Business Planning – Dutch Uncles

West Bengal’s GIS Mapping of 570 MSME clusters, What This Means?

Vaishali Das — Fri, 30 Jul 2021 03:35:12 +0000

West Bengal, India’s sixth largest state in terms of economic size, is emerging as a leading IT and electronics hub. Being the eastern hub of business and finance sector, the state primarily depends upon agriculture and medium-sized industry. Major industries are located in and around the state capital, Kolkata, mineral-rich areas and Haldia port region. The market of the state varies from tea, sugar, jute to chemicals and fertilizers, giving a wide scope of doing business in the sector.

West Bengal – Ease of Doing Business

There are around 10,000 factories registered in the state. The government has also opened a single window system, Silpa Sathi, to provide all facilitations and handholding support to the investors intending to start a business of operating a business in the state.

The West Bengal Government has brought various industry friendly policies to ensure ease of doing business in the state. Another such initiative is the Geographic Information System (GIS) mapping that has been recently announced by the state government.

What is the GIS Mapping Initiative?

As micro, small and medium enterprises (MSMEs) are the key sectors of West Bengal’s economy, the state government initiated a GIS mapping of the existing 570 MSME cluster. Over the past 10 years, the MSME sector has evolved into a crucial contributor to the state’s economy. Earlier there were only 30 MSME clusters. With the constant support of government in the form of facility centers, creating storage facilities and providing necessary machinery and infrastructure the number of MSME cluster has gone up to 570.

The initiative is to assess the availability of infrastructure and skill workers in these industrial facilities and help improve ease of doing business in the state.

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With an aim of creating a GIS-enabled database of industrial areas within the state, the government is moving towards smart logistics planning.

Why West Bengal Government Started This Initiative?

The survey will benefit both the government and industry workers. With the help of the detailed data, which will be collected by the survey, the government will be able to identify the infrastructural gap in the existing clusters. A strategy to strengthen the services among these sectors will become easier for the government.

Along with this, the mapping will also provide the exact location of the existing clusters so that the state can have details of infrastructure, availability of land and skill of labourers working in these industrial areas. Results of this survey will also enable the government in their decision making on how and when to provide help to the clusters.

On the other hand, businessmen will have easy access to all the infrastructure and resources which will help them in setting up their businesses. This is another big opportunity for MSMEs to get government’s support for launching and scaling their business and also to get investment opportunities. For industry workers, it is an opportunity to get more valuable jobs.

What All Sectors Will It Cover?

The GIS mapping survey will majorly cover the MSMEs clusters. It will also include the handloom and khadi sectors. Other sectors that will come under this are furniture, incense sticks, jari clusters, etc. Artisans can easily go to these centers and use machineries installed by the state government.

Insights For Business Owners

With an aim of creating a GIS-enabled database of industrial areas within the state, the government is moving towards smart logistics planning. This kind of survey is beneficial for both the government and artisans.

Business owners can access the data from the official website and can plan their future venture smoothly. They can also get the details of the skilled workers and can have ready-made manpower. As it is a part of e-governance initiative, the state is aiming to give clearances to projects digitally. This will ease-up the long procedure of getting official documents for business setup.

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Variable Cost in Business and Entrepreneurship

Smruthi Krishnan — Wed, 09 Jun 2021 06:05:05 +0000

Total expenditures incurred in production include costs to purchase factor inputs including labour, land and capital that are needed in the manufacturing process of a product. Cost refers to the total cost incurred by a business to produce a specific quantity of a product or offer a service. The total cost of production includes both fixed and variable costs. These expenditures include any kind of factor inputs like raw materials, human resources, capital machines, etc. For instance, production costs for building a factory will include expenses like cement, sand, rocks, labour, machines, tractors, cranes and mass-producing will require proper land allocated legally to builders. In the case of companies that offer services, they will require costs of setting up an office, material costs of setting up the services, payment to people who deliver the services and costs of delivering the services.

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Variable costs, unlike fixed costs, depend on the quantity of product produced and change accordingly.

Types of Costs of Production

A business runs only if the revenue or benefits of running the business is more than the costs incurred. During the manufacturing process, a business will incur different types of costs depending on the product or service they offer:

Fixed costs

Fixed costs are costs that do not change with the amount of output produced. In other words, fixed costs remain constant even if the company produces zero output or maximum output. Fixed costs are fixed in the short term. They become variable after a period of time depending upon the business.

Variable costs

Variable costs are costs that change with the changes in the level of production. Variable costs increase with the increase in production and vice versa. If the production is zero, then no variable costs are incurred.

Total cost

Total cost as mentioned before includes both variable and fixed costs. It takes into account all the costs incurred in the production process.

Average cost

The average cost is defined as the total cost of production divided by the number of units produced. You can also calculate it by adding up the average variable costs and the average fixed costs. The average cost per unit should always be minimised by the business so they can increase profit margins without raising the costs of production.

Marginal cost

Marginal cost is the expenditure that is incurred in producing one additional unit of output. It represents the rise in total cost due to an increase in production by one unit. Marginal cost can also be defined as the increase in variable cost due to an additional unit of the product being manufactured. If marginal costs are more than the marginal revenue, the firm won’t go ahead with the production.

More About Variable Cost

Variable costs, unlike fixed costs, depend on the quantity of product produced and change accordingly. Variable costs are sometimes called unit-level costs as they vary with the number of units produced. You can predict fixed costs at the beginning of the year but you cannot predict variable costs as they depend on production levels.

For instance, in our construction builder example, the cost of land and cranes and machines are fixed costs, utility bills are also fixed costs. These costs will be incurred irrespective of how long it takes to build the house/factory and how many units are built within that area to be sold. Wages, cement, electricity, sand, water on the other hand are variable costs. With the increase in production, you will need more workers and more raw materials and your variable cost would increase accordingly.

Variable costs are the sum of marginal costs over all units produced. They can also be considered normal costs. Direct costs are costs that can easily be associated with a particular cost object. But remember that not all variable costs are direct costs like variable manufacturing overhead costs are variable costs that are indirect costs.

Break-even Analysis and Variable Cost

Variable costs are very crucial when it comes to a company’s break-even analysis. Break-even analysis is used to determine the amount of revenue or the required units that must be sold in order to cover total costs. The break-even formula includes both fixed costs and variable costs and sales per unit:

Break-even Point in Units = Fixed Costs / (Sales Price per Unit – Variable Cost per Unit)

Consider the following example:

If a company is trying to determine the minimum units of goods that they need to sell in order to reach break-even every month. Assume that company sells only a single item: Pens. The fixed costs of running the company are Rs.15,000 and the variable costs of producing a single unit of pens are Rs.5 in raw materials and Rs.10 indirect labour. The company sells each pen at Rs.30 as a sales price. To determine the break-even point in units:

Break-even Point in Units = Rs.15,000 / (Rs.30 – Rs.15) = 1000
Therefore, for the company to break even, they would need to sell at least 1000 pens a month.

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If the variable costs increase at a rate that is more than the profits generated from new units produced, then expanding the business may not be the best decision to go about.

The formula for Variable Costs

The formula for calculating Total Variable Cost is extremely simple and is as follows:

Total Variable Cost = Total Quantity of Output x Variable Cost Per Unit of Output

As an entrepreneur, you must have a rough estimate of the total quantity of the output you are willing to produce and also the sale price of each unit of your product. By multiplying these two values, you can figure out the rough estimate of Variable costs you will need when you set out with your venture.

Fixed Costs become Variable over time

Fixed costs are not fixed permanently. They morphose into variable costs over time. They are fixed over months or years due to contractual obligations but after the contract is over, they can be varied. A company may have unpredictable expenses independent of production. For instance, land prices increase or decrease after a period of time, machines depreciate, technology evolves, etc and lead to changes in fixed costs. But there are no fixed costs in the long run. This is because all the short-run fixed inputs become variable in the long run.

Difference between Fixed Cost and Variable Cost

It is necessary to know how costs divide between variable and fixed costs. This helps in forecasting the earnings generated by various changes in unit sales and thus reflects the financial impact of marketing campaigns. By definition, costs that vary or change depending on the company’s production volume are variable while costs that do not change concerning production volume are fixed. In recent years, fixed costs gradually exceed variable costs for many companies. This is because automatic production increases the cost of equipment, including the depreciation and maintenance and also it becomes cumbersome to adjust human resources according to the actual work needs in the short term thus making labour a part of fixed costs.

When the level of production increases, total variable costs increase and when the production level decreases, total variable costs decrease. On the other hand, total fixed cost remains constant irrespective of the change in the level of production.

Example for Fixed vs. Variable Costs incurred by a builder

Depreciation of machine: Variable cost
Cost of shipping cement and other materials to construction sites: Variable cost
Cement used in manufacturing bread: Variable cost
Labour and construction engineer’s salary: Variable cost
Electricity used in manufacturing: Variable cost
Packing supplies for shipping products: Variable cost
Advertising costs: Fixed cost
Insurance: Fixed Cost

Variable Costs and Business Planning

Based on the market and product, many things are covered under fixed costs and variable costs distinctively. In business planning and management accounting, fixed costs, variable costs are different as compared to their usage in economics. In accounting, fixed costs broadly include almost all expenses that are not included in the cost of goods sold, and variable costs are those captured in costs of goods sold.

The distinction between fixed costs and variable costs is important when it comes to predicting the revenue earned via the changes in unit sales and thus important when it comes to calculating the financial impact of proposed marketing campaigns.

The level of variable cost is influenced by many factors, such as fixed cost, time period of project, uncertainties in production and discount rate. An analytical formula of variable cost as a function of these factors can be used to assess how different factors impact variable cost and total return in an investment.

Variable Costs and Growth Prospects

If there is a hike in production of a company in order to meet demand, their variable costs will increase. If the variable costs increase at a rate that is more than the profits generated from new units produced, then expanding the business may not be the best decision to go about. The company must pause and try to understand the reason why it is unable to achieve economies of scale according to which variable costs as a percentage of overall cost per unit decrease as the scale of production increases.

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How to Take Care of Your Money?

Monica Behura — Sun, 06 Jun 2021 06:05:04 +0000

Practicing good financial health is as pertinent as maintaining great physical fitness. Developing habits that help an entrepreneur to take care of his own personal wealth will aid him to reach his financial goals and teaches how to save money. For example, investing money in conventional methods such as Fixed Deposits, buying government bonds, mutual funds, buying shares of profitable stable companies, etc. Creating a budget, following a debt management plan, having a fool proof retirement plan are one of the several ways to practice financial well-being.

Following are the ways in which an entrepreneur can keep up with his financial targets:

Hire a professional advisor

To increase your wealth, hire a professional financial planner that will help you make intelligent investment decisions. A financial planner makes you aware of the risks involved in a particular investment, the profitable returns on it. He/she draws a futuristic plan for both long-and short-term investments.

Clear the debt

Debt elimination plans are imperative to reach financial goals. It is a burden that can be handled effectively with thorough planning. For example, clear high interest debts in a short term than the small debts. Systematic planning is important to clear off debt which can act as a hurdle to bigger investment plans. An entrepreneur should get its debt under control, otherwise he will continue paying interests on the debt. So, reducing one’s debts should be a part of one’s financial plan.

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Developing habits that help an entrepreneur to take care of his own personal wealth will aid him to reach his financial goals and teaches how to save money.

Budgeting right

The beginning to reaching financial goals is setting realistic budgets. Allocate percentage of your income, toward expenditures, and other financial priorities. At least 30% of your money every month should be saved after all the necessary expenses and paying interest debts. Similarly, 30% of the annual income should go into saving investments and retirement planning. Keeping track of income and expenses, daily, monthly, quarterly, half yearly and annually helps the budgeting flow in the direction that’s planned to achieve the financial goal. Have a personal budget set for yourself, to account for expenses, separate personal from business.

Invest in your future – Make retirement plan

Businesses can fall out any time especially the booming start-ups, therefore, an entrepreneur should take calculated risks in his investments- he/she can invest in retirement plans that yield good returns up to the point of 50% when it matures after ten, twenty or thirty years or more. One should invest in at least 2 to 3 such plans varying in the period and number of investments. For example, Rs 30 lakh invested for 10 years, Rs 40 lakh invested for 15 or 20 years, so on and so forth.

Dissect your spending habits

The pandemic has taught us to be frugal, so no point spending on luxury rather spending on items that will yield great benefits monetarily in the future like investing in art. Introspection on spending habits is not a great trait of a successful entrepreneur. Buy nothing on credit to pile on debt, even if you can pay it without any hassle. Future could be uncertain.

Build a contingency fund

A sound emergency fund should cover 6-12 months of personal expenses as well as cover business expenses to sail through bad times when paying debts. Fixed Deposits that yield 9.5 % interest rates could be detrimental at this point, investments in bonds, will help. But investments in mutual funds that are subject to market risk might or might help with a great amount. Similarly, shares that are subject to ups and downs of the stock exchange will help sail through, but the amount will depend on the stock market strength or vulnerability.

Insurance is a must

Health, and term life insurance is something one should take when one is young, so when one gets older and the hospital costs skyrockets, then the insurance will cover the expense. Purchasing the best health insurance is a must. It should cover your family as well. Building a business without insurance is fine but going ahead as you take the ladder upward towards success, you should have sound health insurance. If your family is dependent on you and your business to provide for them, one should have a reliable life insurance plan, this will ensure they are covered and are safe from taking any burden of the business financial loss. Life insurance is important because your net worth is related to your business. Long term disability plan should also be in place in case of any disability that might happen in the unforeseen future.

Takeaway home

It isn’t a bad idea to take some business funds home when the business is in a growth phase. Use that fund to bolster your savings for personal goals. Because your worth is not the same as the company’s valuations. So, count your money when it is at your table. An entrepreneur should only pay himself out of profits not revenue. Don’t cut a big slice of profit as a pay check or bonus, rather invest that money for it to grow.

A line of credit

For an entrepreneur a line of credit is beneficial because it allows cash to be readily available, without tapping into your personal wealth. A line of credit is like a credit card, because once you pay back, the fund replenishes. This gives you freedom to spend money your way without any hurdles. A line of credit is beneficial as it is in conjunction with other financial options available to business owners.

Replenish, recharge

Having a solid business and personal financial plan in place will let you take a break from the busy life. Going for vacations with friends, family and the like will let you refresh your mind, body and soul. Maintaining personal wellbeing is important to run a successful business.

Invest as per risk tolerance

Once your retirement investment is on its way, along with the contingency fund in place, an entrepreneur should invest in a diversified portfolio of assets that is appropriate as per the time horizon and risk involved. Depending on your investment, personal financial goals, one should invest in stocks, mutual funds, gold, real estate that one can withdraw once the price inflates and re-invest in another portfolio for maximum personal finance. But one must be updated on the price fluctuations.

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An entrepreneur should only pay himself out of profits not revenue. Don’t cut a big slice of profit as a pay check or bonus, rather invest that money for it to grow.

Will making

Making a will before tax implications could leave the entrepreneur’s legal heirs and beneficiaries exposed to tax liabilities that could leave them next to nothing from the total value of assets. So, a solid functional estate planning needs to be done.

Tax benefits

One has to separate personal and business finances for greater tax benefits, and the ability to take advantage of tax deductions is a huge plus for entrepreneurs. Keeping accurate records of personal and business expenses will assist in the event of tax audit, keeping a check will ward off the tax guys.

Fintech, a tool to manage money

Fintech today is transforming the financial management capabilities of entrepreneurs and businesses. There are various personal finance tools and services that are constantly evolving that help manage money better. This trend has been beneficial for businesses, particularly smaller enterprises, making finance automation, data analysis, and flexible financing options within reach.

Manage your personal credit score

An entrepreneur needs to make sure that his personal credit is solid. Paying bills on time, your credit score should be excellent. The percentage of one’s available credit limits that he is borrowing at any given time during the month is the credit utilisation ratio that he needs to pay attention to. If you keep this ratio below 30%, this will help to achieve a better credit score and easier time getting personal loan approved.

Protect personal assets from creditors

Personal assets can be at risk if an entrepreneur is sued for personal wrong doing or as a result of a personal guarantee. However, there are ways to protect personal assets from these types of claims. One can consult with an estate planner or a bankruptcy attorney to prepare a structure to further shield assets from liability of business obligations.

In-sync with trends

An entrepreneur should ensure that all aspects of the plans are regularly reviewed and kept up to date with any regulatory changes that could occur anytime.

Cost effectiveness

Entrepreneurs should use cost benefit analysis before making final decisions when it comes to their personal finance. One should avoid paying more than the expected returns.

Increasing wealth

An entrepreneur’s mind should always keep ticking as to how to maximize personal investment returns. Knowing one’s priority, as to whether to invest the profits or revenue earned from business on a new bond, real estate, or in a company or to buy an expensive car. Maximizing income for the next few years before indulging in luxury should be made clear.

Personal money goals

Having a written financial goal for the targeted month or year-either short or long term to improve personal wealth by a certain amount or percentage gives a direction to your actions. Scattering your wealth in different baskets helps to grow your money as in stocks, real estate, bonds, mutual funds, fixed deposits etc.

Budget spending and plan savings

Budgeting one’s spending and saving is a must. Experts say when you are mindful of both your habits, tracking it will help contribute to wealth growth.

Disseminate risks

With this strategy, entrepreneurs are earning money through multiple businesses and reaping interest incomes through various investments, and with capital gains. In this way, entrepreneurs are diversifying and lowering their personal financial risk. In growing one’s wealth, the entrepreneur needs to consider his objectives, investment timelines, his tolerance to risks involved, in short, choose the most suitable financial plans.

However, note that holding money in stationary form will yield no benefits, investing in mutual funds, fixed deposits, real estate, startups will get interest income, profit percentage.

Protecting personal wealth

Implementing safeguards around wealth that is invested becomes imperative, therefore placing it under an insurance policy that is designed to protect one’s finances – namely, health, life, trauma, and income protection insurance in case of any adverse circumstances

Adopting a frugal lifestyle

Being thrifty is a virtue. Minimizing one’s needs so that he can maximize the amount into investments. Developing a frugal lifestyle is an art one can develop with long term planning, budgeting expenses, finding ways to reduce unnecessary expenses.

Expenses below income

Living below your means is the way one can surplus on savings and cut down on unnecessary expenses. This will allow one to repay debt, save for rainy days, add to the emergency fund or make investment on a lucrative deal.

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How to Start a Small Business in India?

Aakash Sharma — Fri, 23 Apr 2021 01:35:03 +0000

A small business is an excellent way to catapult yourself into the big world of entrepreneurship and business. To start a small business means to embark upon a challenging yet satisfying journey. Small businesses are independent businesses that require less capital, fewer employees and little or no machinery to run. In India, small businesses are often defined based on the foundation of a company’s ability to invest in infrastructure and machinery.

Here we describe the path you can, as a young entrepreneur, follow to start a small business and make the idea a reality.

Business Plan

A business plan determines the success of the company. The first step in a company is to start with a feasible study and plan for its work. You can do this depending on the type, modus operandi and financial viability of your business idea.

The business plan should contain detailed information, including names, suggestions, ages and qualifications of the owners and associates, a revenue model with more details like cost and sale price, taxes, delivery charges, etc.

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A big business starts small, and making something that people want is the biggest motivator to start a business.

Financial Resources

Most small businesses in India started with self-funded or community-based financing. New entrepreneurs can also seek funding from MSME commercial banks. You can also get funds through diversified fundraising or venture capitals.

Online Presence

Depending on your business type, small businesses are categorised into three broad terms: fully online, online + physical, and entirely physical (business/office) companies. The online presence of any business is necessary for today’s digital era. This presence depends on your budget and the type of product /service you offer. An online presence can be established by creating a website or a social media page on platforms like Facebook and Instagram.

Marketing

To survive in intense competition, you need to promote your small business properly. You may have to spend a significant part of your budget on advertising, translating into a lot of revenue for the company overall. Largely beneficial and less costly marketing channels include Facebook marketing and promotion on websites like Twitter. You can also post your products and services on social media such as YouTube and Instagram.

Government Support for MSMEs

The Indian Ministry of Micro, Small and Medium Enterprises MSMEs is responsible for developing small businesses. The ministry is responsible for supervising the licensing and regulation of small and medium-sized enterprises. It creates and regulates business development plans and projects like MUDRA loans for small entrepreneurs.

Start a Small Business like these

Content Writing and Blogging

If you are equipped with basic writing and reading skills, you can make a lot of money using your knowledge and skills. Content writing and blogging have become a profitable business not only in India but around the world today.

Digital Marketing

There are many opportunities in digital marketing. Once you start your own business, you can work independently, promote a wide variety of products, and make huge profits. For a thorough understanding of digital marketing skills, you can easily learn about the field from various online courses.

The post How to Start a Small Business in India? appeared first on Dutch Uncles.

How to Write a Business Plan?

Aakash Sharma — Tue, 20 Apr 2021 01:35:05 +0000

A business plan is the first step in starting a business, whether it’s a start-up, a retail store, a Kirana shop or an e-commerce site. A good business plan will lead you through every step of starting and running a business. It is a practical roadmap for planning, managing and developing new channels along with expansive strategies.

Let’s look at the details of creating a business plan and its main features.

Choose the Business Plan that Suits you

An essential part of creating a strategy is that it must meet the needs of your business. Remember, there is no right or incorrect way to create a business plan.

Traditional Business Plan

Traditional business plans are more popular. They are developed as standard structures in business models. This strategy helps you focus on all aspects of your business. The time needed for this stratification is more. It can span dozens of pages. Hence, it is a complete and integrated system used at the fundraising and investor levels.

Lean Business Plan

Usually, most start-ups go this way for the briefing of the entire business strategy. This is a comprehensive, high-level critical plan with only points of interest. This approach aims to summarize only the main points of the most important aspects of a business proposal. If creditors and investors ask for more information, this plan is accompanied by a detailed traditional plan for reference.

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Your business plan is the tool that helps convince people to invest in your idea and work with you.

Determine Your Target Audience

Targeting a broad audience does not usually allow a business to hone in on customers who genuinely need and want its products or service. Instead, you should limit your target audience to two or three main types of buyers when creating a business model. For example, outlining each category’s demographics, common challenges, and the solutions your company will offer can be an acceptable strategy.

Important Business Resources

What does your business need to carry out regular processes, find new clients and reach business aims? You should have the necessary business resources documented to ensure your business model is ready to answer these questions. To satisfy your business needs, you can start by collating resources such as websites, funds, inventory, intellectual property, as well as customer records.

Strong Value Proposition

To keep your business contentious, it is vital to provide modern services and innovative products or add to existing services. As we saw recently in retail and edtech sectors, this is true for almost all businesses. Discovering what individual output your company can offer and why it is better than its contenders is the origin of a definite value proposition.

Create Space for Innovation

When you start a business and develop a business model, your business plan is based on several assumptions. But until you begin welcoming paying customers, you honestly don’t know if your business model can meet current market needs. Therefore, it is essential to leave room for future innovations. Instead of developing a static business plan, you should adopt a dynamic long-term review strategy.

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Break-even Analysis: Understanding Where Your Business Stands

Tanisha Achrekar — Fri, 16 Apr 2021 04:35:04 +0000

I remember as a kid, there were so many fun and fair exhibitions and stalls to enjoy. As an adult, I see my friend hosting one. Stalls usually have a simple business model, where other than the product, the costs involved are of the stall and staff if any needed. My friend wrote down all the expenses from the rent of the stall to travel expenses on paper. She stated that she needs to make enough sales to recover the amount she put in the stall. Once she recovers the money invested by her, the rest of it is profit. Without realising, here she did a break-even analysis of her small business.

Read on further to understand break-even analysis in detail and use it for your business.

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To make smart business decisions, break-even analysis is an essential metric

Understanding break-even analysis

Any business, be it small or big, needs some amount of funds. In the initial years, any earnings would be first the recovery of funds. Once all the money you put in while starting the business is recovered, the rest is profit. The point of any business, where the costs incurred has been recovered but no profits have been made is known as the break-even point. As the business here is evenly broken, it is neither making profit or loss. Here the business is not making any money or losing any money. Any sales made after the break-even point is the profit of that business.

Even two companies who are selling the same products can have a different break-even point. If one company has Rs 50,000 as the total cost incurred and the second one has Rs 75,000 has the total cost incurred, the first company’s break-even point will be lower than the second one. This is because the cost incurred by the first company is less than the cost incurred by the second one. You can conduct a break-even analysis to understand the time taken to make your business profitable or the sales target needed to reach the no profit- no loss point.

When is break-even analysis used?

Break-even analysis can be conducted in your business at any point in time. Some of the common scenarios when businesses conduct a break-even analysis are

Establishing a new business

Break-even analysis is an excellent and efficient tool especially before starting a new business. It helps you to understand how viable is your idea and how realistic the costs are. It will help you to understand the financial forecast of your business idea. Also, it will help you as well as the investors to understand the sales needed to start making a profit. According to the break-even analysis, sales targets can be set according to how long the business can function with ease in the beginning without making any money. Break-even analysis of a new business will impact the cost-effectiveness, pricing strategy and also sales strategy.

Changing or transforming in the current business model

The key to surviving and sustaining any business is being open to changes. To have a competitive edge, you need to evolve as your industry does. During such times, when your business is going through an evolution, conduct a break-even analysis. As any amendments impact costs incurred and hence, the profits too. For example, a grocery store starts offering at-home delivery to get an edge over its competitors. Here the product price will remain the same, but the expenses have increased. A break-even analysis will help here in understanding the impact of this change on the business.

Launching a new product line

When you are planning to launch a new product, you need to consider the impact it will have on your business. Conducting a break-even analysis will reflect how the expenses incurred in the new product launch will affect your business. Sometimes, the fixed costs may remain the same and only changes may be observed in the variable costs. In that case, the analysis will help in understanding the impact of change in variable costs. Conducting an analysis aids in setting the price of the new product as its financial impact is already known before you start selling.

An additional sales technique

We live in the age of technology where sales techniques keep evolving and changing with technology now and then. Any additional sales technique or channel will impact the finances of any business. It may change the costs incurred by the sales department and also the sales. For example, an offline business that contemplates selling on Amazon needs to consider the fees charged by Amazon for their services. The significance of this new sales channel on your business can be known by conducting a break-even analysis.

Why should you perform a break-even analysis?

There are several situations where conducting a break-even analysis of your business would prove useful. Some perks of conducting break-even analysis of your business are

A break-even analysis in the simplest terms helps in determining the ability of your business to generate profit.

Break-even analysis of your business will help to tap the unleashed potential a product/service can generate. It will help you to utilise the unused capacity of your business and maximise its potential and profits.

It helps in determining the impact made on your profits due to the changes made in fixed costs or variable costs.

It helps in estimating the sales that are needed to be made to recover the costs.

It reflects how a change in price or sales impacts the finances of your business.

How to calculate the break-even analysis?

Break-even analysis is a great tool for your business and calculating it is relatively simple. The break-even point of your business equals your fixed costs divided by your average price derived after subtracting the variable costs.

In mathematical terms,

Break-Even Point = Fixed Costs/ (Average Price – Variable Costs)

Say a company is commencing its footwear line. The fixed cost incurred by the company is Rs 5,00,000. The average variable cost per unit is Rs 500. With a variety of footwear, the average price per unit is Rs 1000. Here the break-even point will be –

Break-even point = 5,00,000/ (1000-500) = 1000 units

This means that to recover the cost incurred, 1000 units are needed to be sold at a selling price of Rs 1,000 per unit. The 1000 units here is the break-even point.

Also, the break-even analysis included determining the contribution margin of a product. When you subtract the total variable cost from the selling price, the number derived is known as the contribution margin. Fixed costs are not considered while calculating the contribution margin of any product. For example, if the price of a product is Rs 500 and the variable cost is Rs 300 per unit, the contribution margin is Rs 200 (Rs 500 – Rs 300). The contribution margin of Rs 200 here is used to cover the fixed cost incurred.

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Break-even analysis of your business will help to tap the unleashed potential a product or service can generate

Limitations of break-even analysis

The break-even analysis does impact the decision making of any business. However, it has its limitations.

It fails to give the demand insights of the market as it does not reflect how likely your business is going to break even. As demand is not a stable and steady variant.

The break-even analysis would be difficult to conduct in huge corporations with multiple products at multiple prices.

While conducting the break-even analysis, you need to ensure that the data is accurate on your part.
The striking limitation of the break-even analysis is ignoring competitors. As competitors affect the market, prices, sales and demand of any product.

How can I lower my break-even point?

If after conducting the break-even analysis, you find that the units required to sell are too high, measures may be needed to lower the break-even point. In some scenarios, it might be unrealistic to lower the break-even point. While, in other cases with the application of the strategies below, the break-even point can be lowered –

Reducing the fixed costs

If you want to lower the break-even point of your business, a thorough analysis of your business is needed. See if you can reduce the fixed costs in any areas. For example, if there is ample space in your office that is not being used to its full capacity, consider subletting it or opting for a small office space. This will lower your fixed costs without impacting the production.

Increase the price per unit

If the selling price of your product is high, you may need to sell fewer units to break even. As the marginal contribution received by selling each unit increases. The catch here is to understand your target audience and their willingness to pay the price you are planning to quote. This strategy works the best if your product is not yet launched in the market. For an existing product, an upselling strategy may be needed as consumers may expect a better, upgraded version for the higher price.

Lowering your variable cost

Reducing the variable cost per unit is one of the most challenging strategies. One way to reduce the variable cost is increasing the scale of production if your business is ready for it. Also, negotiating with your supplier or considering other suppliers without compromising on the quality will help in reducing the variable cost. Even the process can be altered to make it cost-efficient like switching to cheaper alternatives for packaging.

To make smart business decisions, break-even analysis is an essential metric. The financial health of your business can be determined using it along with other metrics. Also, it is essential to monitor the break-even point of your business when any changes are made in the variable.

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Strategising Business Strategies for Successful Entrepreneurs

Smruthi Krishnan — Wed, 14 Apr 2021 04:35:08 +0000

Whether you are a small-scale entrepreneur or a start-up founder, business strategies form the very crux of your ventures whilst building the foundation of success (sometimes failures too). They are basically the course of actions or decisions which help entrepreneurs in achieving specific business objectives. To ensure a competitive advantage in the market, to plan ahead expansion and scaling of the venture, to generate revenue and customer satisfaction thus achieving the end goals of business, every company has a master plan or business strategy that makes them stand out from the rest of the companies and paves the path of success for them.

What are Business Strategies?

Just like an artist before painting a picture draws an outline and decides the colour palette he wishes to work with, in businesses, strategies act as an outline sketch that provide direction and image of the venture. It builds a rough idea of the intent and action which is then orchestrated or carefully painted by the company in order to achieve an effective workspace that optimises opportunities, mobilizes resources, reaches a position of advantage, meets threats and challenges with a proper plan, directs efforts and behaviours in lines of that of the company and commands control over unprecedented situations.

As it is often said, if you fail to plan, you plan to fail. A business strategy is basically a plan that involves moves and actions that a business uses to attract customers and strengthen its performance while achieving their organisational goals. It gives the business an outline as to how it should function in order to reach its desired ends. Most strategies occur within the top tier of management so as to provide a base framework for discovery and development in order to analyse and optimise opportunities. Another main focal point of business strategy is to help meet potential as well as unprecedented threats and counterbalance weakness.

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Just like an artist before painting a picture draws an outline and decides the colour palette he wishes to work with, in businesses, strategies act as an outline sketch that provide direction and image of the venture.

Importance of Business Strategies

You cannot achieve your dreams without a plan to achieve them. After you set your business objectives, you must focus on strategies to achieve them lest your objectives end up being a dream. When you are investing large amounts of money into your ventures, it is necessary to implement smart business strategies that up your game and help you become successful.

Choose strategies that make you stand out from the crowd and increase your revenue traction. With more and more people venturing into the business landscape, it is becoming increasingly difficult to come up with newer and better strategies. However, we still have not reached saturation in the strategy market. There are several reasons why business strategies are important.

Knowing your Strengths and Weaknesses

While formulating your business strategy, you can focus more on your strengths and weaknesses. This helps you optimise in areas where you excel and figure out ways to cope with your weaknesses so that your chances of success increase.

Planning

Business strategy is a part of a business plan. Business plans help you analyse and set your goals and objectives while strategies will help you figure out how to achieve the said objectives.

Efficiency and Effectiveness

Strategies help you allocate how much resource should be allocated at every step, assigns jobs to every person in the company, and ensures smooth functioning of the business. This increases efficiency and effectiveness of the business operations especially in the long run.

Competitive Advantage

As mentioned above, business strategies focus on optimising and playing on a company’s strengths thus giving them a competitive advantage that helps them stand out from other ventures. This also helps in brand marketing and advertising giving a unique recognition to the brand and creating traction amongst consumers for the brand.

Levels of Business Strategy

Although it may seem like there is only one solid set in stone strategy for the entire business, there are multiple tiers at which multiple strategies work simultaneously to run the business. Business strategies usually pan out to three different levels:

Business level strategy:

Strategies related to any particular business are known as business-level strategies. They are developed by the general managers who transform the company vision into realistic strategies. These act as the map to success for the entire business. These strategies are unit specific strategies which differ for different units of the business.

Corporate level strategy:

These are long-range, action-oriented, integrated and comprehensive plans that are strategised by those sitting in the top tiers of management. The corporate level is the highest and most broad level of the business strategy. They set the mission, vision, and corporate objectives for everyone. They focus mainly on ascertaining business lines, expanding, scaling, growth perspectives including takeovers and mergers, diversification, acquisitions, integration, investments and more.

Functional level strategy:

These strategies are developed by the first-line managers or supervisors, and help in the decision making at the operational level. They focus on day-to-day business issues around certain functional areas like marketing, production, human resource, research and development and finances. They are needed to deliver unit level and corporate level strategies. These strategies also help maintain relationships between different departments and help the business move forward as a whole.

Key Components of a Business Strategy

Strategies answer all the what, why, whose, when, where and how of reaching your business goal. The key components of any business strategy include:

Vision and Business Objective

As we have discussed before, the main duty of any strategy is to help achieve a business goal or objective. They set the stepping stones that lead up to fulfilment of the company goals with a clear vision or blueprint that tells us what and how things need to be done and by whom.

Core Values

Business strategies are the perfect embodiment of a company’s core value. They reflect all the dos and don’ts of the business and highlight the morals and visions of the business.

SWOT

A SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis is a rundown of the company’s current situation. It forms a core component of a business strategy as it highlights the strengths and opportunities which the company can optimize on and the weaknesses and threats which the company should tread carefully by.

Operational Tactics

Unit and functional business strategies delve deeper into how the work needs to be done such that the results obtained and the process involved take place in the most effective and efficient manner. Since everyone knows what exactly needs to be done and how it should be done, it saves a lot of time and effort.

Resource Procurement and Allocation

Business strategies also imply from where resources will be procured from across the landscape and how these resources will be distributed for various functions between different departments. And who will look into procurement, allocation and distribution of said resources.

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Business strategies are the perfect embodiment of a company’s core value. They reflect all the dos and don'ts of the business and highlight the morals and visions of the business.

Business strategy examples

1. Cross-sell more products

Some organizations focus on selling more products to the same customer. They increase the amount of product sold per customer thus increasing the average cart size. This increases profitability without looking for new customers.

3. Grow sales from new products

Investing in research and development in order to constantly innovate, even with your most successful products will up your business sales in more ways than one.

4. Improve customer service

Another good business strategy is delivering quality customer service. You can build a strong reputation for having exceptional customer service like online support or a more effective call center.

5. Cornering a young market

Some large companies are buying out or merging competitors to corner a young market where they had no strong position before whilst retaining old customers. This is a common strategy used by Fortune 500 companies to gain leverage in a rapidly growing market.

6. Product differentiation

B2C businesses differentiate their products by highlighting the fact that they have superior technology, features, pricing or styling. This is called product differentiation which was used by Apple to differentiate its smartphone operating system iOS by making it really simple as compared to Android.

7. Pricing strategies

Pricing strategies involve either very high prices to channel exclusivity of product or very low prices to increase traction. With low prices, high volumes of sales are required to earn profits. High prices maintain exclusivity of the product, keeping them from ordinary customers whilst retaining a large profit margin per product.

8.Buying the Competition

You can buy your competition or pioneers in technology instead of creating one on your own and competing. Facebook’s buy the competition strategy has led to notable acquisitions Instagram, WhatsApp, Oculus, etc which increased its reach and user base.

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Human Resources : A Vital Role In The Succession Planning Process

Roopali Kotwal — Mon, 25 Jan 2021 03:45:40 +0000

Passing the Baton in Human Resources

Imagine establishing an organisation with your sheer hard work and perseverance, nurturing an idea to realise its potential and transforming it into a live business prospect aiding to the growth of an individual, an organisation and every-one associated with it. Entrepreneurs generate employment for human resources – thousands of young minds with immense talent, as well as experienced professionals to exploit their maximum potential where they can visualise their growth and secure their future. Now, picture having no-one around, to lead or to follow! This is exactly why Human Resources are crucial for any organisation.

One would be staggered, thinking about how they are going to survive and for how long? This fear will indeed take over the sanity, due to the loss of purpose, and the ambiguity created will disrupt the ecosystem. One is sure to be demotivated in such a fragile environment. To quote from a personal experience, how the team was left disoriented by an announcement of their leader resigning and leaving the organisation on a sudden notice just around the annual review of their performance management process. That was a time to be worried about but, the management had a plan in place, of course, without which it would have been quite difficult for the team to cope up with the situation. And, there came in, ‘Succession Planning’, which we are going to explore in the next section.

Meaning of Succession Planning

What happens when a senior member in a significant position is no longer available? A business leader leaves unexpectedly, a board member or a CEO dies? How do we ensure the retention of the workforce and their motivation? How to keep the next generation prepared to step up in their roles? How do we make sure that business continues in such scenarios? The solution to the above situation is to plan for ‘succession.’ Be it a small enterprise, a family business or a large-scale company succession planning ensures that the business operation is buoyant. It is critical to secure the future of an organisation. It gives us a brief insight into why succession planning is required. But what is succession planning? Let us understand it in little detail here:

Succession planning is a long term, continuous, structured and confidential process. It is a talent management process that builds a pool of trained workers who are ready to fill in the key roles when leaders and key employees step down. Succession planning relies on talented workers ranging from entry-level to senior positions who get groomed for critical roles. We also know that not all employees can be identified as successors as there are just not that many strategic positions to fill. Subsequently, there would be some employees who would feel left out and under-appreciated. Hence, maintaining the confidentially of a succession plan is of utmost importance.

Importance of succession planning

As the senior management and board members are the main contributors in the formation of Successors, they must highlight the need for a succession plan. It is their responsibility to invest time and effort to ensure its significance is well communicated and understood within the organisation. However, the complete ownership/accountability to execute and implement the process in the most effective way lies with the Human Resources (HR) department. HR must work closely with the higher management, to work on the succession plan efficiently. Their role is to prepare the next generation of leaders to move up. Hence, HR must:

1. Find the right talent who fits the ethics and meets the business requirements.
2. Hire high-quality individuals/great talent for all key/critical positions.
3. Identify the right candidates in the existing employee strength and develop new leaders. Succession planning increases the readiness of experienced and capable employees who are prepared to undertake leadership roles as they become available. Hence, people development becomes crucial.
4. Once HR has identified potential leaders, it is their role to make the programs available to develop critical skills. Thus, the HR role in succession planning is to mobilize the talent, fill the gaps and reduce the loss of business continuity. Active job rotations help to cross-train the employees and keep them future-ready. HR needs to prepare individuals to meet future challenges.
5. Identify the organization’s top performers to analyse competencies and potential roles. HR should use the appropriate instruments to provide the most accurate measurements and avoid to overlook the potential.
6. Identify succession gaps and find interim leadership role candidate if they do not get a replacement and establish plans for the development of such professionals.
7. Ensure business-critical roles are identified based on business needs. They need to work with department heads to identify competencies and need experience for each of these roles.
8. Match the potential future job openings and build capability through mentoring, coaching and training of selected members to become the successor when the need arises. Thus, the need to focus on learning and development becomes significant.
9. Include a process to identify and capture critical knowledge. Succession planning tends to target leadership role but to consider the transitioning roles or retiring is equally important. Hence, taking the note of the processes the individual is responsible for, being aware of who is cross-trained and anticipating the obstacles is substantial to ensure critical knowledge does not “walk out the door.”
10. Evaluate and recommend appropriate compensation for fast-track performers to make sure they are well-rewarded for their performance.
11. Develop reporting mechanisms to inform/apprise leadership and the board of individual candidates’ progress.
12. Prioritise the succession planning process and should ensure it remains a top priority for other senior members too.
13. Challenge the leaders to find the diverse talent to be a successor.
Succession plan requires ongoing work from management, as well as from the prospective employees who agree to become successors. But, as employees move in and out of the company, training needs, schedules and potential successors change. It is the responsibility of the HR to ensure succession plans remain up to date.

As this is a very confidential process, it is very important to form a core committee of most reliable members who can help to identify the mission-critical roles (positions, if left vacant can pose a risk to the organisation), recognise the potential candidates to be the successors and agree on a shortlist of candidates without disclosing the discussion agenda at any point of time. The reason that the meeting needs to be confidential is that it’s risky to share openly about succession planning meetings. You may have a high potential employee in the discussion who could not be on the final successor list for one reason or another. It that employee knows about it, it may be discouraging and cause him or her to seek opportunity elsewhere.

The committee members should possess skills to energise others and shall be able to execute the succession process well along with the HR to deliver the desired results. Also, clear alignment of competency and values of the organisations is very important before we work on a succession plan as succession planning can be done in a no. of ways. The best practice model is competency ( behaviour needed to be successful in an organisation ) based model. An example of competency is “Critical Thinking.” Thus, we would need to hire people who are good critical thinkers to be successful.

We need to understand that shortlisted candidates will go through the leadership pipeline which means the potential employees go in the pipeline, they are developed, stretched, groomed and leaders come out from the other end ready to fill the critical positions. Hence, we can say that succession planning is very much a part of the “bigger umbrella” that is “Leadership Development Program.” Succession planning is a confidential and consultative requirement. It is a top to bottom approach. It is critical to know the business vision and strategy of the organisation to choose the right successors. Succession planning is a continuous process to ensure we have enough supply of strong and ready leaders to fill the leadership roles whenever they are open. This ongoing process of succession planning requires frequent revaluation to reflect changing business strategy, the external marketplace, talent development needs and emerging opportunities and threats. Performing this analysis, ideally on an annual basis, can help ensure your business is prepared to replace any leaders quickly in a framework that links up naturally with your existing HR operations.

The activity may seem unnecessary and a waste of time for companies because they have to plan and prepare ahead and preparing people for jobs when both jobs and people are changing all the time. It will be like a vicious circle. However, it is important to note that it is “business-critical” to fill in the senior positions/top roles. Thus, keeping the image of the company far from being fragile. All organisations (large or small) can benefit from the principles of identifying crucial job skills, knowledge. However, succession planning is extremely important in case of small business/enterprises as delay in setting up the succession plan process can endanger the survival of small companies. One of the big mistakes small business owners make is identifying their desired successor first and then working backwards to come up with the process that gets them the result they want. Instead, starting with the basics, linking succession planning with the broader human resources review of business goals. Having a vision for the company’s long-term future in mind while building the requirements. The succession planning, like everything else, should reflect the business goals before the personal preferences if you want your business to thrive after you’re gone. Without the ongoing succession plan, there are risks which companies may face. For instance, losing star performers, giving up the market advantage and incurring additional costs. HR teams can facilitate succession experience by helping leadership understand people’s strengths and potential. By having these imperative conversations with leadership early and often, we can secure the future of the company.

Conclusion

Thus, to conclude, we can say that HR plays an indispensable role in the implementation of succession planning than actually initiating or creating the same. Hiring right talent after the initial meetings of succession planning or building capability of existing one. Identifying people, training them by setting up yearly goals, cross-functional training or functional training if required in the critical roles is among the key responsibilities of the HR. It is the job of the HR to think about how the jobs are changing and what sort of leader the company may need next.

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Decoding Succession Planning in Business

Preeti Verma — Sat, 23 Jan 2021 08:26:10 +0000

We might have witnessed in many 80s’ Bollywood movies how the villain flaps a complex plot through forged Wills or keeps the legal heirs in the dark by embezzling the property papers. The villain may also try to prevent the heirs from fulfilling the conditions of the Will. Such plots have been turned into good suspense, thrillers as well as action movies. And after watching such movies, has it ever occurred to you to write your own Will? Quite likely that it did not trigger the thought. Have you ever imagined who is going to gain from the business empire that you have been building for years after you are dead? All of these efforts are somehow partly aimed at leaving behind a rich legacy for our loved ones? You need to bestow it to someone, preferably through a proper Will. The operational demands of running a family-owned business or other closely held enterprise can be all-consuming, but it is always important that business leaders take the time needed to assess their organization’s business succession planning.

The penalty for failing to get ahead of leadership or ownership changes can be significant, as the coming years may bring substantial transfers of wealth as businesses change hands and adopt new ownership structures. The long-term survival of a business, and the preservation of the wealth that has been built, will likely depend on getting ahead of those changes through strategic succession planning.

For private, sole-managed, or family-owned businesses, a solid succession plan can drive the growth of the business, reduce taxes, and set the stage for retirement. On the same side, family-run businesses may benefit further by focusing on preserving harmony within the family. Succession planning is not only an important and evolving process, but it needs to be an integral part of a company’s business strategy and operations. According to a study by the National Association of Corporate Directors, fewer than one in four private company boards say they have a formal succession plan in place.

There isn’t a good reason to justify the common oversight of not planning for business succession. Some business leaders are too caught up in the challenges of the present, while some have a subconscious aversion to the reality that they won’t be around forever, or assume succession Will work out naturally. Others are aware of the task’s true complexity and find it overwhelming. Ultimately, however, the reasons people avoid succession planning aren’t as important as the reasons they should embrace it.

For a business, working without a succession plan can invite disruption, uncertainty, and conflict, and endangers future competitiveness. For companies that are family-owned or controlled, the issue of succession also introduces deeply emotional personal issues and may widen the circle of stakeholders to include non-employee family members. The next 10 to 15 years are likely to bring substantial transfers of wealth through business ownership handoffs across generations and other new ownership structures. The long-term survival of those businesses, and the preservation of the wealth they have built, will depend upon a clear and early focus on strategic succession planning.

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For a business, working without a succession plan can invite disruption, uncertainty, and conflict, and endangers future competitiveness.

Understanding Succession Planning

Succession planning is a process that draws upon many business disciplines. Many privately held businesses display solid professionalism and enviable profits in their daily operations, yet fail to properly plan for and complete the transition to the next generation of leaders. Even the most sophisticated and knowledgeable business professionals can get caught in a web of complicated issues.

In fact, many business owners do not carry out a managed transition to a successor leadership team. In the case of family-owned businesses, only 30 per cent survive into the second generation, around 12 per cent survive into the third, and only about 3 per cent operate into the fourth generation and beyond. A solely-owned company’s owner usually has a personal vision to retire and sell the business ‘someday’, but he or she may not have adequately considered what it will take to make that vision a reality.

Even leaders, who profess they will never retire, have to acknowledge that no one remains at the helm forever. An unprepared new management group, or even a poorly managed transition to competent management, can trigger significant loss in value. If leaders want their businesses’ intrinsic value to remain intact for the benefit of their successors, they should start the planning process sooner rather than putting it on the back burner.

Many leaders choose to embark on a long-term program to identify and then groom the company’s future executives. In some cases, a careful planning process may reveal that selling the business instead of maintaining successor ownership really is the answer for their situation. Not all succession plans are created equal. If your business has a succession plan in place, the questions on the facing page can help determine how effective that plan and your current practices actually are.

However, what goes on in the minds of the promoters to effectively decide the succession planning is driven by various factors, few being, applicable laws, preservation of wealth, limited liability, synergies of thoughts, flexible structures, ring fencing of assets, timing to initiate succession planning, cross-border presence, amenability of structures to tax and other duties. Similarly, the laws governing the succession are critical for any succession planning, but the choice of successors, who may not necessarily be only from the family, is an important factor for the same. Unlike individuals, in case of corporate houses, succession planning is rooted deeper to choose the right structure, who can lead the group companies, and the composition for the board of directors for the group companies and the rights that the promoters, including their successors, should have.

Need of a Succession Planning

Succession planning is a multidisciplinary process. When you engage in succession planning, you are not just focusing on the future, you are preparing for the future. However, without a deep understanding of the present it is impossible to plan for the future. Leaders have to know the current reality of their businesses; how they operate, where the value lies, what their needs are, and who their most vital customers are, in order to prepare for new leadership and new structures that can provide continuity in the ways that matter.

Succession planning is also important for preserving family wealth planning in advance, the future of family’s businesses. Several iconic national and multinational businesses started off as family businesses, and here they are. Think of the companies like NewsCorp, Reliance Industries, Walmart, Ford Motors, Tata Group, Volkswagen, Dell, BMW, Samsung, TVS, Birla Group, Jindal Steel and many more to count on. Around 90 per cent of the worldwide gross domestic product (GDP) is created through family-run businesses. And India is one of the countries, where family-run businesses are predominant. The family-run businesses make up 79 per cent of India’s overall GDP.

The traditional view on succession planning is focused on inheritance through a Will and the wishes of a person after his death. However, this method of estate planning is not necessarily conducive to all kinds of assets. In the past, it has been found that most of the family disputes in relation to ancestral wealth arise out of testamentary dispositions. The most unfortunate thing in such disputes is that they can go on forever and the wishes of the testator often do not materialize.

Be it the country’s biggest conglomerate or small family businesses, everyone is grappling with succession planning to ensure that the wealth is safeguarded. The clear case of entire Raymond group dispute between father Vijaypat Singhania and his son Gautam Singhania is an akin example of the importance of succession planning, especially in a family driven business. The feud between the father-son duo became really ugly, where the Raymond Group promoter and chairman Gautam Hari Singhania made a statement, highlighting the gravity with which the succession planning needs to be looked at:

“Tomorrow morning if I die, god forbid, there are identified people who will take charge of everything. Raymond can run independently and competitively. My children are very young. I have a responsibility to my wife and children, to my employees and shareholders, my banks, institutions and customers”

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When you engage in succession planning, you are not just focusing on the future, you are preparing for the future.

Similar is the case between the media scion Rupert Murdoch and his son James Murdoch of News Corp; and Yes Bank. The Bank is also juggling its fate of who will be at the helm of affairs after the erstwhile promoter and managing director Rana Kapoor had to step down after the Reserve Bank of India’s (RBI) directions.

Indian Succession Laws

The origin of Indian succession laws can be traced back in the year 1865, when a draft of the Indian Succession Bill was first submitted by the third law commission in its first report for the year 1854-55. Originally, it was proposed as the Indian Civil Code, a title which was later altered to Indian Succession Act, 1865. A number of legislations relating to succession were passed from the year 1865 to 1925, and all these legislations were consolidated in the year 1925 and the Indian Succession Act, 1925 or Succession Act was enacted.

A separate legislation governing Hindus, including Buddhists, Jains and Sikhs, was enacted in the year 1956, namely the Hindu Succession Act, 1956 or Hindu Succession Act. Accordingly, Hindus are governed by the Hindu Succession Act and certain other provisions of the Succession Act. Muslims have their own textual law of inheritance, while Parsees, Christians and the persons, whose marriage is solemnized under the Special Marriage Act, 1954 are covered under the Succession Act.

Testamentary Succession

This means succession by way of a ‘Will’. A Will is a legal declaration of the intention of the testator, an individual who makes a will, with respect to his property which he desires to be carried into effect after his death. The registration of a Will is not compulsory but if desired it may be registered by the testator during his lifetime.

Intestate Succession

When a person dies without making a Will, his property devolves as per the provisions of Succession Act and Hindu Succession Act, applicable to Hindus, and it is known as intestate succession. In case of intestate succession, (i) if the deceased was governed by Succession Act, a letter of administration is required to be obtained from the court of competent jurisdiction for administration of the property of the deceased; or (ii) if the deceased was governed by Hindu Succession Act, the property devolves in accordance with the provisions of the Hindu Succession Act, to Class I heirs, Class II heirs, agnates or cognates, as the case may be.

Hence, succession planning should indeed be considered as a must-have for any organization for ensuring continuing management, growth and development of the business without any disruptions.

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Why is Facility Location Planning Important?

Kiran Kennedy — Sat, 16 Jan 2021 10:11:54 +0000

When you go to the beach on a crowded day, you try to find the best spot to sit in. You look for an area that is not too crowded, but not too isolated. It should be just the right distance from the snack stalls as well as the ocean. The same concept applies in business when you are looking for the right place to set up shop – finding the facility location in the market that will give your business the best chance of success.

What Is Facility Location Planning And Why Is It Needed?

As the name might suggest, it is the process of finding and establishing the ideal geographical location for a facility. A facility in this case is generally a structure dedicated to a certain aspect of your business, be it sales or manufacturing or storage. This also includes facilities that provide a certain set of goods and/or services. The process is focused on placing these establishments in areas that would drive up the chances of commercial success and give that specific facility a competitive edge.

Apart from the fact that it provides a significant economic advantage, a business could find that there is a need for planning for several other reasons. For one, it could be because it already has a facility and is looking to expand or even relocate to an area that has a more active customer base. Planning is mainly needed for reducing the cost of transport and production. It should be close enough to the source of raw materials as well as the market to which the finished products will be sent.

Of course, this may not always be the case and the reasons could vary depending on the industry and other socio-economic factors. For examples, if the market was down in a particular area due to lack of customers, then the business would have to relocate to a place that was more responsive to its efforts.

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The growth of a business directly depends on its location. You can only have a successful business where people have a need that has to be met and somewhere accessible.

A Step-By-Step Guide On How To Identify The Facility Location

Step 1: Come up with a location analysis

Before setting out to find your future business locality, you need to assess the different factors that could affect the location’s decision. This gives you an initial idea about the limitations and boundaries within which you can do your search and it helps narrow down the entire process. There are two types of factors that you need to consider:

Controllable factors

- - Proximity to the market.
  - Supply of raw materials.
  - Access to transportation.
  - The availability of supporting infrastructure.
  - Ability to pay labour wages and the availability of said labour in the area.
  - Availability of finances to run the facility.
  - The type of industry you are active in.

Uncontrollable factors

- - Government policies.
  - Unpredictable or unfavourable climate conditions.
  - The lack of supporting industries or infrastructure in the area.
  - The community’s perception of the business.
  - Any competitors that exist or may come to exist in that location anywhere in the near future.

Based on the nature of the industry the business is in, the company needs to highlight and assign a weight to each one of those factors. The ranking is usually on a scale of ‘0’ to ‘1’, which indicates least important and most important respectively. This helps identify which are the factors that will most likely affect the search for your location and what you should consider before settling on any one location.

**Step 2: Find the ‘centre of gravity’**

Simply put, it is finding the right location relative to other locations. A centre of gravity in this context means to reduce the cost of transportation by determining the ideal location for the facility.

The cost of transportation depends mainly on the distance the materials and products need to be moved, the weight of the items and the time it takes to move it. By mapping out the location of the different suppliers in the area, the distance to the market and the distance to the facility from the suppliers, the centre-of-gravity technique allows you to find the most centralised location that would bring down overall transportation costs.

Step 3: Establish a backup plan

It is not a guarantee that even after all your research and analysis that your first choice will be finalised. As mentioned before there are unexpected and uncontrollable factors that may affect the end-decision and cause last-minute ripples. Having said that, you should come up with a couple of alternative locations, based on the same two steps mentioned above.

Keeping the criteria uniform ensures that the backup locations will more or less be ideal for the new facility once finalised.

Step 4: Time to make a decision

Once you have all the information at your disposal, make the choice and get to work. Remember, the location you choose should complement the type of industry the business is involved in.

Step 5: Visualise and execute

This step revolves around the actual manifestation of the idea. Turn the plans for the facility into a visual three-dimensional model or display based on the location and size of the area the facility is to be set up in. This process helps you evaluate the effectiveness of the facility and where improvements can be made before the business is operational.

Types Of Facilities To Consider When Planning

There are generally three categories into which facilities can be categorised. Consider these divisions and see which area your new business establishment falls into, as each section comes with its own set of challenges and advantages.

Heavy manufacturing facilities: These are the large commercial factories that you see on TV. They occupy an enormous amount of space and are very heavy on the cost in terms of maintenance and energy expenditure. You also have to hire a large number of people to help operate these behemoths. If your business falls into these categories you should prepare a significant budget to run the business for a minimum of 18 months where you might not see a profit.

Light industry facility: On the other end of the manufacturing spectrum, we have these light industries that operate on a much smaller scale. They specialise in products that are not so capital intensive, for example, matchboxes, spectacles, small electronic gadgets, kitchen utensils and so on.

Due to their smaller size, they have smaller maintenance and operating costs as well. These types of facilities are more customer-oriented as opposed to the large-scale mass production of the heavy industrial facilities. It would make more sense to have them located closer to your customer base and local retail stores where the products can be purchased.

Retail and service facilities: The last broad category to consider is retail or service facilities. These are essentially all your grocery stores, supermarkets, bakeries and restaurants. Compared to the other two categories, this type of facility is the smallest and least costly, relatively speaking. Being that its main function is to service the customer directly, it should be located right where the customers are.

Urban and suburban areas are great locations for these types of establishments. It also means that you need to select an area based on the amount of competition you may face there.

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It stands to reason that the type of facility you choose depends entirely on the type of business, and it is possible to have a hybrid of these facilities depending on your needs.

To sum up

Yes, this entire process of pre-planning the location of your new establishment is one that is centred on cost-saving and gaining an edge in the market. It does, however, come with its share of problems. Despite all the planning, if something were to unexpectedly go awry, for example, the COVID pandemic-lockdown, then that location would be compromised and all the planning and time invested in that one location goes to waste.

Another thing to watch out for – you cannot move locations often as this will be very cost heavy on the company. So, no matter what the location or business, you should anticipate as best you can for all the benefits and downfalls before proceeding with the location for the facility. At the end of the day, it all comes down to two things – the data from the planning and the nature of the business/facility. The point of these facilities is to be so ideally placed that they help develop the sales network of the business.

Read our article on sales development to learn more about how you can turn your business facility into a highly effective point of operations and sales.

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