Saturday, April 07, 2007

Starting a small business in India

If you are planning to start a small business in India this article might help you, as most of these have been facts that I have faced. To start a company I have divided the start up business model into five parts:-
  1. Estimating Costs and Living System.
  2. Office Space, Equipment and necessary stationary
  3. Proper accounting System
  4. Incorporation Activity.
  5. Managing Proper Tax System

  1. There are many more people with good ideas than there are people who also demonstrate discipline in handling their business's money. Some say that one of the main reasons` businesses` fail is` lack of money. I believe it is lack of control of money.Usually we estimate the current outstanding cash we have or the even the current balance in the credit account, we never think of the credit cards or the debts and their interest which should be paid every month. If you are not starting with enough cash, known technically as being "undercapitalized," is probably second only to not researching your business concept as a major cause of small business failure. This situation is usually the result of inadequate planning during the pre launch phase.First you must estimate what your family expenses are and plan how you will ensure that your business income is sufficient to pay them. You should sit down with your family and honestly discuss the minimum amount of money the household must have each month in order to provide security. Ask each family member to offer one or two areas where some expense can be reduced.Estimation of Equipment and necessary stationaryIn addition to providing enough money to pay your family living expenses for two to three months, you will need money to pay for a variety of one time expenditures necessary to set up your business. Let's look at typical expense categories required in setting up a new business:
  1. Office Space: If you can start the new business in your home or share office space with a friend you can cut down the initial cost for deposits. Usually the office space have a deposit of 2 to 3 moths. If you sign a multi-year lease, you can sometimes negotiate with your landlord to have this included in your base rent. This expense may run from Rs. 1000/- (if you do the painting yourself) to several thousand (if you must build walls and add doors and windows). Most importantly do not forget to take the lease agreement during the initial time itself. You need the lease deed for the Incorporation of your company and other registrations.
  2. Furnishings are needed:- whether you locate your office at home or in outside space. Most offices will require a desk, chair, lamp, file cabinet and a bookcase or bookshelves, at a minimum. You may also wish to have a separate computer table or work station. If you give yourself several months to search, you can often find used furnishings at house sales, bankruptcy auctions and furniture resellers. With cleaning and a little touch-up paint, used furniture can work quite well. You'd better plan for Rs. 3000 to Rs. 9000 for basic.
  3. Computers: - It all depends on what you are doing in future. As I was starting Real Estate Company with online presence I had to go for a high end system. I had no other option because my core business activity was involved with a computer. These days we can get an assembled P 4 duel core Intel original processor with Intel mother board and all the latest add-ons on it for around Rs. 35,000 /- Take your pick! An astonishing variety is available today. You will need to do some homework -- learn what the most commonly used computer terms mean and how particular features affect speed or use (there are plenty of magazines and books available to help with this).. A word of caution: It is probably not smart for a new small business computer user to buy a used computer.
  1. Copiers: - Do you need one? If running down to a photocopying shop every other day or so takes too many hours of your time, you do. In a pinch, you can make copies on your fax. For a new small business, inexpensive (around Rs. 7,000/- I bought a Samsung). Multi function devices or MFD’s are very affordable these days. They have a Fax, Photo Copying, Scanning, and printing in them, we always miss out the paper cost in it, it is hell lot.
  2. Inventory: - Retail stores require stock before they can open for business. Often the initial stock to fill a 500-square-foot store (25' X 20') costs over Rs 8, 00,000/- Obviously the nature of your intended stock will determine the exact cost. Manufacturers are well-advised to have a supply of raw materials on hand when they start so that they can keep up with orders. Industrial supply and material suppliers often insist on selling in minimum quantities that are larger than you need in the beginning but which you must buy in order to get any materials at all. This often results in significant costs to you.
  3. Telecommunications:- At a minimum your business will require one telephone line and a telephone to attach to it. You may be able to get by for some time with your existing residential phone line, which will enable you to avoid a connect charge. However, if one line is not enough to handle all calls or if you need a second line to transmit and receive faxes, Consider also your needs for phone message handling, calls made outside your office and paging. An answering machine may be sufficient to handle calls when you are out. But perhaps you feel your customers demand a live person to answer your phone. Hiring a receptionist or live answering service will increase your start-up costs substantially. Special phone features, such as call waiting, call forwarding or caller ID carry installation charges of Rs. 500/- to Rs 1000/- on most of the services like Airtel, Tata, or Reliance However, from time to time the telephone company may offer specials that combine such features at a single, lower cost. Phones can be found in discount stores and catalogs as well as direct from the phone companies. A telephone is no longer enough. Your customers expect to be able to send you something immediately by fax. If you use a MFD you can solve most of the issues yourself. I had lot of problems with TATA, They have installed very quickly and charged an installation of only Rs.1000/- and they gave me a nice number as well. The worst part is every day I get at least 1 call from some insurance company or a holiday packages company saying that I won some thing be specific about such calls when you order for installations and the bottom line please do read the terms and conditions where ever you encounter.
  4. Insurance: - if you are starting a manufacturing or a processing unit you better go for the complete insurance. For that matter any small scale business insurance is a must any how we can claim this as a business cost in the tax, if you do not insure your products the govt is not going to give you any rewards for taking the risk, and basic rule in business is no body will support you, you have to support yourself.
  5. Incorporation: - If you are registering the company as a limited (private/public). You have to go through ROC (Registrar of Companies). It involves lot of application and lot of money, just for the incorporation of a company I had spend about Rs. 26,000/-, and about 4 months time I would list out all the process which might be useful to you:-
  6. Name Availability.
  7. Name Registration.
  8. PAN Numbers for all the directors.
  9. Directors Identification Numbers ( DIN)
  10. Company Registration
  11. MOA Memorandum of Articles.
  12. AOA Articles of Association.
  13. Incorporation
  14. Stamps, letter heads, Common seal.
  15. Bank Account..After all this I have some more activities like professional tax Registration, Service Tax Registration, VAT Registration, Digital Signature, Municipal Registration . And most of important a very good chartered accountant like MR. S. Ravi, and a good advisor like my friend Mr. Bala Srinivas. Summing It up When you total all the categories of start-up expense, you may be amazed at the total. If you include the purchase of a computer, start-up costs can easily exceed Rs, 3, 00,000/- without any cash contribution toward your personal living expenses. Advance planning is the key, because you should try to avoid borrowing money for start-up costs. You will need to borrow later to stay in business. Borrowing before you start puts you in a deep credit hole before you have even begun to market your company.I am going to put up most of the forms for incorporation on my website if you are will to go head with incorporating a company fell free to download and use them.

Ravi Danthuluri