 years Apple had grown from just the twoof us in a garage into a $2 billion company with over 4000 employees. We had just releasedour finest creation — the Macintosh — a year earlier, and I had just turned 30. And then Igot fired. How can you get fired from a company you started? Well, as Apple grew we hiredsomeone who I thought was very talented to run the company with me, and for the first yearor so things went well. But then our visions of the future began to diverge and eventually wehad a falling out. When we did, our Board of Directors sided with him. So at 30 I was out.And very publicly out. What had been the focus of my entire adult life was gone, and it wasdevastating.I really didn’t know what to do for a few months. I felt that I had let the previous generationof entrepreneurs down – that I had dropped the baton as it was being passed to me. I metwith David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was avery public failure, and I even thought about running away from the valley. But somethingslowly began to dawn on me — I still loved what I did. The turn of events at Apple had notchanged that one bit. I had been rejected, but I was still in love. And so I decided to startover.I didn’t see it then, but it turned out that getting fired from Apple was the best thing thatcould have ever happened to me. The heaviness of being successful was replaced by thelightness of being a beginner again, less sure about everything. It freed me to enter one ofthe most creative periods of my life. 2
  4. 4. www.arkayandarkay.comDuring the next five years, I started a company named NeXT, another company namedPixar, and fell in love with an amazing woman who would become my wife. Pixar went on tocreate the worlds first computer animated feature film, Toy Story, and is now the mostsuccessful animation studio in the world. In a remarkable turn of events, Apple boughtNeXT, I returned to Apple, and the technology we developed at NeXT is at the heart ofApple’s current renaissance. And Laurene and I have a wonderful family together.I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It wasawful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the headwith a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that Iloved what I did. You’ve got to find what you love. And that is as true for your work as it isfor your lovers. Your work is going to fill a large part of your life, and the only way to be trulysatisfied is to do what you believe is great work. And the only way to do great work is to lovewhat you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of theheart, you’ll know when you find it. And, like any great relationship, it just gets better andbetter as the years roll on. So keep looking until you find it. Don’t settle.My third story is about death.When I was 17, I read a quote that went something like: ―If you live each day as if it wasyour last, someday you’ll most certainly be right.‖ It made an impression on me, and sincethen, for the past 33 years, I have looked in the mirror every morning and asked myself: ―Iftoday were the last day of my life, would I want to do what I am about to do today?‖ Andwhenever the answer has been ―No‖ for too many days in a row, I know I need to changesomething.Remembering that I’ll be deadsoon is the most important tool I’ve ―If you live each day as if it wasever encountered to help me make your last, someday you’ll mostthe big choices in life. Becausealmost everything — all external certainly be right.‖expectations, all pride, all fear ofembarrassment or failure – thesethings just fall away in the face ofdeath, leaving only what is truly important. Remembering that you are going to die is thebest way I know to avoid the trap of thinking you have something to lose. You are alreadynaked. There is no reason not to follow your heart.About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and itclearly showed a tumor on my pancreas. I didn’t even know what a pancreas was. Thedoctors told me this was almost certainly a type of cancer that is incurable, and that I shouldexpect to live no longer than three to six months. My doctor advised me to go home and getmy affairs in order, which is doctor’s code for prepare to die. It means to try to tell your kidseverything you thought you’d have the next 10 years to tell them in just a few months. Itmeans to make sure everything is buttoned up so that it will be as easy as possible for yourfamily. It means to say your goodbyes. 3
  5. 5. www.arkayandarkay.comI lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck anendoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, There is no reason not to follow who was there, told me that when they viewed the cells under a your heart. microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that iscurable with surgery. I had the surgery and I’m fine now.This was the closest I’ve been to facing death, and I hope its the closest I get for a few moredecades. Having lived through it, I can now say this to you with a bit more certainty thanwhen death was a useful but purely intellectual concept:No one wants to die. Even people who want to go to heaven don’t want to die to get there.And yet death is the destination we all share. No one has ever escaped it. And that is as itshould be, because Death is very likely the single best invention of Life. It is Life’s changeagent. It clears out the old to make way for the new. Right now the new is you, but somedaynot too long from now, you will gradually become the old and be cleared away. Sorry to be sodramatic, but it is quite true.Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma —which is living with the results of other people’s thinking. Don’t let the noise of others’opinions drown out your own inner voice. And most important, have the courage to followyour heart and intuition. They somehow already know what you truly want to become.Everything else is secondary.When I was young, there was an amazing publication called The Whole Earth Catalog, whichwas one of the bibles of my generation. It was created by a fellow named Stewart Brand notfar from here in Menlo Park, and he brought it to life with his poetic touch. This was in thelate 1960′s, before personal computers and desktop publishing, so it was all made withtypewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35years before Google came along: it was idealistic, and overflowing with neat tools and greatnotions.Stewart and his team put out several issues of The Whole Earth Catalog, and then when ithad run its course, they put out a final issue. It was the mid-1970s, and I was your age. Onthe back cover of their final issue was a photograph of an early morning country road, thekind you might find yourself hitchhiking on if you were so adventurous. Beneath it were thewords: ―Stay Hungry. Stay Foolish.‖ It was their farewell message as they signed off. StayHungry. Stay Foolish. And I have always wished that for myself. And now, as you graduateto begin anew, I wish that for you.Stay Hungry. Stay Foolish.Thank you all very much 4
  6. 6. www.arkayandarkay.comSTEP 1: KNOW WHAT YOU The Do’s and the DOS DO’sARE DOING  Prepare a complete business plan  Research (use search engines) to find businessPrepare a Business Plan plans that are available on the Internet.  Package your businessOnce you have that brilliant business idea in place, take care plan in an attractive kit asand some time to formalize it into the form of a business plan. a selling tool.A business plan helps you give shape to the idea and gives it a  Submit your business plan to experts in yourtangible form in the guise of numbers and figures. intended business for their advice.A business plan forces you to systematically plan out your  Spell out your strategies on how you intend toventure, it is a blueprint for your venture and will help you handle adversities.course correct if ever you find yourself deviating from your  Spell out the strengths and weaknesses of yourobjectives. Your business plan is not a one-time document but management team.a living roadmap to your success. Put some effort into  Include a monthly one- year cash flow projection.preparing one.  Freely and frequently modify your businessHow to create a business plan? plans to account for changing conditions.  Understand your industry  Write out your basic business concept DON’T’s  Gather data on the feasibility and the specifics of your  Be optimistic (on the high business concept side) in estimating future  Focus on the what, why, where and how sales.  Be optimistic (on the low  Put the plan into a set format side) in estimating future  Read, revise, review costs.  Disregard or discount weaknesses in your plan.What Should you business plan contain? Spell them out.  Stress long-termThe contents of a business plan are as follows : projections. Better to focus on projections for your  Executive summary first year.  Overview of the industry and the company, its  Depend entirely on the uniqueness of your products or services business or the success of  Market research and analysis an invention.  Project yourself as  The economics of the business someone youre not. Be  Financial plan brutally realistic.  Marketing plan  Be everything to everybody. Highly focused  The Design and development plan specialists usually do best.  Manufacturing and operations plan  Proceed without adequate  The management team financial and accounting  Overall Schedule know-how.  Base your business plan on  Critical risks, problems and assumptions a wonderful concept. Test  Proposed company offerings it first.  Appendices  Skip the step of preparing a business plan before starting. 5
  7. 7. www.arkayandarkay.comWhat does the financial plan constitute? The financial plan includes the following statements which help gauge a potential investorof the health and prospects of your business.  Income statement, current ( for existing businesses) and projected  Balance sheets, Current and projected  Cash flows, Current and projected  Break even charts  Sources and uses of fundResources :www.score.org | www.techsmall.com | www.gin.sme.ne.ip | www.loc.gov | www.bplans.com www.pipdic.com | www.opportunityindia.net |www.msme.gov.in | www.enterweb.orgContact us at +91-9910124927 | +91-9818014509 or mail us atinfo@arkayandarkay.com for help with researching and writing a businessplan for your business. 6
  8. 8. www.arkayandarkay.comSTEP 2 :INCORPORATIONGive your business a name and a structureEntrepreneurs in India may chose among the following three options with respect tostructuring their businesses, they may chose to incorporate a company, form a partnership orform an LLP. There is also a option of a proprietorship but it is not discussed here since itdoes not support business growth beyond a single owner, maintainer model.Partnerships reign in terms of ease of establishment, the modalities and the costs involved informing a partnership firm are the least. You need a minimum of two partners with amaximum limit set to 10 in the case of a banking business and 20 for other businesses. In thecase of an LLP the formation methodologies are similar except that you need to have twodesignated partners and there is no limit to the number of partners that you may have.The process for incorporation of a company is a little more elaborate, however a company isthe best model for a fast growing enterprise, particularly in the IT space. A private companycan be formed with a mimimum of 2 members and a maximum of 50 members. A minimumcapital of Rs 100000 is also required.The minimum number of shareholders and directors required for registering a public limitedcompany is 7 and 3, there is no limit to the number of members and a minimum share capitalof Rs 500000 is required.The following table illustrates the main differences between the three structures : CRITERIA PRIVATE PUBLIC LIMITED LIMITED PARTNERSHIP LIMITED COMPANY LIABILITY CONCERN COMPANY PARTNERSHIP REGISTRATION , MEMBERSHIP AND CHARTER DOCUMENTS Applicable Companies Act, Companies Act, LLP Act 2008 Partnership Act, Law 1956 1956 1908 Mandatory Yes, with Yes, with Yes, with Optional registration Registrar of Registrar of Registrar of Companies Companies Companies Charter Memorandum Memorandum LLP Agreement Partnership Documents and Article of and Articles of Agreement Association Association Charter Yes, with Yes, with Yes, with Optional Documents Registrar of Registrar of Registrar of needs to be filed with Companies Companies Companies regulator 7
  9. 9. www.arkayandarkay.comCRITERIA PRIVATE PUBLIC LIMITED LIMITED PARTNERSHIP LIMITED COMPANY LIABILITY CONCERN COMPANY PARTNERSHIPIdentification Company Company LLP Optional.number Identification Identification Identification Partnership number number granted number granted registration granted by by ROC by ROC granted only to ROC registered PartnershipsMinimum Rupees 100,000 Rupees 500,000 Not specified Not specifiedPaid-upCapitalNumber of Minimum - 2 Minimum - 7 Minimum - 2 Minimum – 2members Maximum - 50 Maximum - No Maximum - No Maximum - 20 Limit LimitIdentity of Mandatory, Mandatory, needs Mandatory, Not requiredPartners / needs to obtain to obtain Director needs to obtaindirectors Director Identification Designated Identification Number Partner Number Identification NumberLiability of Limited Limited Limited UnlimitedPartners /membersLegal Entity Yes , can sue or Yes , can sue or Yes , can sue or No, only be sued in the be sued in the be sued in the Partners can sue name of name of name of LLP or be sued. Company CompanyPerpetual Yes Yes Yes No.SuccessionCOMPLIANCEPrior approval Mandatory. Mandatory. Name Mandatory. Not required.of Name Name should should be in Name should be in accordance with be in accordance the Companies Act accordance with the with the LLP Companies Act Act 8
  10. 10. www.arkayandarkay.comCRITERIA PRIVATE PUBLIC LIMITED LIMITED PARTNERSHIP LIMITED COMPANY LIABILITY CONCERN COMPANY PARTNERSHIPBoard Mandatory, at Mandatory, at Depends upon Depends uponmeetings least four in least four in every the procedure the procedure every year. year. prescribed in prescribed in the the LLP Partnership Agreement. Agreement.Shareholders Mandatory Mandatory Not applicable Not applicablemeetingPreparation of Mandatory Mandatory Depends upon Depends uponMinute Books the procedure the procedure prescribed in prescribed in the the LLP LLP Agreement. Agreement.Appointment Mandatory Mandatory Mandatory Mandatoryof AuditorsMaintenance Mandatory Mandatory Not Applicable Not Applicableof otherstatutoryregistersMaintenance Mandatory Mandatory Mandatory Mandatoryof Books ofaccountsFiling of Mandatory Mandatory with Mandatory Not requiredAnnual return with ROC ROC with ROCand Balancesheet with thestatutoryAuthorityInvitation to Restricted Possible Restricted Restrictedthe public tosubscribe forany Shares ordebentures ofthe CompanyListing on Restricted Possible Restricted RestrictedstockexchangeIssue of shares Not Possible Not Possible Possible Possible/ interest other except sweat except sweatthan cash equity equity / ESOP 9
  11. 11. www.arkayandarkay.com CRITERIA PRIVATE PUBLIC LIMITED LIMITED PARTNERSHIP LIMITED COMPANY LIABILITY CONCERN COMPANY PARTNERSHIP Merger/ Possible Possible Possible Not possible amalgamation ACCOUNTING AND TAXATION Obtaining PAN Mandatory Mandatory Mandatory Mandatory /TAN Audit Mandatory Mandatory Mandatory Mandatory requirement Filing of ITR Mandatory Mandatory Mandatory Mandatory Accounting Applicable Applicable Not yet issued Not applicable Standards Tax Rate 33.21% 33.21% 30.90% 30.90% MAT 19.93% 19.93% NA NA DDT 16.61% 16.61% NA NAContact us to choose the ideal structure for your enterprise. We can helpyou chose the most tax efficient structures that will help you save money foryears to come. We are available at +91-9910124927 | +91-9818014509 orat info@arkayandarkay.com 10
  12. 12. www.arkayandarkay.comSTEP 3: CAPITAL STRUCTUREDecide how much capital you need and where it will goA companys capital structure refers to its debt level relative to equity on the balance sheet.It is a snapshot of the amount and types of capital that a firm has access to, and whatfinancing methods it has used to conduct growth initiatives such as research anddevelopment or acquiring assets. The more debt that a firm carries, the more risk it isperceived to carry. An ideal capital structure represents a balance of debt and equity on abalance sheet.On the equity side, common stock is the amount of shares held by common shareholders.These stockholders own an equity stake in the business and obtain voting rights forimportant company events. Preferred shareholders similarly obtain an equity stake in thebusiness, but are not entitled to vote.A preferred investor receives ongoing dividend payments from a companys net income, orprofits, as do some common shareholders. Profits that a company does not distribute toshareholders through dividend payments but instead are reserved are known as retainedearnings, and qualify as equity on a companys balance sheet. Any additional capital earnedfrom a stock offering similarly adds to equity.Capital structure is what a company relies on to acquire the assets necessary to generatefuture sales and profits at the firm. In order for the financial capital structure to workefficiently, it will generate returns from the equity and debt that are higher than the cost ofservicing that debt and equity. Costs associated with servicing debt and equity may includeinterest and principal payments to bondholders and dividend payments to shareholders.Issuing debt tends to be a cheaper form of financing for companies versus equity issuance.Although debt holders are entitled to ongoing payments tied to a loan, the expectations forreturns are not as high as they are for equity investors. This is because equity holders aretaking more of a risk than debt holders. Therefore, the burden is on a company to constantlygrow earnings and the stock price in order to retain equity shareholders. In the event of abankruptcy, bondholders receive priority for a companys assets over equity holdersThe kind of capital structure in use depends upon the following factors :  Funds required for fixed and working assets  Ability to raise funds from internal and external sources  Other means of project financing  Cost of raising funds from different sources  Procedural formalities and difficulties in raising money  Expected fund inflow  Form of ownership 11
  13. 13. www.arkayandarkay.comAll forms of capital entail a certain cost, it is critical at the plan stage to understand thepotential inflows and accordingly select the capital structure. Cost of capital is generally notgiven the due it deserves both at the time of establishment and at the time of expansion of acurrent business. It is critical to seek advice of a professional in terms of capital structuringto enable the business to function best.An ideal capital structure ensures that the cost of capital, understood by collating the variousobligations that such capital entails, is always less than the returns from the business.Contact us to choose the ideal structure for your enterprise. We can helpyou chose the most tax efficient structures that will help you save money foryears to come. We are available at +91-9910124927 | +91-9818014509 orat info@arkayandarkay.com 12
  14. 14. www.arkayandarkay.comSTEP 4: FUNDING YOUR BUSINESSNothing comes for free, except this guide, of-course, here’s how you canfund your businessA key element of the business plan is the financial section, where the inflows and outflowshave to be detailed. Before your business makes money it is important to understand howyou are going to meet those outflows. Some of the most important financing optionsavailable are :BootstrappingBootstrapping is a term used to describe the act of starting a business without the help ofoutside investors. In some cases, however, the term may be used to describe a business thatdoes use outside investments, but strives to keep them to a minimum. A bootstrapper mayalso avoid loans from banks and lending companies in order to keep business debt undercontrol. Often, bootstrappers use their own savings and credit cards in order to get theirbusinesses up and running. Sometimes they seek start-up loans from family members andfriends, or even fund their new businesses with paychecks from their current jobsBootstrapping represents a risk to the owners of the business. Since they often put their ownmoney up to finance their businesses, they stand to lose their investments if the businessdoesnt succeed. However, there is a major benefit to bootstrapping as well. Without outsideinvestors, business owners are free to develop their businesses as they see fit, without theinput or interference of others. Furthermore, they dont have to share their profits withothers or deal with repaying loans and struggling to pay sometimes-high interest rates.While some people may view bootstrapping as a recipe for disaster, or at least a difficult roadto travel, many successful businesses have been founded with this approach. People whohave been successful at bootstrapping often list time and effort as their most importantinvestments in their companies. To be successful at starting and running a company withlittle capital and no outside investors, an entrepreneur may have to work harder, at leastinitially, at developing his ideas, finding customers, and meeting their needs, so theyllcontinue to purchase his products and services.in some cases, the lack of start-up capital may actually help the bootstrapper move towardssuccess. Since a bootstrapping entrepreneur may need to generate cash quickly in order tokeep the business afloat, he may be more aggressive in seeking customers, rather thanspending time on other details that may be important but can be tackled at a later time. Hemay also seek out the most efficient and inexpensive ways of handling business-relatedtasks, which may help him to stay out of debt. Likewise, a bootstrapping entrepreneur mayseek creative ways to get the word out about his business since expensive advertising may bebeyond his means. Though this creativity is born of necessity, it may catch the eye of histarget market and secure more customers than traditional, and perhaps less imaginative,methods would 13
  15. 15. www.arkayandarkay.comDebtDebt capital is the capital, usually money, raised through issuing bonds. Although most ofthe time the capital raised is money, it could be other goods of value as well. The capitalraised must be paid back to those who finance the debt.To raise capital, companies have a number of different options. Of course, the purpose ofmost companies is to sell a product or service for a profit. However, some may need or wish toraise money faster than the normal course of buying and selling will provide. To do that, theymay consider debt capitalDebt is usually raised by startups from banks , mortgage companies and financialinstitutions. Debt may be raised in the following forms :Bank loans : Bank loans are attractive because they don’t require the entrepreneurs to giveover control in the form of equity. However they do induce a fixed cost on a periodic basis andcan drain a company with a limited cash flow. Bank loans also require collateral in the formand in the god forsaken event that the loan cannot be paid back such collateral may be seizedby the bank.Debt financingDebt financing is a means of raising funds to generate working capital that is used to pay forprojects or endeavors that the issuer of the debt wishes to undertake. The issuer may chooseto issue bonds, promissory notes or other debt instruments as a means of financing the debtassociated with the project. In return for purchasing the notes or bonds, the investor isprovided with some type of return above and beyond the original amount of purchase.Debt financing is very different from equity financing. With equity financing, revenue isgenerated by issuing shares of stock at a public offering. The shares remain active from thepoint of issue and will continue to generate returns for investors as long as the shares areheld. By contrast, debt financing involves the use of debt instruments that are anticipated tobe repaid in full within a given time frame.With debt financing, the investor anticipates earning a return in the form of interest for aspecified period of time. At the end of the life of a bond or note, the investor receives the fullface value of the bond, including any interest that may have accrued. In some cases, bonds ornotes may be structured to allow for periodic interest payments to investors throughout thelife of the debt instrument.Equity FinancingAlso known as share capital, equity financing is the strategy of generating funds forcompany projects by selling a limited amount of stock to investors. The financing mayinvolve issuing shares of common stock or preferred stock. In addition, the shares maybe sold to commercial or individual investors, depending on the type of shares involved 14
  16. 16. www.arkayandarkay.comBoth large and small business owners make use of this strategy when undertaking newprojects.With the strategy of equity financing, the expectation is that the project funded with the saleof the stock will eventually begin to turn a profit. At that point, the business not only is ableto provide dividends to the shareholders who purchased the stock, but also realize profitsthat help to increase the financial stability of the company overall. In addition, there is nooutstanding debt owed to a bank or other lending institution. The end result is that thecompany successfully funds the project without going into debt, and without the need todivert existing resources as a means of financing the project during its infancy.Because of the risks involved, equity investors can be extremely demanding and may fundonly a small percentage of the business plans they consider. Equity finance can be raisedfrom a number of sources, namely :Angel investing : Angel investors are wealthy individuals or enterprises who invest incompanies at a very early stage in the life of the business.Venture Capital : Venture capital firms provide capital, aptly called venture capital, tobusinesses which show exception growth potential.Venture capital firms have stringentinvestment criteria and invest in only specific high growth industriesPrivate equity : Private equity firms look to make investments in privately held firmswhich hold the promise of growth but are at a more mature state than those seeking venturecapital money. VC’s take higher risks and expect higher returns as compared to PEinvestors.At Arkay & Arkay we can connect you with the best sources to raise capitalin whatever form it may be. Contact us at at +91-9910124927 | +91-9818014509 or mail us at info@arkayandarkay.com for raising capital foryour business. 15
  17. 17. www.arkayandarkay.comSTEP 5 : ACCOUNTING AND TAXATIONBecause you need to measure your success and because the governmentneeds its share tooAccountingIt is important to have a system in place to measure all your inputs and outputs as far as thebusiness is concerned. This helps you get a grip on things. As the oft repeated adage goes,you cannot control what you cannot measure, hence it is important for you to be able tomeasure your business’s performance.You should have a system of accounting in place, in the early days it is not necessary for youto hire a full time accountant to do your books. You can use off the shelf packages and dothem yourself of you could hire outsource the task to service providers like ourselves for asmall fee.The books will not only help you manage your business, you will also have ready evidence tosubstantiate your success when the VC’s or the PE’s come knocking. All financial institutionsrequire that copies of books of accounts be submitted in one form or the other before they canprovide a loan to you.TaxesThe tax spectrum of India is spread across the Direct and indirect tax spectrum. Direct taxesare a levy on the profits/wealth of the company whereas the indirect taxes are borne by thecustomer of services/goods sold by the business.Direct TaxesDirect taxes are the taxes levied on the income of the business from various sources, suchtaxes include but are not limited to :  Income tax  Wealth tax  Security transaction tax  Withholding taxIndirect taxesIndirect taxes are levied both by the central and state governments, the following are some ofthe indirect levies applicable in India :  Custom levies  Central excise  Service tax 16
  18. 18. www.arkayandarkay.com  Central Sales tax  Value added tax  Research and Development cess  Entry Tax  Octroi  Luxury tax  Turnover tax etcPlease contact your Chartered accountant for complete details onapplicable taxes. Should you need our help we are available at +91-9910124927 | +91-9818014509 or at info@arkayandarkay.com 17

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