Pursuit of your Passion

“Don’t ever let someone tell you that you cannot do something. If you have a dream you have to protect it. If people cannot do something themselves, they want to tell you that you cannot do it. If you want something, go get it. PERIOD!!!” – Will Smith in Pursuit of Happyness

You may have had the chance to read about perseverance and the skills required to take the plunge to start a business (reference – The Call of the Heart). Building on the main message of the “Call of the Heart” – WEBO Power now brings to you a series of articles “Pursuit of Your Passion”, that will discuss ways to create greater sustainability for your business venture – helping you pursue your dream better.

This, the first article of the series identifies ways to help you get started – helping you better define your business, identifying the broad requirements of the business along with associated costs and acquainting you with various ways you may consider in funding your venture.

Defining your Business

To put it simply, a business is a system or an organization that is engaged in the trading or manufacturing of products and/or services and selling the output to its customers.

Businesses need to pay suppliers for goods or services procured. They process these goods to make the final product that customers buy at a ‘sale price’ helping them make profits.

You can either start a commercial ‘for profit’ business or start a ‘non-profit’ organization.

It is important to define your business in terms of your core activity as well as in terms of what you are seeking to provide to your customers. This will help you establish the right capability set, while also help in defining the right measures of success – quantitative (sales targets, profits etc.) and qualitative (customer satisfaction, customer loyalty etc.). When you meet both these criteria, you will likely create an efficient (profitable) business and an effective (sustainable) business.

Mrs. Kapoor was very touched by a family offering home cooked meals to her son studying overseas (albeit at a price). She decided to start a catering business for college students so that they may have the right quality of nutrition to meet the rigors of a demanding course schedule.

Mrs. Kapoor defined her business as a catering organization, which provided consistently good quality, nutritious food in a timely manner to college students residing within 10 kms of her home, at reasonable and affordable prices. Word of mouth grew and Mrs. Kapoor soon had a very large and profitable business because her ‘customers’ figured out the unstated definition of her business – “to deliver in every meal, loads of care, caution and love”!

Follow Mrs. Kapoor’s example – define your business succinctly but comprehensively – in objective and subjective terms – an important first step!

Identifying Business Requirements

Business requirements range from the ‘proof of the concept’ (test or pilot with ‘friendlies’ – friends or family) of your business idea to other resources that would be required in setting up and growing the business.

Let’s take the example of Mrs. Mehta, who loved fragrant candles and even experimented with making her own candles. She later decided to build a business around selling hand-made candles. (Try to see how the principles discussed below may apply to your business idea that will likely be different from Mrs. Mehta’s)

1. A concrete business idea – You need to identify exactly what you want to do
2. A proof of concept – You need to validate if the business idea is viable and sustainable
3. Identifying target market or customers – Who will buy your products at the price you will define
4. A work place – Initially it can be your home or a shared office or a rented space. Many of the best known businesses started out of ‘garages’
5. Identifying suppliers for raw materials and equipments – Wax, moulds, decoration items, paints, boilers etc.
6. Additional staff for various roles and responsibilities – e.g. making the candles, packaging and designing the candles, designing banners and posters for marketing and promotion, ground work – sales initiatives, tie ups with home stores, exhibitions, maintaining books of accounts and tax obligations etc.
7. Associations and Partnerships – Associating yourself with exhibitions, listing your business in directories (including online), partnering with other similar businesses are all helpful

Cost Estimations

As is widely said, “There is no such thing as a free lunch”. All the above mentioned, come at a cost.

Money is required for the initial set up – buying equipment, forming a legal entity etc. and for running a business – paying rents, salaries, paying for utilities, raw materials etc.. It is also required for expansion and growth. Also, there may be instances when customers buy on credit from you, paying you after a certain number of days or months after availing of your products/services. You will need additional funds during that time, to run the business and to make payments to your suppliers (this is referred to as working capital).

Sources of Funds

Once you have listed all your likely expense heads, try and categorize them as – One time or Ongoing and further as – Fixed (committed expenses required to start – basic moulds, work table etc.); Variable (expenses that vary with the quantity produced – e.g. wax and wicks) and Semi Variable (expenses that go up in a stepped way with increasing quantities – 1 desk for every 5 wax molding staff; 1 packer for every 200 candles made per day etc.).

Now you will encounter the million-dollar question – “Where do I get all the money from, to start and run my business and how do I best manage my expenses?”

The golden rule is to start small (that shouldn’t stop you from dreaming big) and keep your expenses low in the early period. Prioritize areas that need immediate funds. Do not compromise on the most important aspects and focus on high quality output by minimizing expenses.

The most common sources of funds, used in starting and running businesses are:

1. Own Savings – For the initial phases of concept testing and starting your business on a small scale, the best way would be to use money from your own savings. You may also have a partner (active or working partner or a passive partner) who contributes funds for your business. Such ‘own’ funds invested in the business are collectively referred to as ‘Capital’.

2. Borrowings – The difference between your own funds and what you need to run your business + sales proceeds you expect to receive will be the amount you will require as additional funds. Having exhausted your ‘own’ funds, you can now consider taking loans. This will be termed as ‘borrowings’. You can borrow money from various internal as well as external sources.

  • Internal Sources –

    –      Close associates like friends and family
    –      Your charge/credit cards – Using credit cards may solve for immediate expenses which             can be paid back in (full or part) the end of the billing period. If used cleverly, these can             allow you free credit period of between 30 – 45 days on an average
     –      Profits from the business – when your business is operational and profitable, you may             use the profits or reinvest the profits for generating cash and meeting current expenses             (creating reserves and surplus instead of distributing cash profits)

  • External Sources –

    –     Loans from Commercial Banks – Banks provide loans for businesses – with a personal guarantee or security and in some cases without any security too. Banks assume risk while lending to you, they ask for security from the business owner. Commonly property, stocks etc. are sought as security. A number of Banks and financial institutions have special and preferential schemes for women entrepreneurs. Loans are generally offered over a specified term and generally require to be repaid over a specified time period (Term Loans). These are best used for meeting large and infrequent expenses – set up, funding new equipment etc.

    –     Overdraft from Banks – If your business faces a “cash flow’ gap, you will need temporary or bridge funding. For instance, if you receive payments from your buyers or customers come on 15th of each month and payments to suppliers by you require to be made on 10th of each month, you will likely exhaust cash available to you during the first week of each month. In such a case, banks could provide an overdraft facility, which is a manner of short-term finance (in this case used by you for 5 days). Your banks may allow you the facility to “overdraw” and have a negative balance on your account up to a limit assigned and charge you interest for the amount overdrawn for the period you avail of such a service. This is a good working capital funding source and is best used for “cash flow gaps” and for funding seasonal or cyclical businesses (Diwali hampers for Mrs Mehta’s candle making business when she produces a much larger quantity and needs special packaging material).

    –     Credit facilities from the suppliers – Raw materials, components and other items required for your business could be purchased on credit from suppliers. This will provide a lag time (to be agreed between you and the supplier) and you may pay him when you get your payments from the customers. We often refer to restaurants as businesses that buy on credit and sell in cash!

    –     Purchase equipments on lease – Equipments (like machinery for a fashion garments manufacturing business) can be purchased on lease from vendors or by finance companies at a fee. Most taxis are bought on lease and owners (often driver owners) pay monthly lease amounts from daily cash collections they accumulate (after retaining some margins in most cases).

Other Forms and Sources of Funds

–   Government Grants – The government recognizes the stellar role women entrepreneurs play and the increasing number of jobs being created by women run businesses for the economic growth of the country. It has launched a series of schemes, which may be availed by you for financing and funding your venture. Examples of such grants are Trade Related Entrepreneurship Assistance and Development (TREAD), Credit Guarantee Schemes, Market Development schemes among others.

–  Funding by professional investors or networks – These are external sources, which provide funds at different stages of evolution of a business, in return for a share of profits. The arrangement here is a little different from loans as the investors share the ownership in business. They may also participate in decision-making and ongoing efforts of the business. When done at an early or start up stage, this form of funding is known as angel investing and such investors are known as angel investors.

It is never too late to make a start.

WEBO Power suggests using this checklist to encourage you to put your thinking caps on and get started with identifying your expenses and managing priorities in looking for sources of funds.

This is not an exhaustive list but is an attempt to provide broad categories of sources available.

Await more articles in this series. We do hope this series will help equip you better as you Pursue Your Passion!

Please feel free to write to us, or leave a comment if you would like additional information or have suggestions to make.

Posted By: Sakshi Aggarwal, Team WEBO
Posted On: November 02, 2012

Tags: , , , , ,

There are no comments. Be the first to comment.

Post a Comment