Concepts of Financial Strategy of a Business
Instead, proceed directly to Apohan’s financial strategy service portfolio: Financial Strategy Service Portfolio
Apohan’s most important line of business is strategic consultancy on mergers and acquisitions or equity funding of small and medium enterprises. However, a business cannot make most out of a merger and acquisition activity unless it has a long term financial strategy in place.
Not only this, the equity investors required that the investee business has a properly laid down financial strategy. There are three very important activities that can make most out of the mergers and acquisitions: 1. Business strategy, 2. Financial strategy and 3. Corporate management. Apohan provides this entire gamut of services the Indian small and medium industries to propel them on the path of growth or to achieve a business turnaround from the situation of financial distress.
A brief list of strategic financial services
We provide a wide variety of strategic consultancy services in the finance domain. Our major strength is our understanding of a business as a business. Apohan doesn’t provide any statutory compliance services. Apohan also is not into the business of these services by certified professionals. We do not carry out any of our services for any certification or any compliance purpose. We make a business financially stable, sound & attractive by creating a framework of financial strategy, financial plan, financial policies, financing strategy, financial performance management, strategic business decisions, management of strategic alliances, modernization of finance function, practical financial training, etc.
Conceptual clarity for SME businessman in simple language
We have listed the basic topics for the conceptual clarity of strategic finance. It is desirable to go through these concepts to be able to manage finance without any misconceptions. After the set of links for all these concepts, we have listed all our strategic financial services on this page.
Objectives of financial strategies of a business
The objective of a financial strategy can be captured in terms of the important financial activities to be undertaken and also in terms of the expected impact of these activities on the business. Following are the objectives of the financial strategy of a business:
1. Estimation of the accurate amount of required capital and its timing
2. Raising all the necessary capital with acceptable terms and the lowest possible cost
3. Efficient and effective application of the capital in various functions of the business
4. Generations of higher profits on the revenues
5. Timely settlement of all the liabilities of the business
6. The timely payment of all the creditors of the business
7. Timely repayment of the loans and other debt instruments
8. Generation of attractive returns on investment for the shareholders
9. Management of all the risks in the business environment
10. Undertaking growth initiatives and executing them
11. Ensuring the stability and sustainability of the business in long-term
12. Realisation of the dreams of the promoters in terms of advancement of the company
13. Making all the stakeholders of the company happy and satisfied with it
14. Increasing the credit rating of the company to avail larger and cheaper funds from all kinds of investors
Root causes of financial distress in the SMEs:
For many businesses, an important reason for dis-satisfactory financial sustainability, financial stability & financial performance or for the situations like financial stagnation, financial hardship, financial distress, financial failure, financial litigation or corporate liquidation is the absence of a financial strategy and its proactive management. We have captured how Indian SMEs are vulnerable to various failures.
Three types of business decisions:
For the good future of a company, a businessman should be involved only in the strategic decisions. The managerial and clerical decisions should be left to those cadres. Following are the three types of decisions that a businessman must be aware of to focus on excellence in company performance:
- Strategic decisions
- Managerial decisions
- Clerical decision
Simple financial knowledge of a businessman:
Apohan has observed in its market survey that most of the small and medium enterprises owners lack the exact knowledge that they need to have “as a businessman” though it is very simple.
Three types of financial functions:
To put it in very simple words, the three functions can be described in the following fashion:
1. Bringing in money for the company (financing)
2. Using and managing the money appropriately in the company (financial management),
3. Doing the correct use of the excess money with the company (investment).
Role of a technocrat promoter:
Ideally, a business should be managed by one technocrat promoter and one financial promoter. When we look at the various competencies available with professionals, financial competencies and Technical competencies typically form mutually exclusive sets of individuals.
Increase in companies wealth =
(product price + incentive per product- production cost per unit- marketing cost per unit- financial cost per unit- asset replacement cost per unit- regulatory cost or tax per unit) * maximum sales volume possible with the available capital* number of cash conversion cycles in a year
Explore the link to see the list of objectives & activities of the technical & operational staff to increases the company’s profit in various ways.
Role of a financial promoter
Following are the areas of work in which the financial wealth of a company can be increased by the financial management without any role or involvement of the operations people:
- Making all needed capital available
- Reducing the cost of capital
- Reducing the cost of raising capital
- Increase the return on investments by the company
Internal reasons for financial distress
Three types of business circumstances
The circumstances of a business can be described in three ways:
1. Exponential or stable growth
2. Stability or stagnation
3. Business decline or financial hardship or financial distress or business failure
What internal things lead to business failure?
A business failure cannot be always attributed to the external environment of the business. We have classified the internal errors or negligence into three types:
Lack of professional management in the finance functions
Lack of professional management in the operational and technical functions
Lack of professional corporate management
It requires everything to grow and to excel, to prosper and to sustain and you cannot leave anything behind; but negligence on only one front might be sufficient to completely fail the business.
Apohan provides end to end services in all about three areas right from the planning stage to full implementation. Availing strategic services from Apohan means staying farthest from the business failure on account of financial management and corporate management reasons.
The trends in financials of a company indicate where it is heading. We have listed 25-steps in which a blooming business turns into a financial failure,
Unviability of a business & capital shortfall
Many businesses are not viable even if their structures and models, however much refined, fine-tuned, would fail because they are intrinsically unviable. There is no point in pursuing any kind of these businesses.
The million-dollar question is can the inability of the management to raise adequate capital be termed as financial unviability? The answer is no! A vehement no!! Then what this situation can be called? There is nothing wrong with or unviable about the business or its idea but there is something wrong with the actions if not competencies or philosophy of the management.
Is capital available always lesser than capital needed?
There are a lot of misconceptions about the term “capital” among businesspersons who are not from a finance background. This is one of the major reasons why they are not able to estimate the right quantum of capital required for their businesses. In the general course of business, capital is the amount of money that cannot be withdrawn and always remains in the business to keep operating.
Computation of capital requirement
A business must make provision of capital before liability is due for payment. It also should make provision for additional capital to make provisions for expenses on the business initiatives.
Every business has its own intrinsic capital requirement and it is completely unrelated to how much money they have & are eligible to raise. In almost all the cases of small-medium enterprises, the capital available with the business through all the conventional means and lenders is far lesser than the actual requirement.
Options For Raising Capital
Various ways of raising money in a company
The options for raising capital are numerous. Some of them are from internal initiatives. Some others are from external resources. Apohan is listing here various sources & initiatives of capital that are available to a business for various activities it can undertake to make available a question of capital.
Access To Capital
We can see that there are a plethora of options for capital funding available with businesses. If you rank all these options in the order of preference, one would find that most of the easy, practical, feasible and available options are already exhausted. Banks are simply incapable of understanding the quality of management and the financial merit of a business. They simply go by the rule book and refuse capital to small businesses. Now, this is a serious time to explore equity funding. Apohan shall provide you end to end customised service in availing equity funding.
Characteristics of business capital
There are many aspects of business capital that one should analyse before selecting a type of capital source. Every fund source has its own advantages and disadvantages. Depending upon the circumstances of the business, confidence in profitability and growth, confidence in the ability to repay or give satisfactory returns, affordability, amount of capital required, probability of default, etc, a business should carefully select fund resources.
Find the list of very important questions below that an SME business should analyse seriously before they go for taking money to run the business in any form.
Comparison of debt and equity
There are many advantages of equity funding.
The story of equity funding in Indian SMEs.
Equity funding is pretty attractive
It is also important to understand which mode (debt or equity) is better by understanding all the major parameters of difference between them. It is also that one specific funding is always better. A lot depends on the financial condition of the business & the aspirations of the board.
But the popularity of equity funding is very low
We typically see that apart from the founders’ promoters there is hardly any third party private equity funding in traditional businesses. Private equity funding is a rage among startups. Even if the failure rate of startups is as high as 95%, abundant private equity is available for them. What is the reason that this equity funding is not common among the long-established small and medium-sized businesses?
The SME consulting environment
Businessman & Consultant: The two wheels of a chariots
A businessman has many strengths and typically most of his strengths are concentrated around technical and marketing areas of the business. He needs the assistance of expert professionals to take critical management decisions. Small and medium enterprises typically do not have a network in the Consulting world.
Types of financial Consultants
In most cases, the SME businesses do not know how to identify the type of consultant required for a business problem, how to locate such consultant, how to cross-check the expertise of this consultant to verify whether he will be able to solve the business problem, how to engage the consultant who a professional service contract, what should be the scope of work for him, how the output of the scope of work should be reviewed, how the consultant recommendations should be implemented, etc.
There are a lot of types of consultants. Apohan has tried to make a classification based on SME perspective: Statutory compliance consultants & non-statutory compliance consultants. We have captured how they are organized, how to engage them & what services they provide.
Apohan is a strategic management company with specialised skills in all the activities listed above to the Indian small and medium scale Enterprises.
Strategic Financial Service Portfolio
Financial strategy & financial plan
The financial strategy includes the management of all financial aspects of a company in line with the business strategy. The strategy defines the financial vision of the company and the financial objectives in short-term, mid-term and long-term. It includes understanding the current requirement of funds and also the requirement for future growth initiatives. During the preparation of a financial strategy, the current financial performance of the company is analysed; action is taken on the areas that need improvement. As an important part of the financial strategy, the prevalent capital structure of the company is analysed and its implications for stability, credit rating, market price of shares of the company are analysed. Suitable steps are undertaken to reach the desired state of capital structure. For this, various available modes of funding of the company are analysed for their pros and cons and funds are secured for the company’s activities. Financial projections are made in a financial model. Looking at the growth rate of the company and the life cycle stage of the company the dividend policy is prepared.
Other aspects of financial strategy:
Cash flow management
Organization of finance function
Apohan provides services for the individual components of the financing strategy or an integrated financial strategy for a business to achieve all the objectives of a good financial strategy that are listed here.
Need for financial models:
Businesses involve a lot of financial transactions, a very big portfolio of products of complex nature, a lot of permutations and combinations of business models, a lot of other options and parameters regarding operational and financial aspects over a very large number of years. The back of the envelope calculations ignores the impacts of many very critical and sensitive issues. Also, modern-day businesses have not remained simple. Hence, an elaborate MS Excel-based model needs to be prepared. In the Indian small and medium enterprises, it has been observed that very large scale of decisions is taken by the rule of thumb. The business environment is so dynamic and every business or project is so different from another that the degree of error in the Thumb Rule and the margin of profit in the decisions are almost comparable. We see that many new growth initiatives of SME companies go wrong only because the detailed financial analysis was not done in an MS Excel-based model and some movement in some parameters spoiled the show.
Following are the other aspects of financial models
Types of financial models
User-friendliness of financial models
Inputs for financial models
Composition of a financial model
Apohan has excellent province progress in the preparation of financial models. It can help a business in analysing all the financial implications of a strategic decision for a new growth project. Please go through the list of all the types of financial models Apohan prepares.
Importance of existence of financial contracts
We are covering the topic importance of the existence of financial contract before the topic of the importance of financial contract because has not been realised well by many SME businesses. In the case of small and medium enterprises, the need for preparation of a financial contract for long-term strategic relationships and transactions is not paid as much serious attention as should be paid. Apohan has observed in its market survey that many companies have simply not prepared even the most critical financial contracts with their key stakeholders. The understanding between the parties is verbal or is written down in a very cursory manner. It has been observed that the requirement of having to prepare a detailed financial contract is seen as a symbol of distrust in many cases between the partner friends in an SME company. Going is good in the beginning, and there is not much to fight for or to fight about, everything sails smooth. But when the business becomes wealthy and complicated, a lot of new assets, liabilities, rights and obligations, decisions, duties arise which the friends were not aware of before. There is no clear framework between the partner on how to share these positives and negatives. In these circumstances, misunderstandings might get developed and may also ultimately lead to a breakup. When these people approach dispute resolution, in the absence of a contract, exactly what happened in history is taken as what was contracted. However, when there is a written down contract, any aberration in performance cannot be the contract itself even if it is ignored by the other party. It is treated as a voluntary waiver and not as a contractual right. So, do prepare a contract!
Importance of financial a contract
Many properly organised institutions and organisations dealing with small and medium enterprises will not work without a written down the formal contract. The businesses think that the terms and conditions of these contracts are non-negotiable including the clauses on the prices. Their contract is very elaborate as they are prepared by giant financial institutions that have a wide variety of risks. So the business ends up accepting all the standard terms and conditions, completely in the favour of the institutions without a single word of negotiation.
However, when it comes to the relationships between a business (as the legal entity) and the most important stakeholders of the top of the management, or between individuals very close to it or between the other businesses very close to it, elaborate contracts are not prepared even if large value and long-term transactions are being carried out. If we have to capture the essence of a business transaction in just two words, they are 1. Baat (the context of what has been agreed) 2. Hisaab (for what value). Financial transactions are complex and they have several aspects. The business contracts should capture the obligations of the parties and also should write down what happens if the respective obligations are not honoured. If all the foreseeable aspects are captured and also, if the principles of all the aspects that cannot be foreseen are written down, then parties can work together for many years without any friction. Many Indian Businessmen simply sign the documents written in English (many of the businessmen may not be understanding simple English, and many other businessmen who understand simple English may not be understanding the verbose legal English) without looking at the contents in detail. And that is why they discover the negative aspects or limiting, qualifying, and adverse clauses one by one in the life of the contract. This is why a contract should be taken very seriously before it is being entered into.
Other important aspects of financial models:
Types of financial contracts
Elements of financial contracts
Good contracting practices
Role of lawyers in financial contracts
Role of strategic consultants in financial contracts
The business contracts in which there is a significant financial stake, as well as the financial contracts which deal with purely financing and investment matters, are very crucial from the perspective of a businessman. Apohan, as a strategic consultant, helps to analyse the impacts of these contracts on a business, preparation of a risk matrix of a contract, incorporating all the relevant concerns of a business in them, structuring them, negotiated them with the counter parties, getting them vetted from the professional business lawyers.
See details: Consultancy services for financial contracts
Cash flow management
Following are the related topics:
Importance of fixed component of working capital
Impact of bad cash flow management
Banks attitude toward cash requirement of business
Apohan provides end-to-end cash flow management strategy
Analysis of financial performance
Reasons for undertaking financial performance analysis
Financial performance should be measured for the following reasons:
1. To verify whether the performance expectations are met as per internal norms
2. To see the trend in financial performance
3. To compare with the competitors
4. To find out the ways and means of improving it
Other important aspects of financial performance:
Strategic financial performance (the concept of return):
The problem of illiquidity of a business as a good:
Managerial financial performance
Operational financial performance
Ways to improve financial performance by operational means
Importance of operational performance
Importance of the cash conversion cycle
See: Cash conversion cycle
Apohan carries out an insightful study into the financial performance of a company apart from the regular ratio analysis and analysis of the financial performance. Apart from analysing the reasons for poor financial performance, Apohan identifies all the ways and means to improve the performance.
Financial risk analysis
Apohan also analyses the risk profile of a company on the financial front. Apohan prepares an end-to-end risk profile for the financial parameters of a company.
See details: Consultancy services for financial risk analysis
Reasons for carrying out a valuation
1. To know the amount for share transfer agreements
2. To know the extent of control dilution with infusion of additional envisaged equity capital
3. To improve the eligibility for getting loans from the banks
4. To improve credit rating
5. To invest in new projects, we have to know their valuation
6. To see the trend in valuation of the business and the efficiency of wealth creation
7. To raise the loans by pledging shares with the banks
8. To see whether the share price in the stock market is comparable with the logical price the company thinks is reasonable
9. To sell out the business
10. For the successful succession planning for the distribution of the wealth among the heirs.
11. To approach the correct kind of investors as per the ticket size
12. To undertake the activities such as bonus issue, buyback of shares, rights issue, capital withdrawal, etc
13. To be able to bargain the sharing of the new potential created with the new investor in the investment negotiations
14. To get visibility by getting a top rank in one or other category among all the businesses
15. To be able to approach and join hands with businesses of certain large sizes for doing business together
16. To know the control premium
17. To know the impact of various provisions in the investment contract or share transfer contract on valuation
Other aspects of financial valuation are:
The time aspect of the valuation
Three types of valuation methods
What all is valued?
Financial model for valuation
RISK OF APPLYING THUMB RULES FOR CRITICAL HIGH-VALUE FINANCIAL DECISIONS
USER-FRIENDLY FINANCIAL MODELS
Perspective of valuation
Valuation of potential and the mechanism to share it
Negotiations of valuation
Return on debt and return on equity
Valuation in financial distress
Strategic evaluation experts:
Apohan gets the best valuation for the business it is working for. Apohan’s ability to generate a financial model is unparalleled. Apohan is a strategic business valuer with a very deep understanding of evaluation concepts.
See details: Consultancy services for business valuation
Financial Software Selection & Implementation
The Indian SME businesses typically proc your only those business software data required for preparation of the financial statements and business compliances. A wide variety of a large number of transactions takes place in a company. The data of these transactions need to be captured to take appropriate strategic decisions.
Apohan carries out the SW selection, installation, training & related activities in Association with its expert Associates.
Capital structure advisory
Concept of capital structure:
It is important that a business secures all the capital required to make it a viable and profitable proposition. The capital is required at different points of time, in different amounts. Capital can be brought from various sources which have various advantages and disadvantages. There is a limitation on how much capital the promoters themselves can bring in. There is a limitation on how much debt capital a company can raise from banks and other financial institutions.
The Other important aspects are:
Importance of debt:
Importance of the fixed component of working capital:
Aspects of capital
Whether it is equity capital or state capital, they are not simple in nature and come in a wide variety of instruments. They have hundreds of features and parameters. These aspects of the capital instruments play a very important role in the financial stability and sustainability of a company. They are also important from the control perspective of the existing owners.
The key elements of the financing strategy
1. Make available the capital which can predict your resources for efficient and effective operations
2. Reduce the cost of capital
3. Reduce the cost of raising capital
Options for raising capital
The number of resources and the types of resources today’s business capital come in a wide variety. The selection of the type of capital, the specific company or refund should be made in line with the financial strategy of the company.
Apohan provides the services for the structuring of the capital of a new project, of a new business are of an existing business.
Concept of Financing:
The work of bringing the money into the company is called financing of funding. The strategy for bringing money into the company is called financing strategy. (the word financial strategy refers to all the strategies in a finance department where is the word financing strategy refers to you only the process of bringing in the money or the funds). Capital can be brought to a company into formats:
2. Anything else that serves as good as cash & meets the specific equivalent requirements of the company called fund.
Hence it is also called funding strategy.
Other aspects of Financing strategy are:
Importance of Financing
Effective Eligibility for financing
Disadvantages of Debt funding
Importance of equity funding:
Misconception about equity partnerships
Key Consideration in financing
Process of Financing
Sources of funds:
Important cost aspects aspect while raising capital
Apohan provides the consulting services strategic financing of the capital of a new project, of a new business or of an existing business.
See all details: Consultancy services for financing strategy (raising funds)
Working capital management advisory
Importance of the fixed component of working capital
In many businesses working capital forms a large chunk of initial funds required. Apohan has observed in its market survey that many small and medium enterprises of the first generation businessman are not aware of the concept of working capital. Rather, they are not aware of the seriousness of the concept of working capital provisioning. Small and medium enterprises live under the misconception that working capital is short-term finance and it is at a constant level for every year. They also use 100% CC and OD limits with the bank which should be actually reserved for seasonal fluctuations and occasional credit crunch. SMEs run a business with the lower working capital at operating capacities much below the break-even capacity and are not able to meet all the liabilities of the business.
1. Estimation of Working Capital planning phase
2. Estimation of Working Capital for different operating levels for an operational plant
3. Estimation of upfront working Capital at the commissioning
4. Equity funding of fixed, long-term working capital
See details: Consulting services for working capital management
Bank or NBFC loan advisory
Following are the important aspects:
Typical SME errors in bank loan management
Types of bank loans
Types of Debt instruments
1. Advisory for enhancing credit profile of a company to be eligible for the required amount of loan
2. Advisory to the small and medium business management of non-performance asset (NPA)
3. Restructuring of a bank loan
4. Transfer of a bank loan to a new bank for better terms
5. Preparation of bank loan strategy
Importance of dividend policy:
Dividend is the real (in the sense ordinary) means of a company to compensate its shareholders for their equity investment. From the profits made in a year, a fraction is retained for the provision of increased working capital and any growth initiatives or any other liability; and the rest should of the amount be distributed to the shareholders. The ratio of dividend to the current market price of the company share is called dividend yield. Dividend could be in the form of cash, stock, property, products, promissory note, scrip, etc. Payment of dividend is highly regulated by the law and dividend strategy is a key corporate strategy.
Other important topics are:
Why dividend is needed?
Errors in Dividend policy in Indian SMEs:
Apohan prepares the dividend policy of the company in line with the applicable laws, in line with the business strategy of the company & and in line with the growth phase of the company.
See details: Consultancy services for Dividend polic
Product pricing advisory
Product pricing is very important to make sustainable & adequate profits.
The related topics are:
Errors in pricing strategies
Importance of prices:
Apohan provides an integrated pricing strategy to small and medium enterprises for excellent financial performance.
See details: Consultancy services for pricing strategy
Overheads management & allocation
Concept of overheads:
Overheads are the costs incurred by a company that cannot be directly attributed to any specific product or service or project or work generating revenue for the company. A company manufacturing the headlights of a car can identify the specific quantity of the input raw materials such as plastic, glass, electric lamps, shining coating material, etc that goes into a specific variety of headlamp. But it cannot identify in the same exact manner the amount of plant rent paid, the expenses on the company vehicles, the salary of the Managing Director, etc that has gone into one headlamp. All such expenses are called overheads.
Important topics in the management of overhead are:
Types of overheads
Importance of overheads
Impact of the absence of computation of overheads
1. Identification of overheads
2. Suggesting the desirable changes in the accounting system to capture overheads
3. Calculation & classification of overheads
4. Allocation of all overheads two products, projects, departments
5. Computation of the financial contribution & profitability of each item
6. Product basket rationalization to increase the revenues
7. Suggestion of measures for reduction of overheads
There are many insurances that are statutorily compulsory. In addition, there are many desirable insurances for a business to manage force Majeure events, acts of God, etc.
Apohan can formulate an integrated insurance strategy for a company and connect it to a insurance broking house for a General Insurance Company for this specific requirements.
See details: Consultancy services for insurance strategy
The government provides a lot of assistance to small and medium enterprises. The important concepts are:
Types of government assistance:
Government assistance in arranging Finance for SME
Types of government institutions for SME business assistance
Process for getting assistance under government schemes
Clearances needed for getting assistance under government schemes
Apohan’s definition of small and medium enterprises:
1. A company in the manufacturing sector
2. A company with a minimum of 25 crore rupees of revenue
Apohan’s services for small and medium industries:
Identification, application, eligibility, support for various types of government schemes.
Public-private partnership projects (PPP)
Related topics are:
Concept of public-private partnership project
Apohan provides end to end to win a public-private partnership project and the strategy related to it
Concept of lease:
In this transaction, a movable or non-movable asset is not sold but is given for use on a periodic payment basis with the provision of taking the Asset back at the end of lease or compulsorily transferring to the lessee permanently.
The related topics are:
Components of a lease strategy:
Types of lease products
Assets that are typically leased
Sharing of scope between the lesser and lessor in Lease Agreement:
Aspects of lease contract:
1. Formulation of a leasing strategy to support an optimum capital structure
2. Economics of lease based on life cycle cost, computing the cost of liquidity
3. Identification of a leasing company to procure the capital goods, plant and machinery, tools, etc
4. Formulation of a full proof lease contract
5. Application of suitable lease formats to change the business model
See details: Consultancy services for lease strategy
The topics related to this consultancy are:
The framework of import and export:
Special export dedicated areas:
Types of payments in Exports:
Different types of export finances
Allowances and subsidies for exports
Financial institutions which offer export finance:
Apohan helps a business in formulation of an export strategy. It provides the Consulting Services for export Finance.
External Commercial Borrowing (ECB):
The topics related to external commercial borrowings are:
Legal and regulatory framework
Lenders eligible to provide ECB to Indian companies:
Borrowers eligible to obtain ECB:
Approval and automatic Routes of ECB
The classification of ECB debts
Benefits of External Commercial Borrowing
Conditions applicable to borrowers for external commercial borrowing:
Types of International banking
Apohan helps a business in the procurement of foreign currency, low-cost funds through external commercial borrowings. It provides the Consulting Services for export Finance.
ECB For Startups
ECB for start-ups has better norms on all parameters than regular ECBs by established companies, NBFCs, etc.
Following are the related topics:
ECB facility for Startups:
Types of loans:
Conversion into equity:
Apohan provides end-to-end ECB procurement services from foreign lenders ( or existing equity investors in the start-up) who can pay the retention fees to Apohan & also have sufficient liquidity to carry out all the processes and expenses
Joint Ventures Through Foreign Direct Investment (FDI)
The important topics are:
Legal and regulatory framework for international joint ventures
Eligible FDI investors:
Eligible Indian investees:
Types of shares issued under foreign direct investment
Routes of approval of foreign direct investment:
Sector related specific rules:
Benefits of FDI & Joint Ventures to Indian companies
Benefits of joint ventures to foreign company with FDI in India
Types of joint ventures in India
Equity joint venture
Contractual joint venture
Types of contractual joint ventures by purpose
Checklist of factors before forging a joint venture
Typical contents of joint venture agreement:
Apohan services forgetting foreign direct equity investment:
Apohan provides end-to-end services for FDI, JV through FDI & local Indian JV.
India Entry strategy
The related topics are:
Key parameters in the formulation of India entry strategy
Options of India entry without incorporation of a company
Liaison Offices or representative office
Significance of management control in joint ventures
Buyout or sellout deals:
Concept of majority stake:
Differential voting rights (DVR):
Precautions to be taken in formation of joint ventures
Apohan provides end to end consultancy services for India entry.
Overseas direct investment & international business
Overseas direct investment:
It is the equity investment made by an Indian company outside India.
It is without incorporation of the company there
The related topics are:
Types of international business activities in the beginning
Liaison Offices or representative office
Important Considerations in ODI:
Apohan consultancy services for overseas direct investment (ODI):
Understanding client objectives
Preparation of client profile
Secondary market research of the sector and industry
SWOT analysis of possible investment
Mergers and acquisitions
What is being sold, purchased, transacted, transferred, combined or divided in M&A? The companies or the body corporates or the legal entities called companies! Mergers and acquisitions (this is the correct use of the term) is the business of buying and selling companies themselves!
In mergers and acquisitions, the registered and incorporated legal entities are purchased, sold, transferred, combined into a few or divided into many. There are several variants of mergers and acquisitions. The type is decided depending upon the relative size of the companies, which legal entity remains and which legal entity gets dissolved, whether an altogether new entity is created or not, and whether the post-deal on-ground integration is carried out or not, whether the legal entities are divided into more or combined into a few, whether any shareholders are exiting from business permanently, what is the mode of compensation, whether the purchase is full or partial, etc. Broadly, these activities are divided into combinations and divisions.
See more: https://www.apohanconsultants.com/mergers-acquisitions/
Asset sale and slump sale
In an asset sale, every asset is sold individually. That is, if many assets are sold, individual prices are attached to each of the assets. The selling company has to collect the indirect tax (GST) on the sales from the buyer. The proceeds of sale from asset sale are shown as other income in the profit and loss statement, and corporate income tax is paid on it. Sometimes the intangible assets of the company such as goodwill, network, guarantee, brand, the network also can be transacted.
When is asset sale carried out? An asset sale can be carried out to raise emergency funds or to replace old technology, machines with new ones.
Slump sale means selling the complete set of assets of a business which can produce a product in independent way as if it is an assembly, without assigning any individual price to any machine tool or any equipment. This should also include transferring (making available) the human resources. But the name of the selling company or the legal entity is retained by the original owner. Sometimes, a production line for a product vertical can be separated and sold under slump sale. No GST has to be paid on slump sale. Instead of income tax, capital gains tax has to be paid on slump sale.
When is slump sale considered? Slump sale is carried out to spin off a vertical, or to get rid of a product, or to get rid of a geographical production centre, etc.
In the franchise agreement, a company provides all the machine tools, capital equipment, technology, training, brand, etc to the third parties to realise some fees other on the fixed period basis or on a volume basis.
In this, the company changes its management, board of directors and their ways of functioning. There may be restructuring of the group of the companies, mergers or divisions. The legal form of the company might be changed. The constitutional documents also might be changed. Various shareholder groups may nominate their directors in a certain proportion, allocate responsibilities to them, decide the mechanism of evaluation of their performance, etc.
In this exercise, the company changes its business model, in terms of how it generates revenue. This can be achieved by changing the products or the role in value chain or the terms and conditions of sale.
A contract between two business entities captures the scope of work, risks taken by the parties, their rights and obligations. A company can change the key contracts with the business stakeholders aur it can enter into new variety of contracts keeping the physical operational setup same.
In this exercise, the company changes its capital structure, substitutes the high cost, high commitment, high risk components of capital with suitable alternatives. It made convert one type of capital instrument into another. It may change the rate of return on any instrument downward. It may extend the tenure of the loans creating more liquidity. It may refinance its loan by transferring them to other banks. It may raise additional capital to overcome critical times. All of these initiatives can avoid a default and subsequent loss of control or liquidation.
CLASSIFICATION BASED ON REGULATORY FORUM OF ACQUISITION OF DISTRESSED ASSETS:
Following are the forums where a strategic investor main acquires a company:
Asset reconstruction companies (ARCs):
The ARCs acquire distressed assets from banks when the long term loans of the bank turn into non-performing assets and the banks sees that the recovery of its capital is difficult.
A Bank may choose to auction the assets provided as security for the loan. Typically, apart from the other personal assets of the businessman, the manufacturing assets and the corporate assets also become available to the bidders.
Lok Adalat is one of the alternative dispute redressal mechanisms, it is a forum where disputes/cases pending in the court of law or at pre-litigation stage are settled/ compromised amicably.The cases under Lok Adalats relevant for the businesses are partition Claims, Damages Cases, Mutation of lands case, Land Pattas cases, Land acquisition disputes, Bank’s unpaid loan cases, etc.
Debt Recovery Tribunal (DRT):
The Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) provides speedy redressal to lenders and borrowers through filing of Original Applications (OAs) in Debts Recovery Tribunals.
It provides access to banks and financial institutions covered under the Act for recovery of secured debts from the borrowers without the intervention of the Courts.
CIRP under IBC process /NCLT
The National Company Law Tribunal is a body that adjudicates issues relating to companies. All proceedings under the Companies Act, including proceedings relating to arbitration, compromise, arrangements, reconstructions and the winding up of companies are disposed off by the National Company Law Tribunal. It is the adjudicating authority for the insolvency resolution process of companies and limited liability partnerships under the Insolvency and Bankruptcy Code, 2016.
High Court/ Supreme Court:
As a result of court litigations, an investor may get position of the disputed equity in a company.
Other different types of circumstances of Financial Distress
Supplier payment defaults
Working capital defaults
Strategic debt restructuring
Viable loss-making business
Business under liquidation
Apohan understands the jurisdiction of various corporate forums. Apohan assists its client in management of the proceedings going on there in terms of strategic advisory. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.
Types of growth initiatives
WC for 100% capacity utilization
Product portfolio expansion
Vertical – forward & backward expansion
Horizontal or lateral expansion
New greenfield or brownfield project
New product development, technology, R&D
New business structure, contract structure
Finance training for non-finance staff
People taught calculations of the financial impact of their decisions & areas of improvements
It should be completed or ongoing. No question of when.