The scope of market research has become much broader, making it a necessity. Also, the amount spent on it has increased 50 percent over the last few years. Hence, it becomes important to do market research in a cost-effective manner and ensure maximum return.

The best way to do high-quality yet cost-effective and speedy research is to do it online. Although a relatively new trend in India, it’s catching up fast. In fact, quite a few firms are launching online panels to facilitate online surveys in India. Online research cuts down heavily on additional resource costs. It also makes it feasible for companies to field small studies as the cost involved is minimal. This widens scope for SMEs and departments that did not have an option of traditional research owing to limited budgets or small study size.

The use of sophisticated techniques is further instrumental in enabling cost-effective market research. For instance, the usage of Hierarchical Bayes helps reduce the required sample size without affecting the robustness of the sample. Development of certain methodologies like Price Sensitivity Method (PSM), where the price for the product is estimated by asking only a few questions to each respondent, makes undertaking researches easier and low cost. Using standardized software(s) to perform operations and holding focus group discussions also help cut research costs.

Consumer needs are constantly changing and companies need to keep up with these while providing products and services. It becomes necessary for firms to know how customers see their brand. Market research is the only effective way for firms to stay abreast of the consumer space. It helps differentiate products and services and target costumers more effectively with different offers. With market research being used extensively by companies worldwide, cost-effective market research is definitely the need of the hour.

Anil Kaul is Chief Executive Officer & Co-Founder, AbsoluData Research & Analytics.

©Entrepreneur October 2011

With 75 percent industries being unorganized and small scale, food processing has been the perfect recipe for many entrepreneurs. The business canvas is limitless and, with right resources and management, it is not tough to attain success.

Sustainable advantage will be based on the ability to procure raw material at a low cost during harvest and process, store and supply it during peak demand. Value adding, packaging and brand building certainly improve the ability to get higher margins.

Investment Required
Food processing units range from being home-based businesses to large-scale MNCs. Business investment can start from a few thousands and run in to billions. A typical unit with 10,000 to 30,000 units of production will require an investment between Rs.10 lakh and Rs.40 lakh for plant and machinery. In case of dairy and related products, the investment required can be anywhere between Rs.20 lakh and Rs.30 lakh, approximately Rs.10 lakh for fruit and vegetables processing unit and Rs.10 lakh for meat and poultry unit.

Infrastructure
You can start a unit from a mere 1,000 sq. ft location. Good transportation facility and storage capacity are essential. Investment required can be substantially reduced if these components are outsourced. Despite mechanizing, you would require 10–20 employees.

Financial Assistance
NABARD and other government financial institutions lend towards setting up the units. Since requirement is modest, many angel investors are willing to support entrepreneurs.

Business Insurance
Almost everything—plant, machinery, stock and inventory—is insured for natural calamities and burglary. However, insurance against perishability and seasonality is limited.

Licenses and Incorporations
 Most of the processed food items are exempt from the purview of licensing under the Industries (Development and regulation) Act, 1951. Items reserved for small-scale sector and alcoholic beverages are an exception.
 Automatic approval for foreign equity of up to 100 percent is available for most of the processed food items. Approval for alcohol, beer and items reserved for small-scale sector is subject to certain conditions.
 Food processing industries are included in the list of priority sector for bank lending.
 Excise duty on processed fruit and vegetables has been brought down from 16 percent to zero level in the Budget of 2001-2002.
 Income tax holiday and other concessions have been announced in the Budget of 2004-2005 for certain food processing sectors.
 Licensing powers have been delegated to regional offices under Full Product Order, 1955.

Basic needs
 Sales tax registration—VAT No.
 PAN card for the business.
 Trade license.
 Food license from the health department.

Competition
The food processing sector is a highly fragmented industry. Many entrepreneurs in this industry are small in terms of production and operations and largely concentrated in the unorganized segment. This segment accounts for more than 70 percent of the output in terms of volume and 50 percent in terms of value.

Though the organized sector seems comparatively small, it is growing at a very fast pace. For a first generation entrepreneur to succeed, it’s critical to find the product gap in the market, offer differentiated products and packaging, and distribute and visualize. With the advent of organized retail, there is better opportunity to place the product closer to the consumer.

Word of mouth and first few happy customers/retailers will be the biggest advertisers. Attention to detail and listening to them will determine the success rate. While newspapers, radio and television will spread awareness about the product quickly, having a website
and a page on Facebook is a must. However, nothing can match ground promotion and product trials at outlets.

You Must Know
 All India Food Processing Association.
 Food Safety and Standards (Food Import) Regulations, 2011.
 Draft Food Safety and Standards Regulations, 2010.
 Manuals of methods of analysis for different food products.
 Standard for potable water.
 Food Safety and Standards Rules, 2011.
 Highlights of Legal Metrology Act, 2009.
Legal Metrology (Packaged Commodities) Rules, 2011.
 Plastic Waste (Management and Handling) Amendment.

Rules 2011
Gestation period for setting up a food processing unit is around six months to a year. It takes about three years to break even EBIDTA.
With an investment of Rs.20 to 40 lakh, a unit can generate a revenue of about Rs.1-5 crore in three to five years. Net profit of 10-15 percent can be expected during the initial period.

Vijay Geddam is the Chief Happiness Officer at Geddy’s Gourmet Icecream.

©Entrepreneur October 2011

To compute the total income of an individual, let’s understand the procedure. Total income is equal to the net profit of all businesses and sole proprietorship firms of the individual. Net profit of the firm, in turn, means gross receipts/turnover less all expenditure made related to the business.

To make it more clear, total income of an individual is calculated by adding net profits of all proprietorship firms of the individual. For income tax purposes, a sole proprietorship firm can maintain its accounts either on cash basis or on accrual basis. Method of accounting is also very useful for tax calculation.

To minimize the tax liability, you should first recognize the expenditure related to the business. Normally, sole proprietorship business runs from home or without having proper office, especially in case of services, and many assets are used simultaneously for business and personal purposes. To claim expenditure, you should segregate expenditure for business and personal purposes. Apart from direct expenses, below are common expenditures made for business purpose:

Rent of the business place. You can pay rent to the owner of the property even if the business is run from home. A proprietor cannot take rent for the property he owns.
Running, maintenance, finance cost and depreciation of vehicle.
Computer, furniture and equipment maintenance, interest cost and depreciation.
Telephone, internet and communication expenses.
Electricity, power and generator running and maintenance expenses.
Staff salary and welfare expenses.
 Stationery, computer consumables, books and periodical expenses.
Advertising, promotion and website expenses.
 Travelling and conveyance expenses.

For claiming the expenditure against a business income, following requirements need to be met:
 You must have an evidence to support the expenditure made.
 Make no cash expenditure beyond specified limit.
 Deduct and deposit TDS if applicable.

Certain deductions are applicable to all individual assesses. The same is true for sole proprietor also. Following deductions can be claimed to save tax:
 Deduction u/s 80C of the Income Tax Act for investments in LIC, PPF, mutual funds, tuition fee, principal payment of housing loan, etc up to Rs.1,00,000.
 Deduction u/s 80CCF up to Rs.20,000 for investment in infrastructure bonds.
 Deduction u/s 80D against payment of Mediclaim policy premium up to Rs.15,000.
 Deduction u/s 8GG if a person is paying rent for his residence.
 Deduction u/s 80G for donation to any registered charitable organization.

Special provision for small business providers
A new provision has been made in the Income Tax Act with effect from 2010-11 that if an assessee has a turnover of less than Rs.60 lakh a year, he can declare income at eight percent or more on the total turnover and shall not be liable to maintain any books of accounts. So, even if you have a maximum turnover of Rs.60 lakh, your income will be assumed as Rs.4.80 lakh only and total tax liability will be Rs.30,900 (for male individuals below 60 years). This provision is applicable to all businesses having turnover of up to Rs.60 Lakh, irrespective of the nature of business.

Adjustment of losses
Under the Income Tax Act, if an assessee incurs loss in one business, he can set off this with profit from another business. If the loss still persists, the assessee can carry forward this to next year and set off with the profit next year, and so on up to eight years from the year of loss. To carry forward business loss to next year, assessee must file the return on or before due date.

Location advantage
If sole proprietorship business has a turnover from export, one can avail up to 100 percent tax exemption by setting up a unit in a special economic zone. No tax is levied on income for the first five years. As much as 50 percent income is taxable in the next five years under section 10AA of the Income Tax Act.

Mukesh Goel is a chartered accountant and partner at Mukesh Raj & Company.

©Entrepreneur October 2011

Sectoral caps with reference to foreign investment
The government of India has, for ensuring maximum economic growth and at the same time maintaining national interest, divided the business activities into three sectors. Each of the sectors has specified industries and procedures under its purview and specifies conditions to be followed with a view to infuse foreign investment in specific industry of the sector. Such sectors include:
i. Prohibited sectors– Sectors wherein foreign investment is strictly prohibited i.e. in no application for approval can be made.
ii. Restricted sector– Sectors wherein foreign investment is permitted up to a certain percentage. For any increase beyond this, government approval is required. Per se, there are certain sectors wherein foreign investment is allowed only pursuant to approvals.
iii. 100 percent automatic sectors– Sectors under automatic route are the ones wherein 100 percent investment is allowed. No government approval is specifically required.

Implications overview
As and when the question regarding infusion of foreign funds arises, the first criterion to be verified is under which sector the industry falls. In case of automatic route sector, the non-resident investor or the Indian company does not require any approval from any governmental authority. However, prior approval of the government through Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA) and Ministry of Finance may be required in case the industry falls under restricted sector.

With specific reference to certain sectors, foreign equity should be infused after seeking approval and abiding by the policies and regulations of concerned authority.

Cases where approval is required
For proposals involving FDI under the government route, certain approval levels operate within the FIPB. An application to the FIPB
will be cleared after following a certain procedure. While granting approval to any application filed with the FIPB, the board takes into consideration and scrutinizes various aspects.

The FIPB is instructed not to change or impose additional conditions in any specific letter of approval, pursuant to grant of letter of approval to any non-resident investor. Guidelines for e-filing of applications, filing of amendment applications and instructions to applicants are available at FIPB’s website http://finmin.nic.in/ and http://www.fipbindia.com.

Procedural implications
While seeking foreign investment under automatic route or approval route after acquiring requisite approval, the following issues must be taken care of:
i. The Indian company receiving foreign investment should report the details of the amount under consideration to the regional office of RBI through its category 1 authorized dealer not later than 30 days from the date of receipt. Such report should be accompanied by a copy of Foreign Inward Remittance Certificate(s), evidencing the receipt of the remittance and the KYC report of the non-resident investor from the overseas bank remitting the amount.
Upon submission, a unique identification number (UIN) for the amount reported would be allotted to the entity.
ii. The capital instrument must be issued within 180 days of the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) account of the non-resident investor. In case the same is not done within the specified time frame, the amount should be refunded to the non-resident shareholder.
iii. The capital instrument must be priced in accordance with the valuation methodology provided.
iv. After issue of shares (including shares issued on rights basis and under ESOP)/fully, mandatorily and compulsorily convertible debentures/ fully, mandatorily and compulsorily convertible preference shares, the Indian company has to file Form FC-GPR, to the regional office of RBI through its Category 1 authorized dealer not later than 30 days from the date of issue of shares along with requisite annexure.
v. Separate forms are prescribed for reporting non-cash issuance and foreign currency convertible bonds/ADR/GDR issue.

Conclusion
The increase in the inflow of foreign investment has served as a booster dose for the Indian economy. The government has been simplifying procedural aspects and making guidelines user friendly for investors and for those seeking approval. A steady flow of policies is, however, maintained so that foreign investment continues to increase in future.

Deepali A. Mendiratta is Manager, Corporate Professionals. She can be reached at Deepali@indiacp.com.

Roughly, a balancesheet has two sections— left and right. On the left hand side are assets or things that are positive for the company
and on the right hand side are liabilities or equity. At the end, assets have to be equal to liabilities of equity. This would mean your accounts are balanced.

Assets are something which can be converted into cash or will be of economic benefit in the future. The assets for your business would be the money in your bank in the form of savings, money owed to your company, bonds and assets like car, land building and inventory. Assets always mean positive and portray what a business is worth.

Liabilities are exact opposites of assets. Liability would be the amount payable or money that your business owes to someone else. The sources of capital are lenders and shareholders. For example, if a bank gives the company a loan of Rs.900 crore of which Rs.300 crore is due soon, this would fall under current liabilities. The amount of Rs.600 crore would then be categorized as non-current liability of a long-term debt.

A company would have shareholder (s) and if they contribute Rs.100 crore in cash and some initial inventory worth Rs.400 crore to get the company started, this would mean the company has Rs.500 crore under current assets. If the company uses the rest of the debt to buy plant and machinery, which are of use in the long term, this would fall under non-current assets.

The balancesheet would now have current assets of Rs.500 crore and non-current assets of Rs.500 crore, making assets side stand at Rs.1,000 crore. The amount is to benefit the company, can be converted in to cash and/or is of future benefit to the company. On the other hand, we have claims on those assets as liabilities. This would include Rs.900 crore by the debt holders, who have the first claim, and shareholders, who have a residual claim of Rs.100 crore. This means the liability side stands at Rs. 1,000 crore, which equals the balance on the assets side. The basic premise of a balancesheet is that Assets = Equity + Liabilities and Equity = Assets – Liabilities. This means if we sold of all the assets and paid of all the liabilities, the money left would be for the shareholders.

In our current example, if the values of current assets drop to Rs.400 crore, with debt of Rs.900 crore, the equity of shareholders is completely wiped out and they are left with nothing. However, if the value of current assets (real estate for example) becomes Rs. 600 crore, with a debt of Rs.900 crore, the value for shareholders will increase to Rs.200 crore.

Order in a balancesheet is mainly in terms of liquidity which puts cash in hand on the top, followed by current assets. Similarly, on the liability side, the current liabilities come first followed by debt and shareholdings. Balancesheet follows mixed model, which is a combination of historical cost and fair value. In our example, the non-current assets will include real estate. As time passes, their value would only increase. However, the balancesheet would not include the current value of the assets. Thus, a balancesheet reflects mainly a book value of an item and not its fair value.

A balancesheet is a snap shot of the financial position of a company at a point in time. The balancesheet also helps an analyst perform ratio analysis. In this case, if we take current assets and divide it by current liabilities, one would get a snapshot of the liquidity position of a company.

©Entrepreneur October 2011

Stress on the social impact story
A big challenge many social enterprises face is that people usually mistake these ventures as not-for-profit or charitable organizations, just because they are tied to social causes. Here’s your starting point. It’s important you differentiate your firm. The key is to market the social impact you’re aiming for and let your enterprise piggy-back on it, not the other way around.

This will require constant communication of the core idea behind your venture and a great deal of persistence in all your interactions with your audience. Don’t defend your position, instead stress on the professional structure on which your enterprise is based, despite addressing large-scale social issues. The message you want to convey is you aren’t looking for donations or charity grants.

Select your contacts with care
Every contact you engage with is critical whether or not he/she gives you immediate conversions. The employee you choose to market your social enterprise has the duty task of passing on the aspirations of your firm which may lead to further action. Choose a person who is passionate about the cause, and will convey the spirit of your firm. In such organizations employees handling projects are good fits to double up as your marketing personnel as well.

Find forums
Not just any, but those specific to your space. These are good opportunities to represent your social enterprise, either by attending, or better still by participating as a speaker where you can talk about social entrepreneurship in general or specific areas of interest, depending on the nature of the event. Gatherings like these have a good mix of people from the ecosystem and nothing is more compelling than a live audience.

Organize events
This is the good old traditional way. However, remember that they don’t have to be big and fancy. Smaller, localized events are in all probability a more effective marketing tool. These could be even in your apartment complex, during association-led events around festivals. Else, partner with corporates, those with active corporate social responsibility departments, and ride on the events they create.

Communicate with customers
Your target audience is perhaps the best marketing communication tool you can tap. Apart from the direct talks you will have with them periodically, you should try and engage them with the normal, day-to-day activities. This will get them to see your work first-hand as opposed to listening about your concepts and most likely create a deeper, more long lasting impact. Plus, it helps build credibility and belief in the social cause you are striving to address. Remember, conversions are not as important as getting the message across. The rest will follow.

©Entrepreneur August 2011

FDI policy
FDI is primarily governed by the Foreign Exchange Management Act, 1999 (FEMA) which lays down the broad framework under which the Government of India, through various regulatory bodies, creates, reviews and regulates the detailed provisions. The Government of India through its Department of Industrial Policy & Promotion (DIPP) releases two comprehensive FDI policies in a year vide its circulars which are effective from April 1 and October 1 of each year. The said FDI policy combines all the prior policies/regulations relating to FDI in India in a single document. Every consolidated FDI policy circular substitutes the last policy circular. The policy can be downloaded from www.dipp.nic.in.

Modes of foreign investment in a company
Foreign investment refers to an investment in an enterprise by a non-resident, whether it involves new capital or re-investment of earnings. Foreign investment is of two kinds—(i) FDI and (ii) Foreign Portfolio Investment. Any non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI policy. The government of India has also specified the class of entities in which the foreign investment can be made and with respect to each set of entities there are separate guidelines and criteria to be followed. Indian company being one of the recognized entities for receiving foreign investment, FDI in such entities flows through two routes—(a) Automatic Route and (b) Approval Route.

Automatic Route
All FDI proposals which do not require the approval of Foreign Investment Promotion Board (FIPB) are said to be investment under Automatic Route. This route is available to all sectors or activities that do not have a “sector cap” i.e. where 100 percent foreign ownership is permitted or where investment up to sectoral cap is allowed without approval.

Approval Route
All FDI proposals, wherein the proposed investment in an Indian company is above the prescribed sector caps or where the proposed investment is in such sectors where investment is allowed only pursuant to approval, fall in this approval route.

There are some instruments for receiving foreign investment. This may be made in Indian companies in any of the following modes:
1. Equity shares

2. Fully, compulsorily and mandatorily convertible debentures and

3. Fully, compulsorily and mandatorily convertible preference shares

In case any unlisted company issues any of the aforesaid instrument, their pricing shall be determined by Discounted Cash Flow method of valuation and in case of any listed company, according to method provided by SEBI (ICDR) Regulations. In case of convertible instrument, the price/conversion formula should be determined upfront at the time of their issuance. The price at the time of conversion should not be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the valuation method as provided aforesaid.

Inwards remittance by issuance of Depository Receipts and Foreign Currency Convertible Bonds are also counted towards FDI.

Instruments for Infusing FDI
1. Equity shares
2. Compulsorily and mandatorily convertible debentures
3. Fully, compulsorily and mandatorily convertible preference shares
4. Depository receipts
5. Foreign currency convertible bonds

©Entrepreneur August 2011

Deepali A. Mendiratta is Manager, Corporate Professionals. She can be reached at Deepali@indiacp.com

Friendly culture
An open-air environment is the order of the day. As an employer, you should strive to create a culture where employees are excited. School-like rigidity is passé. Instead, give them flexible work hours, options to work from home if required, and provide basic resources like phone and internet connections in such cases. Allow for fun in office, whether it’s by dedicating a small space for recreational activities or just by allowing them to listen to music while working. At the same time it’s important to let them know that deadlines are not to be compromised.

Buzz about your brand
Brand building isn’t always about spending big bucks to advertise. It can also be about the smaller things like good customer service or high quality products you deliver. Your brand must appeal to your employees and as an entrepreneur your task is to build a system that motivates them to work for you.

Start small and advertise your brand within the ecosystem, or even with your employees’ friends and families. Hold small gatherings where they get a chance to demonstrate/display their work to a significant lot. It’s a good way to get them in top form!

Less discipline, more responsibility
Keep it simple and straightforward. A strong delegation of responsibilities and the freedom to do more outside employees’ formal role is a good mix to motivate. Nowadays, even fresh graduates from top B-schools and design institutes are looking for more than just a fancy package. This includes an environment where they can learn more in shorter time spans, unlike at MNCs or software giants where training itself extends for two years. So make sure you give your employees, at least the doers in the team, tough projects to crack so they may have something valuable to their credit.

A trusting, interactive corporate set up is what you should be aiming at. Also, work with those who have aspirations similar to yours, even if they want to start off on their own in time to come. Employees get motivated by vibes, those that are for them and not to scrutinize them.

Freebies
Always known to be a crowd-puller, you’ll definitely earn some brownie points as an employer and have a charged up team. You could either plan certain periodic offsites, family days or invest in training to improve specific skill sets, in passes to important conferences and in work-related events.

If you want something more uniform to cater to all rungs of employees, take on the costs for lunch. A free lunch is hard to give up!

©Entrepreneur August 2011