Debt Financing vs. Equity Financing for start-ups and SMEs March 30, 2012

Entrepreneurs looking for funding for their start-up business can choose out of a variety of financing options. All of these financing options can broadly be categorized into – Equity Financing & Debt Financing, both of which come with their unique set of pros & cons for the entrepreneur.

While debt financing allows entrepreneurs to acquire loans from any government agency or institute, equity financing on the other hand involves, exchange of capital for a piece of ownership in the entrepreneur’s business. This type of financing typically includes angel investors & venture capitalists (VC’s).

DEBT FINANCING

Debt financing requires the entrepreneur to repay the borrowed money to the lending institute. This may include everything from a loan to bond, credit or even IOU. An important consideration with this kind of funding option is that, it requires the entrepreneur to have exceptional credit history.

Pros:

• This is looked upon as the best source of financing mostly by companies with steady growth, consistent sales & solid collateral.
• Debt financing can be obtained from Small Business Administration, commercial banks, etc.
• Here the entrepreneur gets to maintain his ownership & maximum control over business.
• The best part is that, debt financing interests are tax deductible.

Cons:

• Debt financing requires monthly payments on a regular basis.
• This sort of financing is most often limited to businesses with a solid & successful track record.
• This requires the filing of formal application either online or at the lending institute.

EQUITY FINANCING

Equity financing seeks ownership in company in exchange for money lent. This kind of financing option can prove extremely useful for start-up businesses or companies that need to raise additional equity for paying off existing debts. They however, need to display a potential to harvest large returns on investments.

Pros:

• This is looked upon as the best source of financing mainly by companies with high profitability or those with poor credit ratings.
• An ideal finance option for small start-ups that lack a solid track record.
• Equity financing can be obtained from credit cards, property equity, savings, friends & family, etc.
• Here entrepreneurs can obtain quick funds without having to worry about incurring debt.

Cons:

• The involvement of more number of investors can mean more loss of ownership control.
• Venture Capitalists or angel investors may opt to have a say in every important business decisions.
• Filing of application form is needed only for VCs & angel investors and never for friends & family.

Considering these pros & cons of debt & equity financing, it is for the SME to decide which form of financing would be best suited for their individual business needs.

 If you need assistance in debt or equity finance visit smegetmoney.com

 

 

PR Campaign Tricks for SMEs to Improve Start-up Business March 26, 2012

The prime reason behind most new businesses to fail is their poor marketing strategy. This realization has motivated many enterprises to divert their efforts into developing a strong public relations (PR) campaign, which can help them promote & advertise their business on a wider scale.

A public relations campaign can compose of many different channels including, promotional offers, broadcasting media, print media, etc. However, you must choose a public relations outlet that can best suit your kind of business.

Here are few important steps entrepreneurs may follow to help them choose the most profitable PR channel to promote their business:

Know Your Target Audience – Before you can actually go about developing a public relations campaign, you must first define your target audience. Depending upon the types of services & products of your company in relation to your target audience, you can then tailor your marketing campaign accordingly.

Identify Competitors – A subsequently important step is to define your competitors. There is bound to be strong competition in every business & in order to be able to outdo this competition, you must first have a thorough knowledge of the opposition. Identifying your opponents and seeking details like, their pricing, marketing strategies, etc can be instrumental in planning your own marketing strategy.

Calculate Advertising Budget – Once you have defined your target audience & identified your competitors, the next step is to look for means to promote your business. However, it must be noted that advertising a start-up can be a costly endeavour. For this you must have prior planning as to how much amount you can afford to spend for marketing strategy.

Self vs. Hired Promoters – Once you have your advertising budget ready, you can then make a decision as to whether you would require a public relations specialist or have the promotions done through other cheaper alternatives like, blogs, newspaper advertisements, etc. The only thing to remember here is that, while the cheaper means of promotions may not be very effective, on the other hand a skilled public relations specialist can help you in implementing more aggressive means of promotion.

If you can spend ample time on each of these steps, you are sure to have a marketing campaign that can easily outshine the campaigns of your competitors.

If you need any assistance in PR email us on media@smejoinup.com

Obtaining Bank Loans for SMEs to Fund their Start-Up Businesses March 6, 2012

For any entrepreneur to start his own business, he must find a funding option that is most appropriate for his particular financial situation.

The most common funding option for start-ups is the commercial bank loans. While such loans are good for raising the initial capital, they should not be solely relied upon for managing all expenses of the start-up. It is important to remember that, every bank has a monthly payment schedule along with maintenance fees. It is only the guidelines that differ from one bank to another.

At the time of approving an applicant for the purpose of small business bank loan, there are certain standards that every bank abides by:

Lender Referral – Most entrepreneurs look for referrals like, established companies or attorneys, businesses, accountants, etc, that may already be having strong business relations with lenders. This increases the chances for entrepreneurs to obtain the required funding.

Effective Business Plan – Another means for entrepreneurs to obtain bank loans is to present an effective business plan to the prospective lender. Since, it is not possible for the lender to remember all the details of your plan, it is important that your plan is well documented on paper. A well documented business plan containing details like, financial forecasts, company objectives etc, makes an impact on the prospective lender that you are serious about obtaining loan and will be utilizing the capital in a planned way.

Credit History – One of the most significant factors for obtaining small business bank loans is the credit history of entrepreneurs. A solid credit history and a great business plan increase the chance for entrepreneurs to avail bank loans with ease. Thus, it is important for entrepreneurs to check their credit history prior to applying for the bank loan.

Alternative Plan – Most entrepreneurs are bound to face multiple rejections. However, instead of getting discouraged by these constant rejections, entrepreneurs must be persistent in their quest for funding and try to seek reasons behind the loan denial. In addition, entrepreneurs must have a strong alternative plan ready, just in case they fail to obtain commercial loan from banks. Many a times, lenders wish to get a brief on the alternate plan to judge the determination of the candidate. At such times, having a strong alternate plan can prove worthy.

Do I need copyright protection? A question often asked by SMEs February 6, 2012

A Copyright, or a right over something you have written or an original artistic work, comes to you the moment you create something.

So you need not apply for any registration, as such. Merely by creating something original, you automatically get exclusive rights. Remember to affix a © at the end of the document along with your name or the name of your Company.

Registration only helps to document the date on which you created the original literary or artistic work. For instance, if you write something in the year 2007 and have it published in 2008, technically till 2008, you have no record of the work having been created.

The solution to this is to take print outs of e-mails or electronic files on your hard disk that show that you have created the literary or artistic work as on a particular date. That will help you claim a copyright over the work even without formal registration.

 If you would like legal advice on any issue, want to prepare documents and contracts or want to form an LLP, Company or Partnership, we recommend www.vakilsearch.com. SME Join Up readers get a 10% discount on vakilsearch.com services by using the coupon SMEJNP10

Corporate Branding or Corporate Identity for a SME – Answer to a Successful Business January 31, 2012

Given the increasingly competitive market scenario, it has become vital for companies to establish a strong corporate image, in order to gain popularity & develop long lasting customer relations. With the increasing number of preferences at the disposal of your consumers, a strong corporate identity is what helps in setting apart your products & services from your competitors.

Branding & Marketing pioneers believe that the most essential & effective way of establishing a relationship with your surroundings, is to add a human attribute to even lifeless objects.

The foundation of a company’s identity is the company logo, consisting of a distinctive logo mark & the name of the company. Logo is nothing but the visual or graphical representation of your company, which is meant to convey the essence of your brand.

While most businesses fail to give much importance to branding, it must be understood that, corporate branding is a vital asset & must intelligently be invested in, managed & leveraged, in order to assure the success of the company. Business logos reflect the values & mission of the company. The more is the perception of consumers to the logo of the company, the greater are the possibilities of it being remembered & recalled by them.

The reason a strategic branding is so essential for the growth of the business is because, it cultivates a sense of quality, expectation & promise of your customers from your products & services. Corporate branding is especially important for the start-up businesses since, brand consistency can help your customers easily recognize your services & products. Most importantly, it helps them easily differentiate your brand from other competing brands.

The business market being a competitive one, it is essential to design your corporate logo in a way that helps it compete aggressively with other competing logos in similar markets. Creating corporate logo is not just about putting any image on the screen or paper, as many companies believe. Instead, corporate logo design requires a lot of research & discovery. Professional designers believe that, for a company logo to be effective, one must first be clear on the essence of the company & the key message to be conveyed. Thereafter, factors like, shape of logo, size, colour, etc must be taken into account. Take care that all these elements relate to the essence of your company & has an impact on your target audience.

With a channelized corporate branding & effective logo design, you are sure to be successful in meeting your goals & reaching out to your target audience.

For any help on corporate branding or corporate identity email us on media@smejoinup.com

Common question asked by a SME …When is it advisable to form a Company? January 26, 2012

As we saw earlier, in the case of small businesses with low initial capital and the core group consisting of friends, it makes sense to start with a partnership owing to the cost and speed of starting up.

A Partnership is not suitable for enterprises requiring high initial investment or where there is very valuable intellectual capital involved.

In such cases, it makes sense to form a private limited company – here the initial cost and the regulations you need to comply with are much greater, but you have many advantages too. These include:

1. Limited liability (your personal assets cannot be used to discharge the debts of the Company)
2. Easier to attract investment: A private limited company is much easier to draw investment into. You can dilute as little as 0.001% stake in exchange for capital infusion in the business.
3. Developed legal ecosystem: The legal and regulatory ecosystem surrounding companies may be rigid, but it is well developed. So for example, if you have a dispute between directors, there are many decisions of Courts and the Company Law tribunals which will provide clarity on the subject.

 If you would like legal advice on any issue, want to prepare documents and contracts or want to form an LLP, Company or Partnership, we recommend www.vakilsearch.com. SME Join Up readers get a 10% discount on vakilsearch.com services by using the coupon SMEJNP10

A question often asked by SMEs – What is PR? January 19, 2012

1. PR or Public Relations means your company relations with the media which is very essential for brand building.

 

2. How does PR help you ?

In PR we have press conference or press releases where we inform 20-30 newspapers (print media) about your new product launch, expansion plans, events happening in your company, awards bagged, or any major news that you want to announce, and the press write about it. So when we do a press conference or press release the news keeps coming over a period of about 2 to 4 weeks, 2 in one paper on a given day, 3 in another day and so on. This creates branding for a month long period. If you have longterm relation/retainership with us, then we will keep you in the news every month. We will get you featured in 4 to 6 articles in different main Newspapers / Magazines / Webpapers.

 

3. PR has more credibility than an Ad

In an Ad you can talk about your company, so you will naturally talk positive and blow your trumpet.

In PR the newspaper is talking about your company, so a third party is talking good about you, which is more credible.

 

4. PR is much more cost-effective as compare to an Ad or Event.

A single quarter page Ad in the most reputed and common daily will cost you anywhere between 80k to 1.4lakhs. In less than that cost, you can get coverage in 20 newspapers.

 If you are interested in trying out PR (online as well as offline ) , we have different packages suiting different budgets for you – email us on contact@smejoinup.com

 

 

 

Case Study – Clearing the Platform for your SME to Turn into A Global Multinational January 13, 2012

The owners of Small & Medium Enterprises (SMEs) most often get so caught up with their day-to-day pressures, having to deal with issues like resource constraints, sales, workflow, etc that they fail to find time for looking into the most important factor about the company – GROWTH!

Yes, there are ample opportunities available for the SMEs to build into global MNC’s. The key is just to find the right way at the right time. A few business experts from various fields were interviewed regarding the same & here is what they had to say:

Response 1: One of the major challenges faced by every SME in their stride to go global would be “Resources”. This issue can easily be overcome through well-planned Business Partnerships and Strategic Alliances. Try to find & associate with businesses doing a similar kind of work like yours so that, you can make the most out of the available resources. These kinds of partnerships are especially useful for the start-up SMEs who are looking to augment their resources.

Response 2: A major speed-breaker in the growth of SMEs is the emotional attachment to businesses. There is lack of empowerment to people who are capable of handling it & deserve it. The way to break out of this problem is to make appropriate & timely investments in technology and to empower capable people.

Response 3: Another major point to be considered by SMEs is that, in order to create a global presence, there is a need to create a global mindset too. SMEs need to break out of their regular business strategies & come up with strategies that are unique as well as globally effective. Strategies that have created wonders on the domestic front may not have a similar kind of impact in the international markets. Thus, they need to be modified as & when required.

Response 4: The most important thing for every SME planning to go global is to first create willingness for becoming global. Once you are ready to make the stride, you may then follow a step-by-step approach of putting the right mechanisms at the right place & at the right time. For me there are 8 basic enablers for going global:

• Technology & Quality
• Market Segments
• Creativity & Innovation
• Financial Strategies
• Organization & Workflow
• Processes & Systems
• Strategic Locations
• Customer Value & Perception

An Important Question for SMEs – Why Do I Go For Pay Per Click (PPC)? January 12, 2012

This is an important question most small & medium business owners would like to get an answer to. However, before we can answer this question, let us first get an understanding of few of the basic factors about PPC Advertising.

What exactly is PPC Advertising?

Pay Per Click advertising or PPC as it is commonly known, is a simple internet advertising model. The search engines like, Google, Yahoo, etc provide listing on the basis of per-bid. The ads are auctioned & you need to bid what you wish to pay per click on the ad. The highest bid provides you with a chance of ranking high in the sponsored links. When someone clicks through to your website via the PPC listing, you are charged the amount that you had bid.

Why Choose PPC?

With the growing significance of internet marketing, PPC has come up as an important tool for establishing control over your advertisement campaign. The most interesting part about PPC advertising is that, it is targeted at users who are already on the lookout for your products & services & thus are likely to be interested in your offerings. Most importantly, PPC advertising is very cost & time effective.

There is also a facility for measuring conversion rates from your PPC leads. This is done by adding a tracking code to your website. It is this advantage of monitoring click-through rates that gives PPC campaign an edge over other popular forms of advertising.

What is Conversion Rate?

Conversion rate is simply a count of the number of visitors that you can turn into customers. There are a few factors you need to consider though to increase this rate:

• Establishing credibility & trust to the visitors on your website. This can be done by personalizing your site.
• Serve your customers with a solution by making your site useful & resourceful.
• Take care that the keywords you choose drive your visitors to the right & most relevant landing page.
• Practice continuous analysis & evaluation of your website. This will help you monitor the effectiveness of your advertising campaigns.

 For any help on the above and executing the same for your company contact us on media@smejoinup.com

 

Question from a SME on Excise Duty January 9, 2012

Q. We are a Small Scale Industry which makes rubber equipment and containers for chemicals and pipes for effluents. Our factory needs a series of pipes for transporting inputs and water, both fresh and waste. We will be able to manufacture these pipes and install them ourselves. The project can be executed internally. But it is a large project. Will we have to pay excise duty on the pipes manufactured internally?

 A basic rule governing the levy of excise duty is that excise duty is levied only on movable property and not on immovable property. Normally, the pipes you have mentioned in your question would be subject to Excise duty (since they are movable and can be installed anywhere, if required).

However, in your case, you intend to manufacture the pipes and use them within the factory premises itself. Notification No. 67 / 95 – CE read with the CENVAT Credit Rules states that if a capital good is used within the factory of production, it is exempted from the levy of excise duty.

The plastic pipes you have described in the question are capital goods and therefore, applying Rule 2(a) of the CENVAT Credit Rules, 2004 and Notification No. 67 / 95 – CE, they will be exempt from the levy of Excise duty. You will not have to pay excise duty.

 

If you would like legal advice on any issue, want to prepare documents and contracts or want to form an LLP, Company or Partnership, we recommend www.vakilsearch.com. SME Join Up readers get a 10% discount on vakilsearch.com services by using the coupon SMEJNP10