Environment driven management or driving management?
A business is started with the initial idea of the value proposition to the customers and stakeholders. However, once the initial idea takes shape, a business gets deeper insight into the market realities. It is difficult to survive sustainably with good financial performance and growth for a longer period of time in the absence of a properly designed business strategy. The business environment is very dynamic and it always shows open new opportunities. Simultaneously, it also causes new risks in terms of new entrants, substitution products, new manufacturing technologies, changes in the supply chain, changes in the distribution channel, new government regulations, actions by competitors, etc which are external events to the business. The business is also affected by many internal developments.
Sense of direction
The management should have a proper direction and it should not be taking random decisions. Apohan helps companies in the formulation of the business strategy, financial models, contract structure with stakeholders, long term objectives, risk analysis, growth strategy, sustainability strategy, risk mitigation strategy, SWOT analysis, financing strategy, corporate management strategy, etc.
Harmonious decision making
Many a time, there is a lot of difference and conflict among the stakeholders, promoters, directors, shareholders regarding the key strategic decisions of a business. In order to remove these differences, a pre-existing business strategy provides a path for decision making with consensus, harmony, and unanimity.
Importance of vision
Every business must prepare a business plan. It should incorporate the generic vision of the company which is not quantitative in nature. It should be in the nature of a very long term goal of the company in terms of how it wants to see itself in the future. For example, an automotive component company would have the vision to become the market leader in a specific component and develop a reputation of its own brand.
Path to reach the vision
In line with the vision, a company should prepare certain mission statements. These mission statement would constitute various components in the direction of the vision of the company. The vision and missions of the company should be actionable. Hence, a company should prepare its short-term, mid-term and long-term objectives. The short term objectives are with a time frame of 2 to 3 years, mid-term objectives are a time frame of 5 to 7 years, and the long term objectives are without a time frame of 10 to 15 years.
A business strategy also involves a lot of structure in decisions.
A business can be part of a business group. The number of entities, ownership, control, the composition of the board of directors, reporting mechanism, legal nature of each of the organisations, compliances is very important to achieve these specific objectives. Impact of the group relationships on government tenders, security market-related conflict of interest provisions, disclosure norms, insider trading (prohibition) regulations, the impact of defaults, the impact of mismanagement, impact of blacklisting and similar measures, the impact of non-compliance, etc is very important for a group. Thus, the structure of the group should not be dictated only by the Legacy reasons but by the requirement of the current circumstances.
It means identification of the exact activity which is unique to the business and which adds value to the customer and all the other activities hinge upon this central activity. A business structure tells us what is our business and what is not our business. It tells us what is the main activity of the business and what are the complementary and allied activities. It provides us with focus and clarity of objective.
A business involves a lot of stakeholders such as employees, clients, suppliers, lenders, etc. The legal relation between each of these stakeholders and the business is very important. many contracts are exclusive, binding and restrictive. This limits the scope of growth of the company or the scope of activities it can do. For example, a contract manufacturer finds it very difficult to convert his company into a product brand due to restrictive conditions in the client contract.
A business has a legal form and the requirements of the legal form stop the company from undertaking certain activities. Hence, incorporating a business organisation in the right kind of legal form or converting a business into an appropriate kind of legal form is very important. The legal form is important from the perspective of the ability of the business to raise capital from various sources. It is also important in deciding the compliance requirements of a business. Apohan provides end-to-end corporate management and corporate development services. Also, a company functions in a local, national & international legal & regulatory framework. Apart from this, it is as good as mandatory to follow certain industry practices though they are not legally mandatory.
It is important to understand all the types of taxes and their rates including the complexity of tax compliance when the business investors receive their money in their hand. The taxes or cash outflow in terms of ROC fees, stamp duty, GST in case of an asset sale, corporate income tax, personal income tax, capital gains tax, dividend distribution tax, indirect taxes on the sales of the goods and services, customs duties, various input credits, tax incentives, tax holidays, minimum alternative tax (MAT), security transaction tax during the transfer of shares, angel tax when the shares are valued more than statutory valuation, etc form a substantial amount. Apohan helps a company, in Association with expert tax consultants, in the identification of these taxes and assessment of their financial impact in advance.
A business requires capital for incorporation of a company and related formalities, execution of a project, testing and commissioning, product launch, marketing infrastructure, working capital, growth initiatives, capacity augmentation, etc. It is raised from various complex resources with various risk & return profiles.
Below are the strategic business consulting Apohan provides:
Apohan prepares a business strategy that addresses all the fundamentals questions that arise in the course of running a business. What are the products and services we provide? How they are different from the other products in the market? How many types of products we provide? What is our exact value proposition to the customer? What all products or services we don’t provide in the value chain? What is the nature of the customer contract? What is the manufacturing capacity that we need to have in order to meet all the demand? How much capital did we require to create such capacity? How much working capital do we need to run the plant at full working capacity? How we can increase the capacity by minor modifications? How do we raise the capital?
What should be the pricing of our product? What is the operating profitability? What is our marketing strategy? What are the marketing costs? What are our overheads? What is the return on our investment? What are the risks involved in the business? What are our strengths? What are our weaknesses? What kind of joint ventures do we need? What is the impact of the Regulation and laws applicable to us? These are some important questions that go into the preparation of a business strategy.
Apohan prepares the vision of the business, the mission statement of the business, objectives of the business, philosophy of the business, and a business plan. Apohan prepares a financial model with many assumptions, flexibilities, sensitivities and scenarios which can be easily used by the management.
There are three types of decisions in a finance department: Strategic, managerial and accounting. Also, there are three types of functions in the finance department:
1. Financing or raising capital
2. Financial management are the right deployment, accounting, control, and management of the funds
3. Investment: Short term liquid investment or business investment of the excess money of the company
Financing strategy means arranging adequate capital at the appropriate point of time to explore the opportunities and to meet the liabilities.
See details: Financing strategy
A company needs to undertake entirely new projects which are called greenfield projects. Brownfield projects are the projects in which some activity has already taken place or some assets are already existing. These new projects result in a huge cash requirement of a business. They greatly impact the liquidity of a company. They may have a longer gestation period. At the concept, stage as well as till the project starts running which smooth cash flow generation, these activities associated with many risks.
Hence, activities related to new projects need to be undertaken with complete analysis and prior study. All the aspects related to corporate structure, business structure, contract structure, legal structure, tax structures need to be studied carefully. Apohan prepares the financial models, risk matrix, contracts for search new projects.
A company needs to form strategic alliances with the business stakeholders in order to get certain mileage. This could be contractual or equity-based. They could also be based on a simple Memorandum of understanding (MOU). A company required to form a joint venture to acquire technology, brand, etc. It may require to forge a business Alliance to secure a sale, supply, manpower, etc as well.
Also, Apohan helps the company in the identification of the various stakeholders for long term relationships such as franchisee through a franchise agreement, licensee through licensing contract, distribution channel partners through a distribution agreement, suppliers through procurement agreement, long term clients true offtake agreement, technology providers through technology transfer agreement, intellectual property providers or brand providers through royalty contracts. Apohan helps a business in the formulation of specific custom contracts for a custom requirement of a business.
Apohan helps the company in the formulation of local or foreign equity for the contractual joint venture. Apohan identifies the partner, prepare the financial model, negotiate the relationship, prepare the contract draft, etc.
See: Strategic alliances
The process of securing a large government or private contract is very complex. It involves an elaborate tendering process. An inspiring business always finds an issue with eligibility for such tender. Meaning of the times, these eligibility criteria are not very rational and useful. This needs to be demonstrated to the government authorities. The tender documents do not address questions, risks, requirements of information, clarity on the conditions of engagement, etc. A business needs to communicate all its concerns in writing to the authorities.
Risk & cost analysis
Internally, a business also needs to prepare a risk Matrix for participation in the tender. It needs to analyse the impact of the provision of bank guarantees on its liquidity. It needs to compute the business development cost. A business needs to prepare the project cost, project schedule, approach and methodology for successfully bidding for the tender.
A business needs to prepare a financial model to check various assumptions, run various possible scenarios, to compute various sensitivities. A business needs to analyse the competition to win the tender or to at least appear as a serious bidder in the industry.
A business also needs to forge alliances with technology partners, financial partners to share the scope and to share the risks. This involves the preparation of elaborate consortium agreements to increase the probability of being eligible for building. In many QCBS type of tenders, enhancement of the score through proper selection of the partners as well as through writing perfect approach and methodology, selecting experts, preparing the credentials, etc becomes very important to be able to take advantage of the higher technical score.
FDI & equity alliance
Many tenders (especially the public-private partnership (PPP)tenders) require a business to form an equity alliance and to incorporate a special purpose vehicle. This involves the preparation of a shareholding agreement. In many tenders, a company may involve a foreign partner with foreign direct investment. It would involve a lot of FDI related activities.
Finally, if a company is selected as the successful bidder, it may involve negotiation of the contract. A contract may be pre-existing in the form of a draft or it may be required to be prepared afresh.
We provide services to private companies in bringing out tenders for procurement of works, services or products of complicated nature, involving higher transaction amount, of long-term nature, etc.
Following are the documents involved:
NIT: Notice inviting tender
EOI: Expression of interest
RFQ: Request for qualification
RFP: Request for proposal
LOA: Letter of award
CA: Contract agreement (or concession agreement)
Apohan acts as business delegates in representing a business in the pre-bid meetings for the public sector and private sector tenders. Apohan provides end-to-end strategic bid advisory services to a business that are listed above. (We do not provide the services related to scanning of tenders, preparation of internal business development documents, drafting of the routine inputs.)
See: Bid advisory or transaction advisory
Indian companies can increase their market by tapping foreign trade opportunities. A company can identify foreign clients directly or it can engage with the foreign distribution channel or a foreign partner. In the same fashion, a company can procure goods and services from foreign countries for strategic reasons. A company can establish its presence in a foreign country through a project office for completion of a project there. It can explore business through a liaison office or branch office. Indian Company can also incorporate a legal entity in the foreign country in a joint venture with a local company or as a 100% subsidiary of the Indian Parent company.
See: Services for international business & partnerships
Risk management is a very important aspect of a company. We see that many companies with good going suddenly suffer a very bad Fortune because of a certain unforeseen eventuality. A business has internal and external risks. A businessman needs to identify them, quantify them, put necessary mitigation measures in place. This ensures the continued profitability, growth, sustainability offer company. It also ensures that the company does not suffer from financial defaults and can come back again from any business environment related problem.
Apohan carries out a detailed risk analysis of a business from a strategic, financial perspective.
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 Businessman may not be understanding simple English, and many other businessmen who understand simple English may not be understanding 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.
We provide services for the preparation of the draft contract, strategic considerations in a contract, structure of a contract, list of all elements that should be incorporated in a contract. We also negotiate the contract with the counterparty on our behalf. We get the legal vetting of a contract done with our legal associates.
See Link: Services for preparation of business contracts
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.
See: Services for preparation of financial models