Be your own startup CFO

Trusted Partners in your Growth &
Prosperity
Gopal Chopra & Associates
Chartered Accountants
www.gca-associates.com

Contents
1. How to be your Own CFO
2. Suitability of Type of Organization
3. Budget Provisions for Startups
© Gopal Chopra & Associates

• Finance, Accounting & Compliances :
Knowledge of Accounting, Tax & Compliance of the Legal framework
• Trusted Advisor :
A key, objective source of advice & counsel to big or small
commercial decisions
• Legal Counsel :
Reviewing & understanding legal documents
• Risk Manager :
Understand & identify potential risks and complexities of the
organization’s business and risk mitigating strategies
• Finance Manager :
Procurement & effective utilization of funds for the organization
Roles & Duties of a CFO

 Ensure financial discipline and avoid
bankruptcy
 Responsible for Finance which is one of
the 5 critical Company-Building
processes
(Product Development, Customer Acquisition,
Customer Development, Team Building, Finance)
 Financial Performance Measurement
 Financial Decision-Making
 Risk Assessment
Importance of a CFO

Tips for becoming CFO of your own Organization
1. Risk Assessment and Managment :
• Business operates in an uncertain environment, resulting in Risk.
• Various factors contribute to uncertainty like :
 Industry Specific
 Overall economic climate
 Government Regulations
• Impact of uncertainty can range from a meagre loss of income to a major
threat to the going concern capability of the business.
Risk Management
• Quantification of risk tolerance limits;
• Evaluation of strategic options and business cases;
• Development of risk measures and warning signs.
• Ensuring Pre-emptive measures in place
• Marrying Risk assessment with performance measurement
• Management of Risk Associated with Debtors and Creditors

Ratio Analysis is generally considered the best possible method for Business
Risk Assessment. Some of the Ratios that can be used for this purpose include :
• Liquidity Ratios: Include Current ratio, Liquid ratio & Cash ratio.
These indicate the company’s ability to meet its current obligations on
time. The higher these ratios are, the lower will be the liquidity risks.
• Profitability Ratios: Include Goss Profit ratio, Net Profit Ratio & certain other
relative measures which indicate the profit-earning capacity of business. Lower
Profitability Ratios in comparison with the performances of peers will indicate
inefficiency.
• Stability Ratios: Include Debt to Equity Ratio, Lower Debt Equity Ratio indicate
the long-term stability of business & lower Going Concern risks.
• Cash Flow to Sales Ratio: It gives investors an idea of the company's ability to
turn sales into cash. Higher the ratio, lower will be the Cash Shortage risk for
the Company.

The Budget Process
Review by
Top Management
& Board
Finance Team
prepares the
Budget based on
Historical Data,
current position,
assumptions and
vision of
Management
2. Budget & Financial Planning :
• Failing to plan financially might mean you're unknowingly planning to
fail.
• Financial budgets are financial plans that are structured to detail
projections on incomes and expenses on both a long-term and a
short-term basis.
• Include Income Statement, Balance Sheet & Cash Flows
Review by
Finance head
(CFO)

Budget Matters requiring attention
 Cash Flow is Key initially rather than Profit
 Assumptions – Document & Verify ALL key assumptions
 Involve all key people in the process
 Make people accountable
 Department Plans
 Capex Plan
 Break-even point for your business

3. The Fundraising Journey :
• Seed Capital : The initial capital used to start a business (comes from
business founder’s personal assets, friends or family.
• Angel Investor Funding : Comes at an early stage of business from high
net-worth individuals, retired entrepreneurs, executives and other angel
investor etc., when the business idea is just a concept.
• Venture Capital/ Private Equity : Their funding is usually available after
the above stages when there is proof of concept for the product or service
& start-ups require funding for commercialization/ scaling-up of operations
• IPO : Required at more advanced stages of fund requirements.

-
• Market Feasibility Report: Basic Research for identifying
whether enough demand to make business feasible.
-
• Business Plan: It is a roadmap for business that outlines
goals and details to achieve those goals.
-
• Business Valuation : Business valuations for pre & post-
investment scenarios which help in attracting investment
-
• Investment Plan: Milestones at which equity & debt
financing required.
General Financial Documents Required

You need a concrete game
plan quantifying money
needed at each stage &
planned use of that money
Know your Strengths &
Weaknesses
Know your Business
(uniqueness) & overall
Industry
Fundraising Tips and Truisms
Investor confidence will
eventually arise on
account of bottom line
today or in near future
Time around something
that generates
momentum/ buzz
If you must fundraise to
prove initial
assumptions, raise as
little as possible
Always pinpoint the next
milestone to be achieved
such as launching a new
product

4. Spending Money :
-
• In Business plan, market research,
etc.
-
• Legal advice, Tax professionals and
Accountants
-
• Necessary marketing and branding.
-
• Technical support or any Activity
which promotes Revenue
Where to Spend …..

• Extensive Staffing : Hiring too many people.
• Incorrect Recruitment : Hiring the wrong people.
• Improper Investment : High Capex in the initial
stages.
• Incurring too much Debt Upfront : Raising
a lot of debt to get the operation off the
ground, resulting in high interest burden.
• Initial unplanned spending : Spending money on unallocated expenditure,
resulting in cash flow problems.
Common Spending Pitfalls …..

5. Financial Reporting :
Balance
Sheet
• Assets
• Liabilities
• Equity
Operating
Statement
• Revenues
• Expenses
Cash Flow
• Sources of
Cash
• Uses of
Cash
Dashboard
• Key
Financial
Metrics
• Key Non-
Financial
Metrics
The Basic Financial Reporting Package

Tips for Good Reporting
 Summarise your reportings : Use Summary Format wherever
possible
 Narrative : Tell your Stakeholders what’s going on
 Dashboard : Give people a quick pulse of your
• Operating metrics
• Revenue Trends
 Don’t waste time : Don’t spend a lot of time on this early on
 Transparency : Provide Transparent Fund-Raising Information
 Non-Financial Indicators : Include Non-Financial indicators

Cash Flow
Statement
© Gopal Chopra & Associates`

Balance
Sheet

When do you
need one CFO ?
• As Advisor : From day 1
(For Opportunity Assessment)
• Part-Time : Early
(For help with 1st Funding, etc.)
• Full Time : Before 2nd round
of Fund-Raising
(For help with 2nd round, etc.)

Form of Business Key Features When to opt Positives & Negatives
Sole Proprietorship  Refers to a person
who owns the
business & is
personally liable for
its debts
 The simplest business
form
 Not a Legal Entity
On start of business to
validate proof of
concept.
Pros :
 Low-cost & easy
option, for persons
looking to test their
business concept
Cons :
 Less funds to invest
 Owner is personally
liable for all business
liabilities
 Ownership is not
transferable
Partnership  A business
organization in
which 2 or more
individuals manage
& operate the
business
 Both are equally &
personally liable for
all business debts
 No minimum Capital
requirement
 Only 2 people
needed to
incorporate it
If 2 or more persons are
there who want to start
business early, then
they can register
partnership and later,
can convert it into a
private limited
company.
Pros :
 Another relatively
low-cost & easy way
to form a business
 More investible funds
available in
comparison to
proprietorship
Cons :
 Partners can be
personally at risk for
liabilities of business
 Ownership is not
transferable

Limited Liability
Partnership (LLP)
 Partnerships with a
feature of limited
liability of all but one
partners
 Separate legal entity
 Minimum 2 persons
with profit motive
needed to
incorporate it
LLP enjoys benefits of a
Private Limited
Company & a traditional
partnership firm.
Because of increasing
compliances in private
limited company, it is
recommended for start-
ups to incorporate LLP if
they are not planning to
raise investments in
future.
Pros :
 Limited partners are
not personally liable
for business debts
 Ownership can be
transferred
Cons :
 No provision to raise
public funds
One Person
Company (OPC)
 Only one person
required to form it
 It enjoys all benefits
of a Limited Liability
Company
If the person is the
single founder planning
to start a business or is
already running a
business as a sole
proprietor, then OPC is
an ideal choice.
Converting
proprietorship into OPC
anytime can be done at
ease.
Pros :
 The Director and
Nominee Director of a
One Person Company
are not personally
liable for the liabilities
of the Company.
 OPC may be
converted into other
type of legal form by
making amendment in
the MOA.
Cons :
 Not appealing to small
proprietors since its
base tax rate is quite
high (apprx. 30%)
 High statutory
Compliances.

Private Limited
Company
 Most preferred form
of business
 Can be formed by 2
persons
 Has a Separate Legal
Entity
For two persons willing
to start a business, and
also having plans to
raise the funds in future,
private limited company
is the best option. If
there are no plans to
raise funds, but they
want to have a strong
foundation, then also
private limited company
is recommended.
Pros :
 Limited Liability of
members.
 Can easily raise funds
from investors.
Cons :
 High statutory
Compliances.
 High Setup cost as
compared to others.
 Not allowed to invite
public for deposits.
Public Limited
Company
 Biggest & most
powerful form of
business in India
 Can raise funds
easily from public at
large
For persons really
planning big or having a
big business already
running, wanting it to
expand, public limited
company is the best
option.
Pros :
 Limited Liability of
members.
 Opportunity to raise
capital by issuing
shares to public
Cons :
 Harder to set-up
 Shareholders have
lesser & diluted
control over the
Company.

 Nature of Business Activity :Businesses providing direct services like
tailors, restaurants and professional services like doctors, lawyers are
generally organised as proprietary concerns. While, businesses requiring
pooling of skills and funds like accounting firms are better organised as
partnerships. Manufacturing organisations of large size are more commonly
set up as private and public companies.
 Scale of operations : Volume of business ( large, medium, small) is a key
factor. Large scale enterprises can be organised more successfully as
private or public companies. Small and medium scale firms are generally set
up as partnerships and proprietorship.
 Market area served : Size of the market area (local, national, international)
served is another important factor. Enterprises catering to national and
international markets or where the area of operations is wide spread
(national or international), company ownership is appropriate. But if the area
of operations is confined to a particular locality, partnership or proprietorship
will be a more suitable choice.
Factors Affecting the Selection of Appropriate
Form

 Degree of Control desired by the Owner(s) : A person who desires direct
control of business, prefers proprietorship, because a company involves
separation of ownership and management.
 Amount of Capital required for the Establishment & Operation of the
Business : With Sole Proprietorship requiring the least Investment, a Public
Company demands the highest. Just like any other form of business, a
partnership may be converted into a company when it grows beyond the
capacity and resources of a few persons, since a company can go to equity
shareholders for inviting subscriptions to its share capital.
 Volume of risks and liabilities : The volume of risks and liabilities as well as
the willingness of the owners to bear it, is also an important consideration.
Taxation : Comparative tax liability is also a factor to be assessed before
selection of an appropriate form of business.

 Corporate Tax Rate @ 25% : New manufacturing firms (startups) from
March1, 2016 shall be taxed at 25%(plus cess & surcharge) with no
exemptions allowed to them
 Corporate Tax Rate @ 29% : Companies with Turnover < Rs.5 crores in
FY 2014-15 shall be taxed at 29%(plus cess & surcharge)
 100% Tax Exemption for 3 years : Startups pertaining to innovation,
commercialization of new product, services driven by technology or
Intellectual Property, setup between 01.04.2016 & 31.03.2019 can now
avail 100% tax exemption for any three consecutive assessment years out
of the first five years from year of incorporation (except MAT), adhering to
certain conditions.
 Employee Provident Fund : Government to pay Employer’s contribution
to EPF of 8.33% for all new employees (with salary upto Rs. 15,000 per
month) for first 3 years, saving some cost for the Startup companies.

 No Tax on Capital Gains : In order to promote investment in startups, the
2016 budget has announced that capital gains will not be taxed if
investment is made in a regulated or notified Fund of Funds upto Rs. 50
Lacs. and by individuals in notified startups, in which they hold majority
shares.
 10% Rate of Tax on Patent Income : In order to improve the awareness
of intellectual property registration and promote patent registration, a
special patent regime has been announced in the 2016 budget. The
royalty income from use of patent developed and registered in India will
be taxed at the rate of 10% only, with no related expenditure or any
allowance being permitted.
 Quarterly Payment of Service Tax for OPC : The Budget has proposed
quarterly payment of service tax for One Person Company. All companies
are currently required to pay service tax on a monthly basis.

The information contained here is of a general nature and is not intended to address the circumstances of
any particular individual or entity. Although we endeavor to provide accurate and timely information, there
can be no guarantee that such information is accurate as of the date it is received or that it will continue to
be accurate in the future. No one should act on such information without appropriate professional advice
after a thorough examination of the particular situation.
Gopal Chopra & Associates
Chartered Accountants
www.gca-associates.com
34, Babar Lane, Bengali Market, New Delhi-110001, India
Tel.:+91-11-23350585, +91-11-23350137, +91-11-41526668
E-mail: info@gca-associates.com

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