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

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

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

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

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

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

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

Financial Forecasts
For More
Agenda
7 7

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

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

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

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

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

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

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

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

Financial Forecasts
For More
Agenda
16 16

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

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

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

• 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

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

• 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

Financial Forecasts
For More
Agenda
23 23

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

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

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

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

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

Think through
• Requirements of cash infusions at different
stages of the business
• Resource constraints
• Possible valuations at these stages
FINANCIAL FORECAST:
Overview

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

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

Financial Forecasts
For More
Agenda
33 33

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

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

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

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

Financial Forecasts
For More
Agenda
38 38

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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