HOW TO GROW YOUR BUSINESS INTO A LARGE CORPORATION

Most people understand that large corporate businesses are the platform for making big money by the people behind the corporate curtain; but while analysing their hearts, who are really at the helm of the centre of those organisations, we find that actually they don’t work for piling of wealth. They are far ahead of the concept of wealth making rather they put their blood & sweat just because they are enjoying the process of creation. Creation of corporation, Creation of a brand, Creation of a movement.

Journey to this great cause & to succeed needs a rigour & steady efforts. Although success has no certain formulae, still there are certain rules that needs to be admired and also to appreciate that how the sand & cement combination is to be used for building the tower of a successful corporation. We have experienced in past that only good systems can be driver of the organisation in the long run. Also we must accept that people don’t lead, only thoughts lead. So, do come with us we shall discover the secrets of making big corporation and making our own set of rules to rule in business.

The Success Formulae

It has always been like a treasure hunt to discover the formulae of success, but those who succeed were achieved their targets only by repeated tries and endless efforts. It is sad that our education system never teach us attitudinal values. What we learn as a part of our education system, is how to work for the corporations they never teach us how to lead the corporation. They teach us work skills but not leadership traits, they teach us discipline to be a good team player but not attitude to become a team leader. Nowhere taught that how to build great businesses.

Therefore we need to train & coach ourselves as leader of a large Corporation. We need to develop a belief in our team that they are going to become part of a large corporation. We need to create an aura, an environment, a general talk about that yes, this company is getting big & is growing. Confidence never comes from flimsy ground, it must come out on the basis of rock solid strategies and rigours execution on which not only yours but also every lively part of your team faiths.

Growth Concept

Every business has a lifecycle like an ordinary human being, Baby business also gets birth by owner, and it is taken care by him for everything; like food, security and care for a baby by its parents. Owner takes care for finances, marketing, sales, treasury, production & procurement. Soon the business comes in its adolescence age where the child it needs to go to school for formal training & education, just like a business requires a set of consultants for developing some new systems that makes the foundation of business strong enough for a large corporations.

When the parents don’t send the child to school and want to teach every skill themselves the boy may be big enough but could not be cultured enough to live in a formal society respectfully. In the same fashion when a business doesn’t have proper system but big enough it never gets respect in its environment and daily comes out with a new emergency situation for its parents and owner always keeps busy in firefighting situations. They never stay free to plan for the future of their business and so this age never overcomes.

Actually just like a human being, growing is the very basic nature of businesses too. If a baby doesn’t infected by a disease or clutched with some bad habit, it will certainly grow up, same is the case of business if a business is carried by good systems and sincere efforts it will certainly grow up. Now the 15^th question of KBC is what you should do to save your business from disease and bad habits. Answer you know…. Give healthy diet and send the boy to school……..simple!!! Isn’t it. I mean to say Provide your business sufficient Resources & proper guidance.

Force & Direction

Whatever you think, from mounting a nail on the wall to rocket science, there are only two factors that drive the results “Force & Direction”. In every walk of life, if you put the right amount of force in the right direction at the right time; no chance that the results doesn’t comes in desired manner. We have identified a total of 8 areas in a business which are in one or another way only representative of these 2 factors (Force & Direction). Let us have a look over these areas

If you work-out in the right manner with required energy on these 8 areas, with growth perspective, your business is bound to grow.

GOAL SETTING - Starting Point to Grow Your Business

GOAL SETTING

Starting Point to Grow Your Business

“If one advances confidently in the direction of their dreams, and endeavours to live the life which they have imagined, they will meet with a success unexpected in common hours.”

- Henry David Thoreau

"If a man does not know where he is going in life he will only end up where he is headed."

- Confucius

The most powerful tool of personal/professional leadership is the activity of setting goals; for ourselves, our family, our business and our future. Stephen Covey, in his book "The Seven Habits of Highly Effective People" says, "if we are serious about providing personal leadership for our lives we must begin with the end in mind" (Habit #2). So, why not begin everyday with the end in mind?

Have you given any thought to where would you like to be in 3 years, 5 years, 10 years? Do you have a vision for your future? If you're concerned about your future, about where you're going to be in 3, 5, 10 years, it would be helpful to plan for your future.

The foundation of self-management and self-improvement is based on goal-setting. It is the essence and at the heart of almost every aspect of being successful. Without exception, the literature on personal effectiveness always discusses goal setting as the foundation upon which personal effectiveness is developed. The key is to create a balance between your roles and your goals and have them both fit under the umbrella of your personal values and vision of what your life is about.

 

Key points on Goal Setting

-          Goals should be set for both short-term (next 12 months) and long-term (next 3-5 years), and related to your personal, professional and spiritual existence.

-          Goals should be committed to paper, reviewed and updated periodically to remain consistent with your vision and values.

-          Goals should be defined within a range of possible outcomes only when you're unable to set a specific goal.

-          Goals should never be established for self-glorification, or at the expense of others.

-          Goal setting with others should always be done in a face-to-face setting.

-          Goal setting should include any qualified conditions pertaining to their achievement.

-          Goal setting can translated into confidence building.

-          Goals should only be shared with people you trust and respect. 

As you can see, the process of goal-setting is very deliberate and structured. It requires an understanding of your personal, professional and spiritual values and the vision for your life. It also requires that you be willing to do whatever it takes to achieve your goals, as long as they are legal, moral, and ethical. The operative words in this commitment are ‘be willing’. You must possess a willingness to do whatever is required (this does not necessarily mean you will have to do anything - just be willing and ready to, if it is necessary) to achieve your goals.

The achievement of your goals will also require that you put forth time and effort. Without action, goals are merely fantasies. We all wish we were rich and famous and never had to work anymore. While this is a bit nebulous, it is nevertheless possible for anyone to achieve, if they are willing to put forth the time and effort to do what it takes to get there. Peter Drucker said, “Most people don't plan to fail, they just fail to plan.” We all need a ‘blueprint’ for our lives if we are to get what we desire. In the process it’s important that we be flexible enough to respond to the changes, challenges and opportunities we are likely to encounter, in our commitment to achieving our goals.

SUMMARY

Goal Setting requires

Structure:

Start with a dream and then identify the goal, objectives, strategies, and tactics to accomplish the desired results.

Content:

Should be ‘SMART’ (Specific, Measurable, Achievable, Realistic, Time-bound)

Action:

Armed with a positive attitude, create a plan, put forth the time and effort and measure your progress in the process of achieving your goals.

Corporate Social Responsibility

Moral responsibility now being enforced through legal regulation

CSR was an old concept & much talk about subject since long back as much as the evolution of wealthy corporate houses after the industrial revolution, till the recent past when CSR took the shape of a legislation. Earlier it was being used as a tool of branding or improving corporate image; in a way, it stood for the corporate conscience based on a noble value system. Basically it reiterates the need for the businesses to respond and repay what it can to the society as cost of its business growth to the society.

This is one duty the business is expected to do and it usually does on a voluntary basis. After considerable debates and discussions; a larger step was taken by the Indian government this year, in the form of the Companies Act, 2013. This legislation requires companies to take action, make investments, and report against a number of metrics related to Corporate Social Responsibility (CSR).

Requirements pertaining CSR are found in Sec 135 and Schedule VII of the new Companies Act 2013. The government has put out the draft rules pertaining to CSR in the public comments and suggestions. Once the Rules are accepted and notified it will come into effect from the date so notified. It is expected that the entire scheme of things pertaining to CSR is implemented; likely to from the financial year 2014-15.

Initially the following categories of companies shall be covered under CSR regime.

·         Companies with an annual turnover of 1,000 crore INR and more, or

·         Net worth of 500 crore INR and more, or

·         Net profit as low as five crore INR and more

Though the threshold limit of net worth and turnover are high the profit criteria is relatively low which would cover a number of companies under the CSR ambit. This will, in some cases also extend to small and medium sized enterprises (SME).

The Act encourages companies to spend at least 2 percent of their average net profit over the previous three years on CSR activities. Among the eligible activities included in the act are:

1. Eradicating extreme hunger and poverty;
2. Promotion of education;
3. Promoting gender equality and empowering women;
4. Reducing child mortality and improving maternal health;
5. Combating HIV, AIDS, Malaria and other Diseases;
6. Ensuring environmental sustainability;
7. Employment enhancing vocational skills;
8. Social business projects;
9. Contribution to the Prime Minister's National Relief Fund or any other fund setup by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, Scheduled Tribes, other backward classes, minorities and women;
10. Such other matters as may be prescribed.

In India, of course, there are pressing socio-economic issues including a dizzying level of economic inequality and the remnants of a caste system that, of course, publicly disavowed, undoubtedly still lives on quietly in the hearts and minds of many. While these issues of poverty and inequality are not directly addressed by the CSR actions, they will likely to be impacted by the promulgation of more open policies.

The act spells out specific actions for the board of directors including the formation of a CSR committee. The board must also approve the CSR policy and oversee its implementation. It also must monitor the 2 percent spend. If the spend level is not achieved, the board must explain why.

The CSR committee must contain three or more directors with at least one independent director. They are responsible for formulating the policy and recommending it to the board, as well as developing and monitoring the activities and expenditures.

Rules also says that unspent amounts can be rolled over to the subsequent years, though it is unclear whether excess spent in a particular year can be carried forward and adjusted in subsequent years. A company which is mandated to spend on CSR as per Sec 135 of the Act fails to do so shall explain the reason for its inability to do so in any year. A failure to do so will attract a fine of not less than Rs. 50,000/- and not Rs.25, 00,000/-.

Companies Act let us now turn to the taxation impact of these provisions. The draft CSR Rules leave it to the CBDT to look at the taxation benefits which could accrue to the companies. Having seen the provisions, it looks as if companies would be able to bring the CSR spending under the Income Tax Act by contributing, scientific research purposes and through contributions to approved funds for specific purposes.

All of this represents an important step, encouraging companies across a broad spectrum of Indian industry to fall into line with the many companies around the world that have committed to this path.

How to Avoid Income Tax Notices

KNOW SOME COMMON REASONS; WHY TAX AUTHORITIES SEND YOU NOTICES

The Income Tax Department has always been a nightmare between business owners for long. Although the taxpayers file their returns within due time and paying all taxes they still have chances to receive Income Tax Notices that further give rise to many hassles & mental agony among the tax payers.

Recently the IT Department has launched a drive to ensure greater tax compliance; thousands of taxpayers have been served notices after discrepancies were noted in their tax returns or their TDS details during last three months. This sudden rise in the number of tax notices is not because people have stopped paying taxes or filing their returns. It’s just because the tax authorities now have an integrated database on taxpayers and tracking various financial transactions about all pan holders. Here are some common mistakes that give a chance to IT Department to send you an IT Notice. Be careful for the following things to avoid such communication of IT Department.

1.    Not filing returns if income is above 2 lakh

If your gross taxable income before deduction under any section is above 2 lakh, it is mandatory for you to file your return. If you don’t file it, you can be slapped with a penalty of up to 300% of the outstanding tax. Even if there is no tax liability, you have to file the return if the gross income before various deductions is more than the basic exemption limit.

2.    Not filing return by the due date

All company assesse & businesses required to get their accounts audited, all such cases are required to file their IT returns by 30^th September each year while all other filers have 31^st July as their last date. You can file your income tax return till the end of the assessment year if there is no tax due. For example, the tax return for 2012-13 can be filed till 31 March 2014 without incurring any penalty if the tax has been paid. But if some tax remains unpaid, filing your return after the deadline could lead to a penalty of 5,000. Also, you are not allowed to carry forward losses or revise the return if you file after the due date.

3.    Ignoring Form 26AS before ITR filing

The Form 26AS is a gist of all the taxes paid by an individual during a financial year or credited to his account through TDS deducted by various sources. You can easily access your Form 26AS online. Some banks also provide this facility to their Net banking customers. Any income shown in your Form 26AS but not shown in your return or any tax credit being claimed in your ITR but not being shown in your 26AS statement; is an invitation to IT notice from department. Therefore make yourself double sure before filing your IT Return that all the Information given are correct.

4.    Not mentioning AIR Details

The IT Return form requires every assessee to fill detail about 8 big cash/ bank transactions; to which most of the assessee take very lightly. This column requires information like cash deposit into saving banks, property purchases, Investments in units, shares, debentures, etc. Such avoidance may become a call to communication from income tax department; therefore you must be careful in writing AIR details in your IT returns.

5.    Not declaring the previous employer’s income

This is a common problem and was easily missed by the tax authorities in the past. However, now that the tax database has been integrated, don’t think you can ignore your income from a previous job. If your employer deducted TDS on your income, the details would be in your Form 26AS, and the CASS will immediately flag this discrepancy. You can be levied a penalty of up to 300% of the tax evaded.

6.    Not declaring interest on deposits and savings

The interest earned on bonds, fixed deposits, recurring deposits and savings accounts is taxable and should be mentioned in your tax return. Up to 10,000 earned on your savings bank account is tax-free, but it still needs to be included in your total income for the year. Likewise, the PPF interest income is tax-free, but should be included in the exempt income. Interest on savings account is exempt up to 10,000 for the assessment year 2013-14; while interest from post office savings is exempt up to 4,000, or 8,000 for joint accounts.

7.    Mismatch in income and expenses & investments

Financial services firms, registration authorities and merchant establishments are supposed to report certain high-value transactions to the CBDT. The Income Tax Department gets all information on the basis of your PAN. The CASS matches this information with the returns filed by the taxpayer and promptly issue a notice if there is a mismatch in the income you have declared and your investments and spending.

8.    Avoiding TDS by misusing Forms 15G and 15H

If the interest income on bank deposits exceeds 10,000 a year, the bank deducts TDS. You can avoid TDS by submitting Form 15G or 15H if you are not liable to tax. However, if you are trying to avoid tax liability, you can get a notice from the tax department. Submitting a wrong declaration can invite a penalty of 10,000. Splitting the deposits in different banks or branches to avoid TDS won't help as the PAN gives you away.

 

9.    Not mentioning PAN or quoting incorrect PAN

PAN is now mandatory for high-value transactions. If you do not submit it while making an investment or taking up a job, your income will be subjected to a higher TDS of 20%, instead of 10%. If the PAN is incorrect, you could even be slapped with a penalty of up to 10,000. The bigger problem of an incorrect PAN is that the TDS will not be credited to your account.

10. Not responding to notice from tax department

Don’t ignore the messages and notices from the tax department. If you do not respond, the interest and penalty keeps on increasing in case of any pending tax liability and the Income Tax Department will take a final decision; one sided & that may not be beneficial for you.

HR Audit - Analyzing Business with employee perspective

HR Audit - Analyzing Business with employee perspective

The human resources within a business are literally the core of modern businesses. That’s why businesses endeavor its all effort to keep human resources in high spirits. Nowadays we take due care of employee concerns and even take care of them while hiring or firing. For example, when someone leaves the job, HR department will do an exit interview to see why the employee is leaving. This concern helps to improve conditions for the rest of the employees by identifying the issues that led to people leaving the company.

Basically HR Audit itself is a diagnostic, learning or discovery tool, not a prescriptive instrument or any test. It helps organizations in identifying; what they are missing or need to improve, but it will not tell, that what needs to be done, to address these issues. There will always be room for improvement in every organization.

Human resource audit is a widespread method to evaluate current human resource policies, procedures, credentials and system to identify needs for improvement and augmentation of the HR function as well as to ensure conformity with ever changing rules. Human Resource Audits are necessary to ensure that human resources are fittingly performing. Their strengths and weaknesses are identified, so as to assign appropriate jobs and to make sure that entire staff is contented.

HR Audit primarily meant to enable the organization in measuring, where it currently stands and determine what it needs to accomplish to improve functionality of its human resources department and achieve maximum employee satisfaction. It recognizes strengths and efficiently removes the drawbacks; it also searches for the loop holes in policies & HRM approaches to find out new ways for improvements. It involves systematically reviewing all aspects of human resources in a checklist fashion, ensuring that government regulations and company policies are being adhered to.

A human Resource audit helps an organisation in following ways:

·       A thorough analysis pinpoints conditions that need to be improved.

·       Paperwork is evaluated to ensure accurate record keeping.

·       The overall business model and strategy can be evaluated to improve operation.

·       Positions may be evaluated well again, to see who needs to be promoted & where a cost cutting may be done.

·       Legal compliance can be reconfirmed. It is important that the business complies with all statutory obligations & if not, then those can be improved in due time.

·      Employee morale can be kept up and thereby their job satisfaction.

·  The business can improve its reputation. Satisfied employees will talk about their working conditions on the job & also perform well.

If the HR department makes the necessary improvements, business would be able to keep the attrition rate at a lower side; it also means that money is saved within the business on training & orientation of new employees; further this improves their bottom line. Thus HR Audit finally becomes an assessment of efficiency of HR function in meeting its purpose in sync with organizational goals. If your business needs an overhaul, this is the way to analyze, “Must go for it”.

Evaluation of Private Equity Offers for SME Sector in India

Introduction

While evaluating today’s scenario “Private Equity Funding is becoming a major component of the alternative funding options and is now broadly accepted as an established investors by the modern age SMEs as well as it is being considered as a standard asset class within many institutional portfolios. Many investors still with little or no existing allocation to private equity are now considering establishing or significantly expanding their private equity programs.

Private equity investing may broadly be defined as "investing in securities through a negotiated process" majorly in unquoted companies. Private equity investment is typically a transformational, value-added, active investment strategy to be evaluated as active partnership status.

Different types of Private Equity

·           Seed stage: Financing provided to research, assess and develop an initial concept before a business has reached the start-up phase. Normally funding Value goes around 50 Lacs.

·           Start-up stage: Financing for product development and initial marketing. Companies may be in the process of being set up or may have been in business for a short time, but have not sold their products commercially and are not yet generating a profit. Normally funding Value goes upto 5 Crores.

·           Expansion stage: Financing for growth and expansion of a company which is breaking even or trading profitably. Capital may be used to finance increased production capacity, market or product development, and/or to provide additional working capital. This stage includes bridge financing and rescue or turnaround investments. Normally funding Value goes upto 25 Crores.

·           Replacement Capital: Purchase of shares from another investor or to reduce gearing via the refinancing of debt.

·           Buyout: A buyout fund typically targets the acquisition of a significant portion or majority control of businesses which normally entails a change of ownership. Buyout funds usually invest in more mature companies with established business plans to finance expansions, consolidations, turnarounds and sales, or spinouts of divisions or subsidiaries. Financing expansion through multiple acquisitions is often referred to as a "buy and build" strategy. Investment styles can vary widely, ranging from growth to value and early to late stage. Furthermore, buyout funds may take either an active or a passive management role.

·           Special Situation: Special situation investing ranges more broadly, including distressed debt, equity-linked debt, project finance, one-time opportunities resulting from changing industry trends or government regulations, and leasing. This category includes investment in subordinated debt, sometimes referred to as mezzanine debt financing, where the debt-holder seeks equity appreciation via such conversion features as rights, warrants or options.

Major Characteristics

1.     Private equity is much costly source of funding.

2.     Most of the companies opted for this path only when their projects were on going and heavy capital expenditure was already spent and for further fund arrangements their alternate options were closed.

3.     It is much Risky source because on the grey side, if venture fails Entrepreneur may lose the ownership.

4.     Active operative participation in business is taken by the Investing funds; in most of the cases professional CEO is demanded.

5.     Strategic discipline is implemented.

6.     New platforms are available for the company & sometimes new contacts are developed.

7.     Good for those who wish to create equity value open minded; they may feel like a mini IPO Situation.

8.     Revenue attraction should be there; Only win-win situation makes relationship.

                                                                         

Positives

a)    Big consultants & professionals is accessed.

b)    Technological limitations can be removed; Innovation lies with technology.

c)     Standard operating procedures are implemented since day 1.

d)    Scale of operations can be increased at once.

e)    Credibility of company increases.

f)      Geographical development is obtained.

g)     MIS is much improved to include track over sales & inventory.     

Constraints

a)    Valuation mismatch

b)    You don’t just invite money you also have to welcome.

·         Corporate governance norms

·         Operative partner

·         Strategic consultancy

·         Financial discipline

·         New technology

·         At last only for those who want to run fast

                                                                                                                                                                                                                                

c)      Barriers of company - Managerial style, valuation of company, Market risk & project viability etc..

d)    Hunger for growth in promoters is essential to grow.

Take care while choosing PE Partner

·         Chemistry between you and PE firm.

·         Both parties have Expectations to make money

·         Same thing can be perceived as interference and helping hand it is just angle of view.

·         Evaluate is like entering in to partnership; You must have growth mindset.

·         Legal documents are nevertheless as unwanted break is bad for both.

·         Both parties are happy & satisfied if growth is there

·         You should build credibility & fairness between each other

·         Business model should be improved first by huge amount of delegation, departmental self sustainability, improvements; professional management etc.

Average cost of funding

Ø  Minimum cost to company may be around 16-25% P. A.; depending upon market conditions & sector of investment, otherwise they would share in corporate growth on pro-rata basis.

Average Size of funding

Ø  Any Private Equity seeks an average period of investment for 4 to 5 years and An Investment size of Minimum $5 to $100 mn.

Debt vs. Private Equity

a)     Debt is much cheaper source of funding; PE offer is a costly decision.

b)     Time lag in equity is much more than using debt fund.

c)      As compared to your debt; Collateral while inviting equity is your company itself.

Exit options for PE

·         IPO

·         Take over by another PE Firm

·         Buy-back

·         M & A