Saturday, March 8, 2008

Does your financial plan rocks?

“We … are in a Business, where there is no competition “
“We have the most innovative product and processes, however we are still to work on the financial aspect of it “

These are the exact terms, which makes any investor walks out from the room. What do you mean , you don’t have competition ?

It automatically says, that market is not a right place to do business .
if competitors are not there, how can be a market right place to do business ?
And if there is a lack of general attractiveness, of that market .
How do you expect the investor to spend money on a market ?
2 starting statements can make investor feel, that the entrepreneur is from other world, or he is having a ego-trip.
Let us explore how a investor thinks (whoever he is – an HNI,PE,VC) ?

1. Is this a opportunity ?

First he tries to understand whether, what the entrepreneur is telling as an opportunity is really a opportunity?
This process is tedious. He sees the Business plan. He sees the people. He sees the figures and their consistency.
The myth …. “The bigger the figure , higher is the interest “.
Reality … “ More consistent the figure , higher is the interest “.

2. What is the value of it ?

Next important thing , is the valuation. It is where, the investor tries to find out the present value of the organization, and what would be the future value of that same organization, keeping all the factors stable.

3. What is the risk associated with enchasing the future value ?

These is where, the investors tries to estimate, that what are the factors, which could negatively effect on the future value of the organization.

4. Due Diligence

Now, the investors starts finding out that how reliable are the people behind it, and what are there past records. Because, past records would say a lot of things about how the business would be executed over a point of time, which the Business plan might not say.

5. Legal agreement and deal signing

This is where the legal context is set up, and the entire process of interaction between the investor and entrepreneur is legalized which ends into deal signing.

The financial plan has to accurately take care of all this aspect , that it would have , necessary strength to handle all this phases.

A financial plan is the vitality of business plan . Without it , the business plan would look like an ego trip of an entrepreneur .

So ..

Does your financial plan rocks?

Allindialive gives specialized business planning consulting service by expert business planning consultant through where your financial plan will definitely rock with your business plan .

Monday, March 3, 2008

Financial Planning Wisdom: Give man a fish.. You feed him for a day .. Teach him fishing you feed him for lifetime.

Financial Planning Wisdom: Give man a fish.. You feed him for a day .. Teach him fishing you feed him for lifetime.

Debt waivers are like giving man a fish . It feeds him for a day. On the other way, increasing economic productivity is teaching a man, fishing . With that , he could be feed for lifetime.

Growth of debt leads to lack of economic growth. They are inversely proportional. On the other way, lack of economic growth or productivity will result to indebtedness.

Debt of farmers is a result of rising costs of agricultural inputs and falling prices of agricultural produce. Both the rising costs of production and decline in farm prices are certain outcomes of trade liberalization and economic reform policies driven by agribusiness corporations.

1. Deregulation of Inputs

Deregulation of the input sector, the entry of seed MNC’s, and the creation of seed monopolies has increased the costs of inputs and the risks of crop failure. In 2002, farmers of Bihar lost Rs. 400 crore due to the failure of an MNC’s hybrid corn. Farmers of Andhra Pradesh and other States ran into losses of Rs. 100 crore due to the failure of Cotton Seed supplied at Rs. 300 / kg by public sector farms, which costs them Rs. 1600/kg while they bought them from an MNC. In spite of the high costs, that MNC’s Cotton performed miserably in the first commercial planting in 2002. The deregulation of the input sector has allowed seed MNC's into Indian agriculture for the first time.

In India's history, our seed security and sovereignty was based on the time tested and adapted farmers varieties, which accounted for 80% of the seed supply. In addition, these varieties tested in the public sector seed farms for our diverse agro climatic zones are appropriate for our socio-economic conditions.

MNC's have been selling untested, ill adapted, high cost seeds which need high cost chemicals and intensive irrigation and is practically unfit for Indian Environment.

II. Deregulation of Imports leading to failing prices of agricultural produce

The second leak in the farmers income is the collapse in farm prices due to deregulation of trade. This leading to dumping activities from developed countries. The level of dumping has increased since 1995 when the W.T.O came into force, even though the proclaimed aim of W.T.O is to "reduce distortions in trade." While the full cost of U.S wheat in 2001 was $ 6.24/bushel, its export price is $3.5/bushel. In the case of soybean, the cost was $6.98/bushel; the export price was $4.93/bushel. For maize, the full coast was $3.47/bushel; export price was $2.28/bushel. The cost of production of rice was $18.66/bushel and it was sold internationally at 14.55/bushel. From 1995 to 2001 dumping jumped from 23% to 44% in the case of wheat, 9% to 29% in the case of soybeans, 11% to 33% in the case of maize, from 17% to 57% in the case of cotton. Removing of Quantative Restriction in this dumping activity made the Indian farmer vulnerable to the distortion of international prices. Annual looses of farmers cross Rs. 1.2 trillion/ year.

Well 60,000 crore is a big money, as debt waiver. However, the losses are bigger than that. The question is how many fishes we can give and how far it will solve the real problem.

Isn’t that making them economically productive, and concentrating in their growth (teaching them fishing), is a better option?

Sunday, March 2, 2008

Union Budget 08: Good news for PE market?

Tax on short-term capital gains is increase to 15%. This would have a distinct impact on the market buoyancy. There would be less speculative buying for a short period. Infact, this could effect much of emotional buying and selling activity in Capital market to certain extent. Atleast, there would be more rationality and less guesswork. Lesser chances for index to go up and down in a topsy-turvy manner.

Is it good news for private Equity Market?

Private equity is somewhat more structured and rational investment option. It is an asset class consisting of equity investments in companies. These are not traded on public stock exchanges. Investments typically involve a transformational, value-added, with active management participation on strategic level.

Private equity firms generally receive a return on their investments through one of three ways: an IPO, a sale or merger of the company they control, or a recapitalization. Unlisted securities may be sold directly to investors by the company (called a private offering) or to a private equity fund, which pools contributions from smaller investors to create a capital pool.

The private equity market in India, which attracted $2.2 billion in investment capital in 2005 and $3.5 billion in the 2006, will reach at least $7 billion in 2010. That estimate — described as a conservative projection of India's upside private equity market potential — is among the findings in a new Bain & Company (US Business consulting firm) study, "India Private Equity Outlook ."

Most of the early stage startups, access equity investment options rather than loans. These equity investments may come in different formats. As a business planner, I have found, the consensus is, investment that adds value, is more accepted by early stage entrepreneur’s then investment where you have to give collaterals.

I might be biased, as I do business planning for living .However, the fact is , most of my clients, don’t go to banks for lending, rather they sell off some equity, to bring in money in the venture.