Why Start-up?

This article is for those who have thought about having their own business, discussed with friends and relatives, (sometimes with investors too) yet somehow find it difficult to cross-over. The intent of this article is to come up with facts that may serve as logical reasoning to combat the small self-doubts which stand in the way of an upcoming entrepreneur!

So you have gone through years of education, got yourself a job, put in a few years with your boss, made money and feel settled. What next? Choices are broadly only two for anyone who wants to be occupied: Either to continue climbing the corporate hierarchy or to START-UP! Each choice has its own pros and cons. The question here is which activity is worthwhile!   

Choosing to be employed with someone else is relatively less laborious since it means clearing a few rounds of interview and being likable on the job. Moreover, you enjoy the liberty of quitting the job when you want which is not the case when it comes to your own business. At hindsight, being employed feels comfortable. But, is it actually so? If it were, you wouldn’t have complained or even thought about an alternative career option.

The higher ideals to starting up with one’s own venture are the satisfaction of doing one’s own thing or the feeling of being your own boss and the associated pride of creating employment for others and in-turn impacting the society. In addition to all these, there are plenty of small advantages that come with entrepreneurship. A few are listed here-

1. Job search ends here
2. Long waits for promotions and increased income are no more. One can earn as much as one wants to at whatever age with no age bar to retirement
3. “Qualifications” and “experience” are what you learn on the way
4. Exponential growth is possible. Fixed salary slabs are no more a constraint
5. Relatively less man hours per day as business progresses and stabilizes; contradictory to ever increasing work load and man hours per day with increasing responsibilities at the work-place/employment and enslavement
6. Limitless diversifying and de-routing options

These are a few things which you already might have recognized. Yet, there is something stopping you from going the entrepreneurial way! What is it??

I call it the “Comfort Cushion”. After being habituated to a hurried early morning breakfast, reaching on time at the office, punching your card, a subtle greeting to colleagues and the coffee machine gossip; we come to accept targets n reports as the way our lives were meant to be and have grown comfortable on this cushion which gives a regular paycheck. Walking the tougher path with only your beliefs and motives as companions feels uncomfortable subconsciously! And this subconscious discomfort gives rise to a whole bag of reasons as to why one shouldn’t venture out for eg; I don’t have enough financial back-up, I will start-up once my children are settled, What if my start-up fails?... are just a few common ones.

Breaking off from this mindset and pushing oneself into doing what one feels right and believes in needs strong reasoning and a dash of practicality helps the cause.

For this purpose, one must look at trends and what direction one may float towards in keeping up with the current trend. Following the trend in recruitment policy of companies in the last couple of years, we see, there is a shift towards lower costs and improved productivity. In the human resource context, this means more and more talent will be hired at lower wages over the coming years. Hence, as days pass compensation packages will tend to shrink rather than ballooning for the average employee.  To ascertain the facts, I urge the reader to take a hard look at the industry he/she is working in and think on these lines.

As a rough example of what I am trying to say, let us compare financials of employed earnings vis-à-vis enterprise earnings. Again, the reader will have to fine-tune this exercise according to their present situation.

An average employee may reach an earning potential of Rs. 50000/- a month in a course of 5 years, whereas, an average business gives a potential of earning that amount in just about 3 years (considering a nominally well-placed job and equally interesting business). The amount of wealth amassed over a period of 20 yrs running one’s own business is a direct multiple of that saved from salaries. I am saving the discussions about the various outcomes and factors that may make or break an employment or business for another time since there is equal possibility of success or failure in both these type of engagements. My point is, such practical calculations help to strengthen the perspective and from there emerges the “will” to move out of one’s “Comfort Cushion”. Looks like it really does make sense to Start-up!

Think about this and I shall be glad to hear your thoughts / read your comments.

(Source:siliconindia.com)

10 Legal mistakes made by Startups

Setting up your startup involves a lot of work and effort. Many things need attention, including developing a proof of concept, finding product/market fit, and hiring the first set of employees. With these many things to be handled, slips are bound to happen. One of the most common areas where most startups make a wrong choice is establishing a solid legal foundation.

For startups, particularly in the sectors like e-commerce, payments, food or health care, it becomes all the more important to focus on the legal aspect. You don’t want to make the same mistakes as someone else, rather learn from it, isn’t it?

Some of the most common legal mistakes made by startups:

1) Wrong legal entity

Choosing the right legal entity right at the outset is important. Some structures to choose from include a Registered Company (Public/Private Limited), LLP, proprietorship, and partnership. The more widely accepted one is a registered company, especially for any deals with foreign clients.

Go for a LLP or Limited Company if you do not want personal liability for the losses/liabilities of your startup. Choose the right form of legal entity to avoid any legal hassles and payment of higher taxes.

2) Not tracking expenses

Another mistake commonly made by startups is not keeping track of their expenses, however big or small it maybe, throughout the year. Many try and gather all receipts only when tax returns have to be filed! What is not documented is not deducted, and therefore, it is like leaving money in the open.

There are many options available to record and manage expenses. Entities can also hire accountants to manage these records, if volumes are high.

3) Lack of documentation

Each and every interaction, be it meeting minutes or anything else, must be on the record. It is important to have all documents in order at all times. Legal due diligence can make or break an investment deal.

4) Missing founders’ agreement

Every startup may or may not run or be essentially successful. It is therefore important to have a solid founders’ agreement in place, because it is worth thinking about how you and your co-founders might deal with failure. The founders’ agreement should contain all essential clauses such as ownership, vesting rights, and the roles and responsibilities of each founder, including salaries and terms of employment.

5) Mixing capital and revenue expenses

One of the major confusions for first-time business filers is about expenses. What expenses are considered assets /capital expenditure and which ones are called revenue expenses deductible in the P&L A/c. Higher-value items that will last significantly longer than one year are called Capital Expenditure/Assets/Equipment. For example, the expenses on laptop purchases are not deductible as revenue expenses in the P&L A/c, but only the depreciation/amortisation on them is deductible over a period of time.

Things that are consumed over the course of a year come under revenue expenditure. If the equipment or capital items are by accident deducted as revenue expense, the tax department can determine that the expense has been improperly characterised and a deduction does not apply. Hence, be careful in accounting all such expenses.

6) Mixing personal and business expenses

Time and money are the biggest investments in a startup, and often the personal and business expenses become indistinguishable. This can be a source of confusion when taxes are being filed, and in some cases, can lead to deductions being disallowed on an ad-hoc basis by the revenue authorities and higher tax outgo as a result. The company should therefore have a financial account at the onset and separate records as well.

7) Not protecting intellectual property

Intellectual property (IP) is a startup’s most valuable asset. Trademarks, patents, and copyrights are the three essential components of IP. It is essential to not let anyone claim a right to your IP. Non-disclosure agreements are a way of ensuring this. Startups often neglect the protection of IP and suffer later.

8) Non-compliance with securities laws

Startup founders commonly issue stocks to angel investors, family, and friends. However, stocks issued without complying with specific disclosure and filing requirements under securities law can lead to serious legal issues at a later stage.

9) Missing regular tax payments

Businesses, be it sole proprietors or otherwise, are required to pay taxes in advance. This means they need to determine their taxes for the year in advance and pay as prescribed installments. They can get into trouble for not paying the taxes on time. It is therefore important to take regular stock of the profit/loss statement at each quarter and pay the advance taxes.

10) Not ensuring professional help for tax-related issues

A startup must appoint a tax consultant to ensure all regulations are being followed. This will also give you more time to focus on building your company, forming strategic relationships, and other things. It’s essential to make sure all regulations are being followed to the tee. Taxes are also not something that a company should revisit only once in a year.  

(Source: YourStory.com)