Entrepreneurs – Dutch Uncles

A Peek Into The Business Empires Of Businesswoman Kim Kardashian

DU Desk — Sun, 08 Aug 2021 05:35:08 +0000

When the world was sleeping and unaware of how glamorous and feminine business and entrepreneurship could be, one woman, Kim Kardashian single-handedly built a business empire for herself and her family. We are now coming to terms with solopreneurs, womenpreneurs, and mompreneurs. But Kim Kardashian had already built a multi-billion-dollar beauty and wellness empire when the rest of the world was still playing catch up.

Who is Kim Kardashian?

Kim Kardashian is a reality TV star, an ex-stylist and now a beauty Moghul. She has a glamorous brand persona, a star-studded net worth, and is one of the biggest international celebrities. Kim paved her way into the cosmetics, and fashion industry by leveraging the power of social media during its budding days.

Kim Kardashian’s Business Portfolio

Kim Kardashian has a very vast business portfolio centred around her stint as a producer to her family’s Reality TV Show. Her portfolio is spread out across exclusive media appearances, collaborations with the who’s-who of the beauty, fashion, and media world. Currently, her prominent business ventures include:

KKW Beauty

KKW (Kim Kardashian West) Beauty is a cosmetic and beauty brand famous for its body make up, body tape products, lip, and face make up products which is currently undergoing a rebranding exercise to adopt a more sustainable approach. It is estimated to be valued at $1 Bn.

Skims

Skims is a shapewear and undergarment brand famous for its inclusive bodysuits, and loungewear, estimated to be worth $1.6 Bn. Through the brand, Kim Kardashian is promoting body positivity since her products cater to men and women of all shapes and sizes.

Keeping up with the Kardashians

At the crux of Kim’s business portfolio is Keeping up with the Kardashians, a reality TV show she co-produced with her family for a long duration of 20 Seasons and which recently concluded. KUWTK has left behind a long legacy and has propelled Kim Kardashian to the pinnacle of stardom.

Endorsement Deals

Kim Kardashian endorses and collaborates with the top designers, make-up artists and brands of the fashion world including the likes of Chanel, Versace, and Mugler. She has appearances at top fashion events including the Met Gala and Paris Fashion Week.

Instagram Ads

Kim Kardashian does sponsored Instagram posts for luxury brands and products in beauty, health, wellness, makeup, jewellery, cosmetics, and apparel. She charges a tentative $1 Mn for each sponsored post.

How Kim Kardashian became a successful Businesswoman

Kim Kardashian became a successful businesswoman due to her existing television show, the publicity and media coverage received from it. Also, due to her celebrity image and personal life which read like an open book, she has been a favourite among gossip blogs, and the paparazzi. This exposure has helped her business success immensely.

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At the crux of Kim’s business portfolio is Keeping up with the Kardashians, a reality TV show she co-produced with her family for a long duration of 20 Seasons and which recently concluded.

What’s in it for me?

Kim Kardashian’s business success is a lesson in branding for solopreneurs and mompreneurs. You need to build a solid brand image for yourself to move forward successfully in business. Learning from Kim Kardashian’s life, you need to capitalise on powerful outreach channels like social media, and digital platforms like YouTube to build your brand image.

Kim Kardashian has been an active user of Twitter since it was first launched. She has actively engaged with her followers and fans without failing to update them about her next move, her pursuits, and passion. Social media and digital platforms are strong branding tools which solopreneurs need to leverage since the exposure and outreach opportunities are at a global scale. Finally, Kim Kardashian’s success is also a lesson in women empowerment. Despite many naysayers and negative publicity received over the years, many of which were intensely sexist in nature, Kim kept pursuing her business ambitious and proved to the world that women can raise empires from the ground in business.

The post A Peek Into The Business Empires Of Businesswoman Kim Kardashian appeared first on Dutch Uncles.

Raj Kundra, From Pashmina Trader to a Business Tycoon

DU Desk — Sat, 24 Jul 2021 12:35:09 +0000

At 18 he was a college dropout; he started his business career as a Pashmina shawl trader in the UK. Kundra today has stakes in more than 20 companies operating in trading, construction, real estate, energy, steel, shares, media, sports, cricket league, fighting league and gold trading.

Raj Kundra has achieved tremendous business success in his life despite coming from a small, middle class family. There are business and entrepreneurship lessons to be learned from his life.

Who is Raj Kundra?

Raj Kundra is popular in India as a British-Indian Businessman who moved to his home country India after his wedding with veteran Hindi artiste Shilpa Shetty. He is also well known for his brief but controversial IPL stint when he owned the Rajasthan Royals cricket team. But who is he really, and how did he land himself in the league of rich, Indian businessmen? Hailing from a middle-class family and humble beginnings, Raj Kundra’s entrepreneurial journey commenced when he ran a successful business supplying Pashmina Shawls in Nepal. This was his first grand success which established him as a key player in business and also earned him his first few millions. Kundra was awarded the Champions of Change Award in 2019, for his involvement with Swachh Bharat Mission. The award was conferred by former President of India Pranab Mukherjee at Vigyan Bhavan New Delhi on 20 January 2020. In 2004, he was ranked as the 198th richest British Asian by SUCCESS magazine.

Kundra was less known before he met Indian actress Shilpa Shetty who shot to global fame by winning the British reality show Big Brother in 2007. Two years later they were married, Kundra and Shetty then set sail for Mumbai. This is where Kundra planned to become a film producer and Shetty dabbled in Bollywood once more and tried her hands in fitness, yoga and spa businesses.

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During his tenure as a Pashmina trader, Raj Kundra had a clear understanding of the market demand for handcrafted ethnic goods among fashion retailers in Britain.

Lessons from Raj Kundra’s Business Success

The key lesson which start-up founders and entrepreneurs can learn from him is to start small in business. If we take a look at where he started, the trading of artisanal commodities from the far east (Nepal) to his eventual entry into the glamorous world of Hindi Cinema and Sports Entertainment, it’s clear that Raj Kundra had big ambitions, but he took small steps to get there. During his tenure as a Pashmina trader, Raj Kundra had a clear understanding of the market demand for handcrafted ethnic goods among fashion retailers in Britain.

5 Learnings from Raj Kundra’s Life

A good number of business successes

Raj Kundra started his business journey early on when he dropped out from college. His flagship business was a huge success, after which he quickly reinvested his profits in other businesses all of which grew his wealth considerably.

Diverse portfolio of investments

Raj Kundra quickly invested in a number of profitable businesses and built a diverse portfolio of investments. He purchased stakes in 10 companies in quick succession from a variety of industry sectors like trading, construction, real estate, energy, steel, shares, sports and gold trading.

Targeting lucrative business ventures

Kundra always had his sights set for the most lucrative business ventures that would fetch him large profits. His interest towards the diamond business in Dubai and subsequently towards Bollywood movie making were all well-timed and strategic.

Big Break

Raj Kundra took up co-ownership of the IPL Team Rajasthan Royals when sports media was at its peak in India and made big bucks through the team’s first big win in its pilot edition. This success catapulted Kundra into fame, success, and into the glitz and glamour world of films and media.

Attractive media image

Raj Kundra had an attractive media image built around his personal life and marriage which were no doubt beneficial for his success. The fact that he was the husband of a well-known actress in Bollywood and his media appearances worked well for his persona as a rich Indian businessman.

Raj Kundra’s success mantra

Raj Kundra’s success mantra has been ‘Live life on your terms’ something which he has consistently stood by when he left his middle-class identity to break into the upper echelons of success and power. Also, he has acted on his own interests while choosing businesses to invest in.

Businesses he mastered

Raj Kundra mastered the celebrity business. He used his connections with well-known personalities right from the start when he sold pashmina shawls to London fashion houses. Throughout his career, he showed strong inclination towards businesses centred around celebrities.

What’s in it for me?

As of 2021, Raj Kundra’s net worth is estimated to be around INR 2900 Cr. He has been an attractive figure in the world of British-Asian business personalities. Raj Kundra has earned considerable revenue which is exemplary for aspiring entrepreneurs and budding founders. His early life story is a lesson in entrepreneurship for start-up owners because he made a fortune through hard work and innovation. He smartly invested his earnings from his many business ventures into movie production which turned out to be very profitable. A simple idea for the market demand of authentic handlooms among the high and mighty of the fashion industry in London practically transformed his career and his life. This is the biggest takeaway from Raj Kundra’s life for start-ups on how everything rides on a single big idea.

The post Raj Kundra, From Pashmina Trader to a Business Tycoon appeared first on Dutch Uncles.

Startup Incubators, Defined

Shalmoli Sarkar — Sat, 17 Jul 2021 05:35:08 +0000

There have been several such instances where we see that a plant or seed is kept in a special chamber with measured quantities of light, nutrition, moisture and ventilation, etc. That special chamber is the incubator, whose job is to create a favourable environment for a plant’s optimum growth.

Similarly, the road to entrepreneurship is a bumpy one. A new startup when envisioned just has an idea but in order to bring it to fruition, we need startup incubators to give direction to a startup’s business idea till it matures.

What is a Startup Incubator?

A startup incubator is a collaborative programme that creates a favourable environment for the startups to learn, understand, question, offer resources and get mentorship about the progression of their startup idea in the real world. Incubators are generally non-profit organisations that are run by either private or public entities.

A startup incubator benefits an entrepreneur by providing them with workspace, mentoring, training on business essentials, offering tips to network with industry veterans, approaching seed investors, marketing, etc.

Startup incubators are often associated with premier institutes such as BITS Pilani, IIT Madras, IIT Delhi and other B-Schools or are launched by successful entrepreneurs and renowned companies.

Services Provided by an Incubator to Startup

Here are some of the services that a startup will avail once associated with an incubator:

Networking opportunities

Through networking, new startups can develop strong professional relationships with leaders, professionals and other successful startup entrepreneurs within the industry. Networking benefits a new startup to gain contacts, referrals, new business opportunities.

Help with business basics

Since all the budding entrepreneurs might not have a commerce or MBA background, incubators can power them to understand the basics of finance management, human resource management, operations and supply chain, etc.

Marketing resources

Startup incubators will assist startups regarding marketing and PR strategies and select the best channel of marketing.

Access to Angel Investors and venture capitalists for funding

Startup incubator provide startups with access to funding opportunities by developing investor relations or programmes that facilitate the transfer of funds. Incubators have numerous partners that work to assist the startups in access to funding and other invaluable resources.

Helping with Business Etiquettes and Presentation skills

To generate interest in the minds of investors, startup founders should be thorough with presentation skills and maintaining the right body language and business etiquette to create the right impression.

Comprehensive business training programmes

Startup incubator host regular business training programmes for startups with a focus on topics such as future forecasting, business fundamentals, how to obtain funding, legal structures and quick prototyping.

Favourable working space with High-speed Internet access

Startup incubator offer a proper working space for startups with high-speed internet connectivity, since renting an office space is expensive. The working spaces can be either shared one or a private office or a single cubicle.

Intellectual property management and legal counsel

Startup incubator help startups highlight the weaknesses or vulnerabilities in their startup model, therefore helping them to file patents and other formalities to safeguard intellectual properties like logo, web design, special recipe or formula, etc.

Access to bank loans, loan funds and guarantee programmes

Several banks and financial institutions are connected with incubators to offer easy access to bank loans, funds and guarantee programmes.

Management team identification

Based on the offerings of a startup, incubators will provide the necessary guidance to startups about building the right workforce with the right talent and skillset.

Help with regulatory compliance

Development of a product or service might not be enough as it needs to observe regulatory compliance, in local, national, or universal legal requirements or restrictions. Incubators provide startups access to experts in these fields.

Accounting/financial management assistance

A startup incubator can help startups with the necessary financial planning. In this way, the startup can manage their financial resources which will be well utilized.

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A startup incubator is a collaborative programme that creates a favourable environment for the startups to learn, understand, question, offer resources and get mentorship about the progression of their startup idea in the real world.

Top 10 startup incubators in India

Here is the list of top startup incubators in India:

Centre for Innovation Incubation and Entrepreneurship by IIM Ahmedabad

It focuses on startups operating in information communication technology, cleantech, and social.

Amity Innovation Incubator

Focuses on rural innovation and social entrepreneurship, information and communication technologies, edtech, biotech, and material sciences.

AngelPrime

Based out of Bengaluru, it focuses on areas like mobile internet, e-commerce, and tablet/mobile app.

IAN Incubator

Its focus areas include IT/ITES, telecom, mobile VAS, gaming and animation, internet/web, media and entertainment, education technology, healthcare technology, manufacturing products, alternative energy, clean technology, cloud computing, and retail technology.

Indavest

It focuses on startups creating innovative solutions in E-commerce, mobile applications, customised gifting and branding solutions, and software products.

Khosla Labs

It focuses on mobile payment & banking, retail efficiency, healthcare delivery, and big data analytics.

Nadathur S Raghavan Centre for Entrepreneurial Learning(NSRCEL) by IIM Bangalore

It is an open incubator that does not focus on any area.

Science and Technology Entrepreneurship Park, Technology Business Incubator by IIT Kharagpur

It has no focus areas.

Seedfund

It is a physical startup incubator based out of Mumbai that focuses on consumer Internet, e-commerce, sports, education, healthcare, financial services, analytics, services, and online ticketing.

Srijan Capital

Focuses on e-commerce, SAAS, mobile, social media, and consumer internet.

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Must-Read Book on Finance: FUNdamentals of Financial Statements

Joseph Varughese — Wed, 14 Jul 2021 13:55:45 +0000

Book: FUNdamentals of Financial Statements

Author: Chinmay Ananda

Published by: Zaang Publications/Finance Academy, Australia

Year of publication: 2015

I have got the chance to read many articles and books on finance and financial statements written to educate non-finance executives and entrepreneurs in the finance domain. I have written a few articles in this genre. So, when I picked up Chinmay Ananda’s book ‘Fundamentals of Financial Statements’ to read I thought it to be another book in the same category targeting the same type of readers. But I was taken by surprise.

The cover, page layout and the style of the book give a feel of simplicity and the initial thought that would come to the reader’s mind is of mediocrity. After finishing this book, I felt that this book could be a good read even for finance professionals. Take a look at the way the difference between Asset and Expense or between Liability and Income or between the items coming to Profit and Loss and Balance Sheet are explained. Here is an example from the book – “If any purchase is consumed before the Balance Sheet date it becomes expense in the Profit and Loss statement and if it is not consumed before the Balance Sheet date it becomes Asset in Balance Sheet.” Beautifully articulated!

However, the book is written by Chinmay with non-finance readers in mind and it does full justice to its purpose and objective. Like the FUN in capitals in the word fundamentals of the title manifests, it is fun to read this book and understand how to read financial statements. It is a book on finance that even a non-finance person who hates finance and numbers will love to read till the end. More importantly, the book will tempt you to explore more about finance and financial statements.

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If you can’t explain it simply, you don’t understand it well enough

-Albert Einstein

A Book on Finance for All Entrepreneurs

What I enjoyed more about this book is the way it is structured and narrated – storytelling style and narrative in such a way that anyone who reads English can relate to it and get a gist of the subject. There are no debits and credits explained in accountancy language, no finance and accountancy jargon and terminologies used in the book to explain the fundamentals, sometimes even complex topics, of finance and financial statements.

A lot has been written on the need for entrepreneurs to understand finance, accountancy and financial statements so that they will be able to do budgeting, manage cash flow, control expenses, make investment and funding decisions. Not just that, it will help them get a feel of the value of their business, understand growth and profitability metrics and take winning business decisions. Despite having a good idea and funding, we have seen many startups failing miserably for want of financial management and control in place. This happens mostly when the owner(s) or founder(s) have no idea of finance and its importance in business.

Non-finance Person Writes a Book on Finance

What might have worked well for this book is the author, Chinmay Ananda, himself being a non-finance person who did his bachelor degree in engineering and MBA with a non-finance specialisation. He taught finance himself and now teaches finance and consults entrepreneurs on financial and business problems. However, he has done justice to the Einstein quote “If you can’t explain it simply, you don’t understand it well enough” that he reproduced in his book a few times.

In the process of explaining financial statements in a way that anyone can understand, the author covers almost all topics coming under the umbrella of finance. The way he has explained Operating Profit, Profit Before Interest, Tax, Depreciation, amortisation (PBITDA), Profit Before Tax (PBT), Profit After Tax (PAT), Earning Per Share (EPS), Dividend Policies, Leverage / Profit Volume (PV) Ratio etc., makes the reader believe that finance is a very easy subject to learn and understand. The way Chinmay has articulated what happens to profit, what comprises owners’ funds, what is the meaning of return on capital employed, how differently debt and capital impact profit and tax etc., is simple for the understanding of non-finance readers.

It is not just about learning finance and financial statements for an academic purpose that is attempted in this book but how the knowledge of finance and ability to read financial statements can be leveraged for the profitability, sustainability and growth of your business, particularly SME and startup businesses. It provides owners and entrepreneurs insight into the nuances of finance and how they help them in steering their business to growth and profitability.

The book is not purely confined to finance in the strict sense as it ventures to explain how a company is formed and why a company is considered as a separate legal entity separate from its promoters or founders. On the way, it explains how capital is brought in and why it is shown on the Liabilities side of a Balance Sheet. It is in an amazingly simple way the debits and credits are explained without resorting to the help of the golden principle of accountancy.

Owner vs. Business Perspective

He explains Debit and Credit this way – “Debit money is going out of the business. For Assets, you may say we have got land and machinery. But to purchase land and machinery, money first goes out of the business. That is the reason it is important to see it from a business perspective and not from an owner’s perspective. From the business perspective if the money is going out of the business either it becomes an Expense or creates an Asset.

Credit, money is coming into the business. If it is by selling the product or service, it is called Income. If money comes into the business because of borrowing then it becomes a Liability.”

How beautifully he put it so that someone who has not gone to college can understand it easily! All you have to remember is, when money goes out of the business it is Debited and if money comes into the business it is Credited. However, it can confuse the reader a bit as it does not say which part or leg of the transaction is to be debited or credited.

Financial Statements for a Layman

The book then goes on to explain the three financial statements viz. Profit and Loss/Income Statements, Balance Sheet and Cash Flow Statement. In layman language the book makes you understand why there are three financial statements and what are their uses. It also throws light on the difference between profit and money/cash balance, why cash is more important than profit, all without using any finance jargon or formulas or theories.

The very easy manner in which it is explained as to what are assets, expenses, liabilities and income and how and why they are classified so, without employing the language and technical terms of accountancy but in a common man language is commendable.

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Employees should have sufficient information about the business and its model as every decision every employee takes impacts the profitability of the company.

What are the Most Common Financial Mistakes?

Look at some finance mistakes that are explained in the book, the first one is “Selling a Product or Service for Less than the Cost of Liabilities”. Chinmay goes on to explain how the cost of liabilities is calculated and the entire concept with an example for the reader of any level to understand.

Likewise, another finance mistake – “Investing Short-term Liabilities into Long-term Assets” is explained with simple examples like “Life of loan should be equal to the life of an asset”.

Learn about Financial Metrics from this Book on Finance

Equally important is the read on various financial metrics:

Profitability
Liquidity
Operating ratios
Break-even point (BEP)
Profit v Money.

BEP is an important study in managerial accounting, used to calculate the point at which a business is not at profit or loss. It is inevitable to know the difference between the fixed and variable cost to understand the fundamentals of BEP and it is also elaborated. He explains in simple terms with examples as to how this concept is important in various business decision making.

Likewise, understanding the difference between Profit and Money or Cash is crucial. All profit is not cash and therefore the profit shown in the Profit and Loss statement and cash balance in the cash flow statement won’t be the same. There are many reasons for this such as non-cash expenses like depreciation appearing in profit and loss statements but not in cash flow statements or sales invoices becoming part of profit but not of cash till the sales amount is collected.

One important chapter in the book – What is happening with Profit? – throws light into what happens to the profit you make and how important is this understanding for strategic decisions. Profit is reinvested in the business as part of diversification or expansion or acquisitions. It is also used to replay your liabilities. Using profit for paying dividends to the shareholders or the investors is arguably the most important purpose of profit.

The Untouched Topic by Many Books on Finance

He has devoted one chapter to crucial topics that most books and articles have not touched. This is about educating every employee in your organisation to make profitable decisions. For that, employees should have sufficient information about the business and its model as every decision every employee takes impacts the profitability of the company.

At times, the author has moved away from the core topic to areas like cost accounting, startup mentoring etc. However, it is not to be considered as a drawback since the author has reiterated a few times in the book that everything you do or any decisions you take in business have implications for finance.

Though looking like straying initially, touching upon the concepts of marginal costing, contribution analysis, fixed vs variable expenses is a real value add to the readers, that too without complicating the concepts. The reason why the word ‘straying’ is used here is that these analyses don’t form part of standard financial statements but internal management reporting.

Different Perspectives to Financial Theories and Metrics

Another exciting part is the last portion of the book where Chinmay explains solutions to some critical problems that small entrepreneurs face with real-life instances as part of his consulting career.

One portion of the book that I was not able to agree to fully was about the differentiation between Performing Assets and Non-Performing Assets. The performing asset should earn returns to take care of a non-performing asset is like the arguments that business functions in a company feed back-office function. This is not fully true like the fact that every organ in a human or animal body is important. Another is the fact that it can create confusion about the use of the terminology.

Non-Performing Assets

A non-performing asset to most people is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. There is a high likelihood of readers getting perplexed here.

Overall, this is a fantastic book not only for non-finance executives and entrepreneurs but for finance professionals too. It gives insight into finance and business effortlessly and sometimes different perspectives to financial theories and metrics. This book is more pertinent for startup and SME entrepreneurs during uncertain times like the ongoing pandemic or recessionary period.

Expert Connect

Chinmay Ananda
Business Storyteller, Financial Educator at Finance Academy
Reach out to him for any financial advice for your business

The post Must-Read Book on Finance: FUNdamentals of Financial Statements appeared first on Dutch Uncles.

How the Best Pricing and Costing Practices Can Help You Achieve Great Unit Economics

Chayanika Sen — Fri, 11 Jun 2021 10:35:09 +0000

Unit economics is a term that is loosely used a lot, but often startup owners do not pay much attention to it. This could be a real mistake. But what is unit economics, anyway?

In simple terms, unit economics means measuring the profitability of selling goods, products, or services. For example, suppose you are a widget-making company. In that case, your unit economics will be the relationship between the revenue you receive from selling the widget versus expenses you bear for producing, marketing, and selling the widget. If you’re a service offering company like Uber, your unit economics will be the relationship between the revenue you earn from your services (for example, one ride of one passenger) versus the cost associated with marketing and offering the service to the customer.

Unit economics considers the direct revenues and costs connected with the essential elements of a company’s business model. In other words, it can be said that with this data, one can predict how profitable or not profitable a company can be and when it can reach the profitability state. And if you care about profitability, you can’t ignore to know about unit economics.

To understand unit economics, your first task will be to understand your basic unit. It is the most fundamental thing that reflects how you operate. Once you know the basic unit, you need to do the calculation in the next step. This will tell you how much revenue you will earn and what cost you need to pay to achieve that revenue.

In this context, it is essential to know about LTV or lifetime value which denotes how much revenue you can expect to earn from a single customer account during the entire lifetime of that account with you. To calculate LTV, you need to know the gross margin, how much each customer spends every month, and your monthly churn percentage. Mathematically, it can be represented as:

Lifetime Value = Gross Margin % X (1 / Monthly Churn) X Avg. Monthly Subscription Revenue per Customer

Coming to the cost side, the most frequently used term that you should know about is customer acquisition cost or CAC. It is determined by subtracting all the costs from the total sales and marketing costs to acquire a single customer. Representing mathematically,

Cost to Acquire a Customer = Sales and Marketing Costs / New Customers Won

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If you’re spending more to acquire a customer than its lifetime value, you won't survive in the business for long.

Why Is It Essential to Understand Unit Economics?

“If you can’t measure it, you can’t improve it.” – Peter Drucker.

Understanding and determining your unit economics is extremely crucial for early-stage startups to establish a healthy growth curve. Often, startup owners are so engrossed with their product ideas that they fail to recognize the importance of product-market fit, pricing strategy, cost structure, etc. which is why many startups fail to survive their initial days. But, knowing your unit economics from an early stage can help you make long-term financial projections. And the more accurate your financial predictions are, the more accurately you can predict your revenue trajectory.

How to Calculate Unit Economics?

Before we start calculating, we need to understand what a unit is. A unit can be anything depending on your business model. But as long as you are not mixing your units, your calculation will be impactful.

Customer as a unit

If you have a subscription-based model, every subscription you sell or get a new subscriber, a subscriber (customer) can be one unit.

Units as products sold

This model is more standard for manufacturing business where there is some cost attached to manufacturing a product. However, if you are a SaaS business, then customers as a unit would be more of interest to you than units as products sold.

The easiest way to calculate unit economics is to find the revenue per customer and then divide it by the costs associated with the customer. However, remember since no two businesses are the same, how you derive those values and what you determine as a unit will largely depend upon your business model. For example, for a SaaS business model, unit economics is usually LTV divided by CAC. However, for a more accurate future prediction, you need to consider other metrics, too, as simply LTV metric might not be sufficient. If you’re a new business, a startup, or have a new product launch, using a flexible LTV calculation makes more sense. Whatever you choose, you need to divide the result by CAC to get the unit economics.

Predictive LTV

This formula helps to avoid a sudden and unexpected drop-off in sales by considering how customer preferences change over time.

Flexible LTV

The predictive LTV works better for established companies. But if you’re starting, a flexible LTV would be more helpful to you.

Why Do You Need to Track It?

Unit economics is an efficient tool to determine if the cost of acquiring a customer exceeds or not the lifetime value of a customer. If you’re spending more to acquire a customer than its lifetime value, you won’t survive in the business for long. However, there are some other benefits too of tracking your unit economics.

A tool to measure early success

This is an important metric that often gets ignored by startups. It helps you determine how much you can spend on acquisition and how much you can expect in return. In short, it is an important metric to help you gauge the financial stability and financial health of your business in the long run.

Tool to tweak your model

Unit metrics are helpful as a yardstick to measure and determine if you need to tweak your pricing model, marketing budget, sales approach, or any other parameters that can help you earn more revenues.

Efficient financial planning

By combining your unit economics with your acquisition rate, you will be in a better position to do effective financial planning for your business. So, unit economics is a measure of growth for your business.

Evaluate the changes

Unit economics enables you to evaluate the changes you make to your pricing structure, marketing budget, or any other parameter. Simply determining if sales would increase or not is not as effective as understanding the LTV to CAC ratio. If there is an unfavourable change in the ratio, you need to reconsider your tactics. Thus, it can be safe to say that unit economics helps you to make an informed business decision.

Unit Economics as a Lever of Growth

Unit economics can be considered as a lever of growth or a tool to foresee if any hindrances are coming. It is that yardstick that you can use to your benefit to determine the health of your business. Keeping track of the LTV to CAC ratio is thus very important. Because if you are spending more, your business can get into serious trouble if not intervened early.

It is also easy to predict the growth of your business using unit economics. If your LTV is higher than the CAC, you are making profit from the existing customer base. If you’re able to maintain your LTV and CAC ratio, while expanding your customer base, your business is on a growth trajectory.

While unit economics helps you perfect your business growth, it also enables you to foresee any possible failure. While there can be occasional incidents where you can bear additional expenses, you can’t afford to make it a regular affair of throwing away money just for the sake of acquiring customers. At the same time, you don’t have much business traction, if you’re not acquiring customers and if your CAC value is increasing at a fast rate reaching closer to your LTV rate. Well, a failure is almost inevitable.

When you start a business or launch a new product, you need to hit a certain amount of profit when you can break even. Determining your LTV and CAC early can give you an idea of when you would be able to hit the break even. And not just that, if your units are correct, and if you track it diligently, you will also be able to predict accurately if you are in the right direction or your business decisions need some tweaks.

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An estimated unit economics measure can help you gauge how fast and how much you can spend on the marketing budget before you run out of all the funds.

Best Practices to Keep Your Unit Accurate

Unit economics is a powerful metric to help your business grow, but it won’t be of much use if you are using all the wrong metrics or if your metrics are calculated incorrectly. If you want to predict your profitability accurately, you need to be accurate with your metrics and, if required, recalculate it often.

Here are some examples to give you a better idea

Change of price

It is easy to keep track of your LTV; however, if you have done any updates in your unit economics and forget to update your unit economic calculation, then your LTV to CAC ratio will change because your LTV will be impacted. This can mislead you as your calculations will be incorrect. So, whenever you are making changes to your pricing structure, remember to feed it back to your unit economics calculation.

Capital expenditure

When you are just starting, you need to do more expenses to see growth in your business. However, an estimated unit economics measure can help you gauge how fast and how much you can spend on the marketing budget before you run out of all the funds.

Recalculate whenever costs change

Just like pricing change can affect your LTV change, similarly, when your cost changes, your CAC gets impacted too. This means if you are not feeding back the updates in your unit economics calculations, your CAC value will be impacted. To avoid any faulty calculations, make it a habit to immediately calculate any change in the cost to your unit economics. This way, there will never be a miss, and you will always be using the most up-to-date data.

Improving your unit economics

There are two ways to improve your unit economics. The first option is to cut down your sales and marketing budget. However, this can impact the growth of your business. But at times when your CAC and LTV ratio is too out of balance, cutting down the expenditure budget is a more appropriate measure.

However, it is always desirable to improve your unit economics by increasing the LTV value. You can achieve this by optimizing your pricing and reducing churn, and ensuring the customer stays for a longer time.

The Key Takeaways

Being aware of direct revenues, best pricing and costing prices, and knowing your unit economics is a must for any early-stage startup. By knowing your unit economics depending upon your business model, early-stage startups can better understand and plan their growth trajectory. Giving importance to unit economics can help identify opportunities, take care of a healthy cash flow, and overcome some of the challenges of scaling up your business.

Expert Connect

Chinmay Ananda
Business Storyteller, Financial Educator Finance Academy
Connect with our expert to assess your unit economics and plan your growth trajectory

The post How the Best Pricing and Costing Practices Can Help You Achieve Great Unit Economics appeared first on Dutch Uncles.

Finance for Non-Finance Entrepreneurs is not a choice but is the need of the hour!

Joseph Varughese — Fri, 21 May 2021 08:05:04 +0000

A common tendency among entrepreneurs, particularly of startups, is to accord the least priority to finance and accounting; whether to know about it or get help on it. This is one mistake most non-finance entrepreneurs commit that can turn out to be very costly to their business.

Neglect Finance at your peril

Start-up entrepreneurs need to know a certain amount of finance for two reasons:

To get a feel of what is happening in their business in terms of its performance and outlook
Their cash flow will not permit them to onboard senior finance professionals in the early stages.

If startup founders don’t have the budget to hire an accountant, they will need to be their own. Even if the company does have an accountant, entrepreneurs should understand enough about the subject to have meaningful conversations with their potential partners, investors, auditors, authorities, employees, customers, suppliers, and other internal and external stakeholders.

That said, having reasonable knowledge of finance and accountancy is important not only for startup entrepreneurs but for anyone running or managing a business. Even when you have qualified finance professionals at senior levels in your organisation, it is of utmost importance that you understand finance.

Managing costs, cash flow, invoices, vendors, collection, taxes and payroll probably isn’t what a start-up entrepreneur imagined would do when he decided to launch his own business. But they are critical components of running any successful company, especially in the early stages when they are both steering the ship and running the show.

For almost all organisations, accounting and finance influence nearly every facet of their business. Whether you’re applying for a business loan or grant, managing payroll and employee benefits, paying expenses like rent and utilities, invoicing vendors, pricing your products or services, seeking investors, projecting growth, invoicing customers and collecting money, the accounting will form the basis of everything you do in business. In other words, each and everything you do in business has a financial impact one way or another.

An entrepreneur having a stronghold on finance stands to gain the following advantages for the business:

A strong understanding of assets and liabilities, what business owns and what business owes
Strategic decision making based on data from Profit and Loss Statement (Income statement in the US), Balance Sheet and Cash Flow statement
It makes the business ready for fundraising
It prepares the business to manage costs, working capital and risks

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The ability to sustain the business during the crisis and scale in a profitable way calls for a reasonable understanding of finance and accounting.

While business is getting established

Most founders – particularly in the early days of their business – are focused on acquiring and retaining their first clients and customers. While you are busy with generating revenue, who is going to maintain the books and manage the business’s finances and compliances?

Without a full-time accountant on board, it can be hard for the entrepreneur to do anything more than just the bare minimum in terms of financial analysis. You may outsource the bare minimum accounting work to accounting service providers but you should still have some basic knowledge of accounting and finance to manage the service provider to avoid ending up in a mess.

You need to be in control

A financially literate business owner is more likely to be fully in control of his/her business. Gaining an understanding of what financial statements viz. balance sheets, profit and loss statements and cash flow mean provides a clear view of the financial performance and state of your enterprise and subsequently facilitates good business decisions.

As a business owner you don’t have to run all of the financial functions, but gaining some degree of financial acumen gives you the best chance of building a business that can thrive with a solid foundation, and can prepare you for a number of the challenges that you will inevitably encounter on your journey.

While your business scale-up

All entrepreneurs need adequate financing to launch and subsequently grow their businesses. Access to loans or credit lines or funding is a key factor in the process of expansion and growth for startup enterprises. Finance helps the entrepreneurs decide when to go for IPO or other funding sources.

When the time comes to talk to private equity firms, banks or investors the ability to be able to talk the talk will undoubtedly prove to be invaluable and it calls for financial literacy on the part of non-finance entrepreneurs. Understanding the fundamentals of the financial tools that enable businesses to operate successfully helps entrepreneurs not only with formulating their overall strategy but also with staying on top of nitty-gritty details like customers who haven’t paid up, suppliers who have billed too much or are not paid in time or delay supplies, current liabilities that need to be settled immediately or numbers that used to be black slipping to the red in your Profit and Loss statement.

All startup businesses need to grow profitably to succeed. The ability to sustain the business during the crisis and scale in a profitable way calls for a reasonable understanding of finance and accounting. The knowledge of finance will also make you better equipped to deal with the finance professionals whose job is to assure the integrity of your business’s accounts and finance.

The health of your business to a great extent depends on how much understanding you have of finance as a non-finance entrepreneur. Every entrepreneur must know the below financial tools and techniques if you want to enter the world of entrepreneurship and run a business successfully.

Entrepreneurs must understand crucial financial tools

Managing Cash Flow

‘Cash is king’ is a time-tested saying and it is true. This is true for all businesses whether established companies or startups in their early stages. For many businesses, especially the new ones, where credit lines are limited and financing is difficult, internally generated cash proves to be one of the most critical assets. It serves as the fuel to your company’s growth engine. Without it, you can’t pay suppliers and employees and you will find it difficult to maintain inventory, reach customers, and grow the business.

Paying due attention to cash inflows and outflows enables entrepreneurs to plan accordingly, prevent any unnecessary cash shortages, and reinvest or use excess cash judiciously to grow the business.

The reasons why you don’t have the luxury to neglect cash flow are the following:

- - Many start-ups fail because of poor cash flow management resulting in a cash crunch.
  - Entrepreneurs must perform cash flow analysis regularly. This will help you identify the risky situation and alert you to take measures to come out of such difficult situations.
  - Reviewing the amount of cash collected and used by a company in a set period and how much cash is available to perform other functions is one of the most difficult and critical aspects of financially understanding your business.
  - You will be putting your business in a very dangerous position if you don’t stay on top of your cash flow. However good your idea does not help you when you run out of money.

Maintaining a strong Balance Sheet

The balance sheet provides a snapshot of a company’s financial health and position at a particular point in time. It allows those running the business to quickly see what resources are available and how those resources were financed and show both the assets and liabilities. On another note, what you have right now and what you owe others.

Entrepreneurs can use the balance sheet to keep their business in control. While sales may be increasing exponentially, keeping an eye on the liabilities side of the balance sheet is important to the long-term success of the business. Even though investors care about growth potential, they also care about how much the company owns versus how much it owes. The balance sheet gives investors, and potential buyers, a solid understanding of where the company stands. Why should you know how to read a balance sheet? Here are the reasons:

- - A balance sheet is a report card that shows the financial position and health of the business.
  - A balance sheet helps you calculate the value of your company. Having an idea of the value can give you an insight into your plans.
  - A balance sheet also works as an early warning system. If your business is not producing growth equity, looking at the assets and liabilities on your balance sheet can help you find out why. For example, if your inventory is a part of your assets, if the inventory doesn’t sell quickly it can become your liability.

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Having sufficient knowledge of finance and accountancy can help non-finance entrepreneurs in steering their companies towards a growth path.

Identifying the Path to Profitability

Profitability is defined as how much money is left from the sales after all expenses have been subtracted. This may seem obvious for those interested in starting a business, but it can sometimes fade into lower priority during the early stages of a company.

It’s often necessary to take a loss early to reach a target market, acquire and retain customers, increase visibility, or launch products successfully, but this cannot be a long-term strategy. The Profit and Loss statement and other financial analysis dashboards give insight into the profitability and outlook of your business.

You must have total control over expenses and limit your fixed expenses at the beginning. A piece of sound knowledge and understanding of finance and accounting is a must to control cost through analysing what expenses the avoidance of which can affect the business and what expenses should be avoided.

Calculate your costs and margins, and decide on pricing

An entrepreneur particularly in the early stage must know how much he should charge for their products or services and how that impacts the profitability. If the business has competition, the market decides the price but the entrepreneur should be aware that price takes care of his costs and margin. If it is a new product or service, he should know what could be the ideal price at which he can make a profit and what the customers will be willing to pay for his /her products or services.

Non-finance entrepreneurs should have a reasonable grip on cost accounting techniques and applications to ensure the following:

- - There is data available about the cost to produce a good or deliver a service that is dynamic and constantly shifting due to internal factors or external factors like economic conditions.
  - Prompt and accurate decision making to make necessary adjustments to the pricing structures.
  - Have sound understanding of fixed and variable costs and contribution margin analysis.

Compliance

If you don’t give due importance to compliance with various laws and regulations, you may end up in trouble. You must have basic knowledge and update on various tax laws like income tax, GST, etc. and corporate laws like company laws, labour laws, etc. You should know when and how to pay taxes and file returns, when to deduct and pay TDS, what, when and how to comply with company laws, PF, ESIC, Gratuity, Shop and Establishment, etc.

In addition, an entrepreneur should keep updated on various incentives, tax benefits that central and state governments declare from time to time and through finance bills (budgets) for businesses particularly startups or you will stand to lose or forfeit such benefits.

Communicating about Money

Solid communication skills are essential to nearly every aspect of running a business, but they’re particularly important when dealing with finance and accounting. As an entrepreneur, you must be comfortable and able to discuss the hard numbers of your business – with employees, vendors, and investors, authorities, auditors or other stakeholders.

Forecasting the future of your business

For most entrepreneurs, growth is a key motivation. To grow successfully, an entrepreneur must be capable of forecasting the future outlook of their business. Accurate predictions about future revenues, future operating costs, future resource needs, and future profit levels are necessary to attract investors, secure funding, hire employees, allocate funds for marketing and capital expenditure, and onboard new clients or customers.

Capital Expenditure Vs Revenue or Operating Expenses

Non-finance entrepreneurs must be able to differentiate between capital expenditure and revenue expenditure (the expenses that are period expenses and are written off in the P&L in the financial year). Understanding the difference gives you an insight into whether each expense affects your profit or balance sheet reporting. This means if the expense is short-term or long-term. It also throws light into how an expense impacts future cash flows.

Valuation

This is one most important thing that keeps playing in the minds of start-up founders. Valuation helps business attract funding and financing at a lower cost or on favorable terms. An entrepreneur must have sufficient knowledge of valuation techniques to make sure that his business is valued at the value that her/his business is worth. Valuation is mostly done when the company is looking to sell a business or acquire or merge with other companies or dilute equity by acquiring funding or go for IPO.

A business valuation might include an analysis of the company’s management, its capital structure, its future earnings prospects or the market value of its assets. Common approaches to business valuation include a review of financial statements, discounting cash flow models and similar company comparisons. In the case of a listed company, the value of a business is its market cap.

Yes, knowledge of finance is a must for entrepreneurs

Whether you are considering starting your own business or have already taken the leap, strengthening your finance and accounting skills can enable you to reach your entrepreneurial goals.

Having sufficient knowledge of finance and accountancy can help non-finance entrepreneurs in steering their companies towards a growth path. The lack of financial literacy and the non-existence of the finance team can be detrimental to the survival and growth of your business.

Expert Connect

Chinmay Ananda
Business Storyteller, Financial Educator Finance Academy
Connect with our expert to assess the financial strategy of your business and take your fundraising plan to next level

The post Finance for Non-Finance Entrepreneurs is not a choice but is the need of the hour! appeared first on Dutch Uncles.

Please don’t get confused with accounting vs finance!

Joseph Varughese — Fri, 14 May 2021 08:50:04 +0000

The key difference between finance and accounting is that finance is the management of the money and the investment of individuals, organisations and other entities, whereas, accounting is the process of maintaining financial records as well as reporting the financial affairs of the organisation to provide a true and fair view of the financial performance and position of the organisation.

Accounting Vs Finance: an overview

In simple terms, accounting is about recording and maintaining monetary or financial transactions commonly known as books of accounts, reporting on financial results and position known as financial statements, auditing the accounts, complying with tax and other statutory obligations whereas finance is about analysing, planning, controlling and managing the assets and liabilities of an organisation for its future growth and sustenance. In other words, accounting is about today and finance is about tomorrow.

However, finance and accounting are terms often used interchangeably. This is not strictly correct or wrong. While both functions are related to the management and control of an organisation’s assets and liabilities, each discipline has a different scope and focus. When it comes to evaluating the financial health of an organisation and making strategic financial decisions, it’s important to have an in-depth understanding and working knowledge of both disciplines.

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Finance and Accounting both are dependent on each other, in such a way that accounting is a part of finance and finance is dependent on accounting.

Finance is often considered as a broader term under which accounting comes as a subset. This is also not exactly true though at the same time this is not without substance. For example, the finance or accounting function, though named differently in each organisation, is responsible for all financial and accounting functions in an organisation.

Finance and Accounting both are dependent on each other, in such a way that accounting is a part of finance and finance is dependent on accounting. The financial analysis is done with the help of the financial reports or statements, an accounting output, submitted by the auditor. In other words, they both are very closely interconnected and interdependent, or we can say, finance begins where accounting ends. While it is true that finance and accounting both have evolved from economics, it is finance that is more related to economics.

Finance professionals do analyse and advise their clients or management of the organisation they work for as to which securities or portfolios or financial products they should or should not invest in from short term or long term or retirement perspectives.

Both accountants and finance professionals work for financial services organisations, businesses, and government agencies. However, they provide different services for their clients and employers. While accountants can help with your tax advice, provide audit services, a financial advisor can help plan and save for retirement or advice on the best investment products.

Accounting can also be broken down into managerial accounting and financial accounting. The main difference between managerial and financial accounting lies in the presentation of information and its use. Managerial accounting, also known as management accounting or cost accounting, focuses on internal reporting that is used by management for planning and decision making, while financial accounting focuses on aggregating financial information into financial statements, which are used both internally and externally.

Major differences between Finance and Accounting

Accounting vs. Finance: The basics

The difference between finance and accounting is that accounting focuses on the day-to-day flow of money in and out of a company, whereas finance is a broader term for the management of assets and liabilities and the planning for future growth of the organisation.

If you want to take a detailed look at a company’s books of accounts and financial position you need to be skilled more in accounting. It’s often said that accounting looks back to a company’s past financial transactions and performance, whereas finance looks forward to planning future acquisition and management of its assets.

Accounting is more about accurate reporting of what has already happened, compliance with corporate and tax laws, and accounting standards relevant to the respective country; it is Ind-AS in India, US GAAP in the USA, IFRS in Europe. On the other hand, finance is about looking forward and reaping benefits from investments, growing the value of the organisation, and mitigating risks and losses. Finance looks at a longer time horizon whereas accounting is typical of a one-year time frame.

Finance refers to how a person or organisation generates and uses capital—in other words, how its funds are managed. This often encompasses activities such as investing, borrowing, lending, planning, budgeting, and forecasting. The field of finance can be broken down into three branches viz. personal finance (for individuals) corporate finance, and public finance (for the government) depending on whose finance is managed.

The typical activities involved in accounting include summarising financial position and publishing thorough financial statements—including income statements or profit and loss statements, balance sheets, and statements of cash flow—that are used to understand an organisation’s financial position at a given time.

Compliance

Accounting has to comply with many statutes like tax laws, company and other corporate laws, accounting standards, rules and regulations of central banks like RBI in India or Federal Reserve System in the USA, stock exchange regulators like Securities and Exchange Board of India (SEBI) in India or Securities and Exchange Commission (SEC) in the USA, and as well report to creditors, shareholders, investors and other stakeholders.

Finance has no such statutory obligations except maybe concerning central banks (RBI in India) or securities boards (SEBI in India) if compliances related to some of the finance activities like IPO, exchange listing, borrowing, forex matters, investments become finance mandates.

Scope and focus

Both finance and accounting operate on different levels of management of the assets and liabilities of an organisation. While accounting provides a snapshot of an organization’s financial situation using past and present transactional data, finance is inherently forward-looking assuming that all value comes from the future.

In accounting, insight into an organisation’s financial position is gained through what is known as the “accounting equation,” which is: Assets = Liabilities + Shareholders’ fund or equity as is seen in a Balance Sheet. One side of the balance sheet are Assets and another side are Liabilities and Shareholders’ funds or equity. Both sides will always be equal.

The above formula looks at what a company owns (its assets) by way of fixed assets (like plant and machinery, computers, furniture etc) and current assets (like accounts receivable, cash, inventory etc.), what it owes (its liabilities) by way of long term liabilities (loans and liabilities payable after one year) and current liabilities (accounts payable, overdraft etc.), and the residual, which is assets minus liabilities, belongs to shareholders (fund or equity) which constitutes paid-up capital, reserves and surplus and retained earnings.

Finance considers cash as king and looks at business through the lens of cash. While accounting relies on transactional data, finance looks at how effectively an organisation generates and uses cash through the use of several measurements.

Free cash flow is arguably the most important financial tool or technique, which examines how much money a company has to distribute to investors and shareholders or reinvest after all expenses have been met. It’s a strong indicator of profitability and can be used to make investment decisions today based on an expectation of future cash inflows.

There is always a difference between the profit as per profit and loss statement ( accounting) and cash generated as per cash flow (finance) because cash flow does not consider non-cash expenses like depreciation and uncollected receivable or unpaid payables. Only cash realised and cash disbursed are considered in the cash flow.

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An entrepreneur, particularly of start-ups, should understand finance more than accounting.

Measurement of financial performance

This is one major difference in scope that underscores the underlying principles of accounting and finance. Most of the accounting standards, tax authorities and corporate laws insist on maintaining accounts on an accrual basis. The accrual method of accounting mandates recording financial transactions as they are incurred or earned as opposed to when they are paid or received in cash.

For example, you have invoiced a customer on 30th March 2021 but payment is received on 28th April 2021, it will be accounted as revenue in the financial year ending 31st March 2021 under the accrual accounting method. In contrast, in cash flow, this revenue will be considered only in the next financial year starting on 1st April 2021.

The accrual accounting principle makes it possible to compare the year-on-year growth of a company’s revenues, costs, and profits without factoring in one-off events, as well as seasonal and cyclical changes. It also assumes matching principles that expenses incurred for earning an income should both be accounted for in the same period.

Finance does not follow the accrual method, instead believes that the best way to measure economic returns from a company is to calculate the cash it’s able to generate and leverage, which is dependent on when that cash is exchanged, paid or received.

Assessing Value

Another point of difference between the two disciplines is their value approach. In accounting, the assets and liabilities are captured at historical cost. This is handled much differently in finance, through a method known as valuation, to determine the worth of a company. Finance considers the time value of money in high esteem. The time value of money is a widely accepted notion that there is a greater benefit to receiving a sum of money now rather than an identical sum later.

The popular technique to service the present value of future benefits or cash flows is discounted cash flow analysis, which is applied to a series of cash flows over a period of time. To apply the method, all future cash flows are estimated and discounted by using the cost of capital to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value of the cash flows in question. Here is the DCF formula:

where: CF = Cash Flow in the Period, r = the interest rate or discount rate. n = the period number.

For example, assuming a 5% annual interest rate, Re.1 in a savings account will be worth Rs. 1.05 in a year. Similarly, if Rs.1 payment is delayed for a year, its present value (pv) is Re.0. 95 because it cannot be put in your savings account to earn interest. We can calculate the PV using the above formula as: 1 (cf) /(1+05 (r))^1 (n) = .0.95
The valuation of the business is done pre and post-funding or acquisition using discounted cash flow (dcf) and with/or a combination of other methods. This is one finance tool the knowledge of that cannot be skipped by any entrepreneur.

Leveraging financial know-how

Both finance and accounting are highly valuable and important tools for assessing a company’s position and performance. By understanding the underlying principles of the two disciplines and how they contrast and complement, you can develop greater financial intuition and make better business decisions. That is why almost all accounting qualifications have curriculums that give equal importance to both accounting and finance. No finance leadership can do justice to their role without having a deep understanding and expertise in both disciplines.

For those who want to better understand their organisation’s financial performance in the context of the markets and external factors, and contribute to financial strategy, understanding the fundamentals of finance is crucial. Developing your financial acumen is key to making better business decisions.

Author’s views

A lot has already been written by academicians, educational institutions, career consultants, subject matter experts and researchers on Accounting Vs Finance from different standpoints.

An entrepreneur, particularly of start-ups, should understand finance more than accounting. This is because of two reasons; one is that accounting tasks especially in the early stages can be outsourced to accounting service providers but it is not that easy to do the same for finance though virtual CFO services are plenty these days.

In the early stages of a start-up, the entrepreneur should have a grip on working capital, funding, cash flows, risks and more importantly valuation which are all finance functions. That said, some basic understanding of accounting, even though outsourced, is a must to understand finance too. In nutshell, both accounting and finance vary in scope and substance but are interconnected, interrelated and complementary.

Expert Connect

Chinmay Ananda
Business Storyteller, Financial Educator at Finance Academy
Reach out to him for any financial advice for your business

The post Please don’t get confused with accounting vs finance! appeared first on Dutch Uncles.

How Is the eCommerce Startup, Kashmir Box Taking Kashmiriyat and Kashmiri Ethos To the World?

Roopali Kotwal — Mon, 03 May 2021 06:10:03 +0000

If we look at the history, ‘Kashmiriyat’ may mean different things at different times but from a regional perspective, the word ‘Kashmiriyat’ denotes communal harmony and multiculturalism/syncretism.

Kashmir Box: Taking Kashmiriyat and Kashmiri Ethos to the World

Kashmir Valley with a history of religions – Hinduism, Buddhism, Islam and Sikhism has a significant religious, ethnic and cultural diversity. And, ‘Kashmiriyat’ emphasises on this unique shared culture. It demonstrates the joint culture, festivals, language, cuisine and clothing in the valley making Kashmir a rich heritage. And with the presence of start-ups like Kashmir Box, the rich traditional heritage of Kashmir is even more prominent in the local and global market.

Muheet Mehraj (CEO) Co-founded ‘Kashmir Box’ in 2011 along with his friend Kashif Khan who later moved out to start his own venture. It was the first start-up in Jammu and Kashmir (J&K) to provide an e-commerce platform to sell ethnic Kashmiri products online even though the products were in demand worldwide for a long time. Muheet started the venture with an aim to improve the lives of local artisans, create a global market for them and to contribute to society by improving the lives of thousands of local craftsmen/artisans.

Kashmir Box improved the standard of living of its talented artisans/native citizens. The startup helped them to expand their business and earn a stable income for their families. Local craftsmen/artisans learnt to adapt the technology to survive and thrive. With the digital/online facility, they got an opportunity to upgrade their skills by understanding customer demands and learning new/trending designs. The number of orders received increased thus, providing an opportunity to earn more money. The e-commerce eliminated the middleman and reduced the dependency of artisans on local retailers which at times meant delay in payments. The startup increased the significance of art and craft and showed the true value to the craftsmen of their skill.

With intermittent internet issues, the pace in Kashmir for online business was slow. Kashmir Box faced it all – devastating flood situation in 2014, extended curfews in 2016 and the multiple internet shutdowns since 2017. But, still managed to retain its customer base. In 2018, the start-up received investments from a group of angel investors of undisclosed amount.

Inspired by the Kashmir box, new start-ups like ‘Kashmir Market’ came into existence to support Kashmiri artisans and secure the duplicate products in the market. Another e-commerce platform, ‘Kashmir Villa’ started the business to aid customers interested in buying the Kashmiri designed products but avoid coming to Kashmir Valley due to its law and order issues. These start-ups through their websites helped the local artisans to do their business from the comfort of their living rooms.

To make a social impact, Kashmir Box through its ‘Kashmir Box Foundation’ collects a small percentage of its total profit to support the artisans in their education, marriage and other expenses. The startup is determined to spread the rich Kashmiri art, craft and other local products like saffron, cashmere, pashmina garments to reach places. Along with the online platform, it expanded its business into brick and mortar stores to create a bigger market in India and worldwide. Thus, taking ‘Kashmiriyat’ and Kashmiri ethos to the world.

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Kashmir Box is determined to spread the rich Kashmiri art, craft and other local products like saffron, cashmere, pashmina garments to reach places and create a bigger market in India and worldwide. Thus, taking ‘Kashmiriyat’ and Kashmiri ethos to the world.

What’s in it for me?

New Start-ups can learn from the success story of the Kashmir Box. Don’t give up on your dream until you succeed!

Kashmiri handicrafts and handlooms are famous in domestic and international markets and are a major contributors in the J&K’s and India’s economy. If you are passionate about just ‘Kashmir Box’ it’s the right time to take the plunge or expand the venture into the handicrafts and handlooms business through the ecommerce platform. As per the latest update, the J&K government is keen to aid the artisans by providing them the marketing support and publicity. The department of handicrafts and handloom is in the process to shortlist social media agencies to take up the task of world famous Handicrafts of Kashmir.

The post How Is the eCommerce Startup, Kashmir Box Taking Kashmiriyat and Kashmiri Ethos To the World? appeared first on Dutch Uncles.

How Does an Entrepreneur Pay Taxes?

Bhuvana Rajaram — Fri, 30 Apr 2021 09:30:04 +0000

“The hardest thing in the world to understand is the income tax,” said the great Albert Einstein. If he could not understand the tax labyrinth, who could possibly master it? On that note we explore below what goes on in the Indian start-up scenario when it comes to paying taxes.

As an employee your taxes are straight forward, you receive your paycheck after paying taxes. However, as an entrepreneur you receive full payment and then pay the taxes. And as an entrepreneur you have the advantage of making use of the several tax benefits schemes that reduce your tax outflow. To begin with, here is a roster of prominent tax saving features for entrepreneurs which you can use for an intelligent conversation with your auditor.

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As an entrepreneur you have the advantage of making use of the several tax benefits schemes that reduce your tax outflow.

Prominent tax saving features for entrepreneurs

Family First

Hiring family members in key positions is an advantageous proposition. And if these members do not have other sources of income, then they can be paid Rs 2,50,000 a year and they are not liable to pay tax. These salaries can be accounted as a cost to the company, thereby the taxable income is reduced and as a result the tax pay out as well.

More Marketing

It is given knowledge that marketing efforts propel the business forward and afford you expansion opportunities. Also, digital marketing has gained traction and businesses can leverage this to increase overall profitability and mark these marketing expenses as cost to the company, as these expenses qualify for tax deductions.

Travel Time

If you are travelling on business, then it would be worthwhile to expense it to your company account. This is considered a business expense and can be deducted from the taxable income of the company.

Utilize Utilities

Tax burden can be brought down significantly by some of the basic utilities that every business spends money on – Preliminary expenses which are incurred during the setup of the entity. Convenience expenses which are incurred because of phone bills, vehicles and salaries. If you are in a home office set up, then electricity and internet charges are also deductible from tax.

Health Hazards

The medical insurance premiums of up to Rs 25,000 is claimable for tax deductions under Section 80D of the Income Tax Act, 1961. It includes your spouse, children, and parents under this. The caveat here is that this is not applicable if you are a start-up owner in parallel to being a full-time employee where the employer provides medical insurance coverage.

Give Good

Tax exemptions are applicable to when you make donations to the registered charities and funds such as the PM’s relief fund. In fact, you can also donate to a recognised political party to claim tax breaks.

Happy Homes

If you have a housing loan, you can claim tax deductions of up to Rs. 1,50,000 a year under Section 80C of the Income Tax Act. Kindly link your PAN with the company.

Downward Depreciation

Companies (under Section 35AD) installing new equipment and machinery that have been installed for over a year can claim up to 20% additional depreciation, in addition to the regular depreciation in the year they were put in use.

Cash Crazy

If you are still stuck with cash disbursements to employees, please stop. As this increases your taxability and you are bound to pay more taxes. Adhere to digital transactions and adopt healthy tax saving practices.

Tax Compliance

Under the Income Tax Act, the payers (entrepreneurs) are liable to deduct a TDS at the rate of 10% for availing any service from an individual or a corporate if the payment exceeds Rs. 30,000 annually. In case you fail to deduct the same the entire amount paid will not be considered as an expense to the entity.

Are you an Eligible Entrepreneur? Here is a Checklist for Self-Assessment

Take this reality check to see if you are an entrepreneur in the real sense of the term according to the Income Tax department.

How old are you? You must be less than 10 years of age since formation.
How rich are you? Your turnover has not crossed 100 crores in any previous years.
What are your goals? You must be working to promote innovation, development of employment opportunities and wealth creation.
How were you formed? You must not be in existence due to a breakup of a company already in existence.
Which of the below best describes you?
Sole
Proprietorship
Partnership
LLPCompany
What is your identity?
Do you have a PAN? This is your unique number allotted by the Income Tax Department.
Do you have a TAN? This is required for TDS related compliances.
Do you require a GST
Required if income exceeds 40 lakhs and above for businesses engaged in goods.
If income exceeds 20 lakhs and above for businesses engaged in services.
Do you have a professional tax registration?
Do you have a shop and establishment license?
Do you have industry specific regulatory approvals?
Do you have an Import Export Code (IEC)? Necessary if your entity is involved in the import or export of goods and services.

If you have ticked all the above and have the necessary paperwork in place for qualifying to be as an eligible start-up, then you are entitled to enjoy the following tax benefits:

Initial Stage Waiver

If your entity has been incorporated between 1 April 2016 to 1 April 2021, then you can avail deduction of 100% of profits for a block of 3 years in the first 7 years of incorporation.

Angel Tax Waiver

When a domestic company wants to issue shares to public at Fair Market Value (FMV), the valuation is determined by the merchant banker based on the future cash flows of the company. In case the company decides to issue shares at a higher price than the determined FMV, such excess is treated as angel tax. With the requisite declaration with DPIIT and subject to certain conditions, eligible start-ups are exempted from Angel tax.

Set Off Waiver

The Income Tax laws provide for carry forward and set off of business loss. Meaning the same can be reduced from the profits of the future years. An eligible start-up is not taxed for the losses incurred in the first 7 years, provided the shareholders holding shares in the year of loss continue to hold shares in the year of set off.

Capital Gains Waiver

Long term capital gains from transfer of residential properties are exempted from capital gains tax if the consideration that it is invested in the equity shares of the eligible start-up.

ESOP Waiver

Eligible start-ups issuing ESOPs to its employees on or after the 1 April 2020 enjoy tax relaxation on deduction of tax on such ESOPs.

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Tax burden can be brought down significantly by some of the basic utilities that every business spends money on.

Types of Entrepreneurship and Respective Taxation

When it comes to entrepreneurship, which legal structure should your business take is a question you will have to think about. Not only is this important for your business to function, but it also has attendant tax benefits. In India, the three basic types of business structures that exist are:

Sole Proprietorship

Is a small and independent business owned by an individual, and they are unregistered and host hassle free operations. They are popular across the unorganized business sector and comprises merchants and traders with moderate incomes.

The taxation for sole proprietorship is conducted along with the business owner’s personal taxes. Therefore, the income generated from the business is added to the owner’s income after taking into consideration the deductions for tax, business expenses from the gross amount. They are entitled to enjoy the sole proprietorship tax deduction as per prevailing IT rules and upon the slab rates available to the taxable income.

Partnership firms and Company (Pvt. or Public)

Is a firm having more than one person conducting business under one entity and there are both registered and unregistered partnership firms. A registered partnership firm is one that is registered with the Registrar of Firms and has received a registration certificate for the same. And those that do not have a registration certificate from the Registrar of Firms is an unregistered partnership.
The taxation for partnership firm is required to pay the following tax percentages:

30% income tax – 12% surcharges where taxable income is above one crore rupees

Up to 12% on interest of capital is allowed

Health and Education Cess 4% of tax including surcharges

And unlike sole proprietorship the partnership firm has a different legal identity from that of its partners. Also, whether the partnership firm is registered or not they have to comply with tax norms. And they must also pay the alternate minimum tax which cannot be less than 18.5% of the adjusted total income.

Limited Liability Partnership (Hybrid of partnership and company)

With the rapid business growth across India, and the rise of the service sector there arose a need for a new form of organization that had the best of both Sole Proprietorship and Partnership. And this gave birth to the LLP which is a separate legal entity, and it stands separate from its founders. It has a minimum of two partners with no limit to the maximum number of partners. This type of hybrid organization is fairly easy to form and enjoys less restrictions and compliance as mandated by the Government.

The taxation for LLP is at a flat rate of 30% on its total income. There is a surcharge of 10% where total income exceeds one crore rupees. The amount of income-tax and the applicable surcharge shall be further increased by education cess and secondary and higher education cess calculated at the rate of 4% of such income-tax and surcharge.

Understand how to file your company’s ITR with these simple steps

Engage a practicing Chartered Accountant to audit your Financial Statements. This is mandated by the Income Tax Act Under Section 44AD.

Computation of Income Tax is the next crucial step. Calculate the difference between the total amount of Income Tax payable and amount paid as Advance tax or Tax deducted at source.

If the amount paid is greater than total income tax – get the refund.

If the amount paid is lesser than total income tax – pay the difference.

Obtain the Tax Audit report from the auditor who will provide the same in Form 3CA along with other details in Form 3CD.

File ITR once the auditor submits the audit report.

E-Filing: The entire filing process can be done only through the e-filing portal of the Income Tax website. The authentication of your signature is carried out through Aadhar Card and Bank Account numbers. Once your return is processed you will receive an e-assessment order from the IT department which will be notified to you via email. The refunds if any, are processed and dispatched within a reasonable timeframe. Your grievances can be registered through the same portal and you can also verify the tax deducted from various entities in Form No. 26AS, which is automatically populated in your IT return.

The post How Does an Entrepreneur Pay Taxes? appeared first on Dutch Uncles.

How to Use Social Media to Promote Your Business?

Roopali Kotwal — Thu, 29 Apr 2021 09:35:05 +0000

Far-off, yet so close, that’s what technology has done to us. Smart electronic consumer technology devices/products have contracted the world. Within a few clicks, one is connected to the world virtually. With the increased use of consumer tech products especially smartphones, use of Social Media platforms has also increased to promote businesses online by the entrepreneurs.

Social media binds the world and it is one of the most effective ways to build the customer base for any business if used effectively.

Effective Ways to use Social Media for your Business

Social Media is a boon for businesses – big or small. However, it is important for entrepreneurs to understand that their product/service captures the right market and audience. Here some tips especially, for small businesses to use the social media in the most effective way:

Choose the Right Social Media Platform

With many options available, confusion can prevail. Hence, one must understand the business need and then decide on the right platform.

Follow the Schedule

Consistency is the Key! Create a calendar to share the information of the product/service on a regular basis to create visibility and build trust.

Post High Quality content

Don’t just post but, post quality pictures/videos because ‘quality’ matters.

Don’t Over Promote – Add Value

Excess of everything is bad! Be consistent in sharing product/service posts. But don’t make it a regular advertising platform. Don’t over sell. Instead, add value by sharing relevant and short impactful posts for the audience.

Brand Recall

Frequent advertisement is a way for brand recall but you must use that effectively. Impactful marketing messages can help the customers to visit your website for their next buy.

Build Community

Focus on the audience who shall be loyal to the brand instead of increasing the followers.

Provide Quick Response/Resolution

Nothing can beat a swift response so a good customer service will establish a goodwill.

Social Media: Benefits

With proper social media strategy, one can promote business and can avail many benefits such as:

Expanded Reach

With Social Media, one can expand their business and provide their product/service in the Tier II and Tier III cities which may or may not be accessible otherwise.

Increased Web Traffic

High quality promotional videos/pictures add value and will compel the user to click on the company website and these customers will most likely promote the product to their friends/family.

Networking/Real Time Interaction

Keep the clients up to date on any new launch. The real-time communication builds a strong network between the customer and the business.

Brand Awareness

Increase the reach of the brand to potential and existing clients with frequent insights into any new product/service being offered.

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Social Media binds the World. In today’s age and time, Social Media turns out to be the most effective way to build the customer base for any business if used effectively.

What’s in it for me?

India is a big market with a huge population using smartphone devices. As per February 2021, Statista Research Department Report, the number of smartphone users worldwide are forecasted to exceed 3.8 billion users in 2021 and smartphone users in India are to reach over 820 million in 2022. This explains the potential of reaching the highest possible number of potential customers through top-notch social media promotion.

Social Media is a solid platform and helps to promote small businesses in many ways. For instance, Facebook, Instagram, Twitter, LinkedIn, Pinterest, YouTube, IGTV, Dailymotion, Telegram and WhatsApp are among the popular social media platforms. Though, these platforms help to promote business at a large scale in India, the entrepreneurs must understand and put themselves in the customer’s shoes to design the social media campaigns with content that is relevant to the target audience, useful for the users by providing some value and generates interests within them to join the club of your loyal customers.

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