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Startup Losses And Cash Burn. What’s The Difference?

Startup Losses and Cash Burn

Ashutosh Garg

Every new business will lose new money. This has to be taken as a “given”. Making a planned loss is never a problem. Making an unplanned loss and then having to try and justify it is a huge problem.

Most entrepreneurs tend to look only at the rosy and optimistic picture without recognizing the problems that will be faced and without factoring in a number of unplanned costs that will have to be incurred. Inspite of the company growing in high double digits entrepreneurs are always on the back foot with their board of directors because they had not met their over aggressive business plans. No amount of growth over previous year is relevant if one has not met the budgets. This will always cause frustration at most board reviews for the management team of the company.

It is important for every entrepreneur to understand that making money is not going to easy. Don’t believe for a second that revenues will instantly start coming in and customers will start flocking to buy your products. The reality is far different, and you will fare much better if you understand this reality and plan for it beforehand rather than get surprised later.

It is better to plan for losses and state this in your business plan. When monthly reviews are held with the board of directors, it is always better to explain how you have over achieved your numbers rather than take high targets initially and start with explaining negative variances each month.

Always remember that it is easier to “under promise and over deliver” rather than “over promise and under deliver”. A wise thing to do is to build a “stretch” in the business plan which will give you the cushion you need to handle any contingencies

No one likes to lose money and yet it is a well-recognized fact that most new businesses will lose money. Some businesses will lose money for longer periods than others because of the nature of the business and retail businesses have very long gestation periods. There is nothing to be ashamed of if your business is losing money as long as you can see the light at the end of tunnel.

All businesses will burn money and it is necessary to have sufficient funds in the bank to meet the burn. Most entrepreneurs and startups should plan for their losses and understand what the monthly burn is likely to be so that at no stage will the business run out of funds.

“Cash burn” should be defined as the amount of money that is committed to be spent each month, irrespective of whether or not a business is generating any cash flows. This is also the amount of money that is needed to be put in every month to meet the cash losses of the company. These expenses are for basic necessities such as salaries, rentals, utilities and communication costs as well as for expenses of a capital nature such as store build out and fixed assets.

All businesses will be confronted with several unplanned costs which will throw the entire cash planning out of gear and that is when the entrepreneur will have to scramble to raise additional funds.

The author is the Chairman of Guardian Pharmacies and the author of the bestselling books, The Corner Office and The Buck Stops Here. Twitter: @gargashutosh

http://www.businessinsider.in/Startup-Losses-AndCash-Burn-Whats-The-Difference/articleshow/24874599.cms

The Corner Office - Continues to be in top 3 best sellers

Build an Organization with Integrity, Ethics and Honesty

Integrity, Ethics And Honesty Should Be The Most Important Aspects Of An Organisation

Ashutosh Garg

http://www.businessinsider.in/Integrity-Ethics-And-Honesty-ShouldBe-The-Most-Important-Aspects-Of-An-Organisation/articleshow/24544197.cms

Laying the foundation of an honest organization built with strong integrity and ethics is important to set the culture, direction and priorities for any new company.

The lead has to be taken by the leader of a company by setting the right example and setting the right standards.

Honesty is Black or White - There is no Grey

To me, honesty is a simple black and white subject. There neither is grey in honesty nor is there any shade of white and black as I have heard many people say. Either you are honest or dishonest.

I tell my young colleagues that before they leave home morning when they are alone shaving and look in the mirror, can they look at themselves directly in the eye and tell themselves

“I did no wrong yesterday and I did not knowingly harm anyone yesterday and I was honest with myself”

This I believe is the only explanation they would ever need to give to themselves. What anyone else thinks of them or their actions is of no relevance and does not matter. My advice to my young colleagues is

“If someone asks you to compromise your own ethical standards or asks you to do something you don’t think is correct, hear them out. You don’t have to implement their decision if you disagree. Go with your conscience. What you think is right is what the organization expects from you. You can’t please everyone”.

Threshold of Conscience

As I progressed through my early working life, I began to understand that honesty had shades of grey and each person had his own threshold of conscience.

I have often argued with colleagues and others whether using a company car to drop children to school or to take your wife shopping or charging a personal expense as official entertainment or converting a business class ticket into two economy tickets when travelling overseas on company work so that your partner can fly free is right or wrong.

These are examples of when we change our own threshold of conscience to suit our own needs. We accept a position that we would normally not accept for our subordinates. We would also not accept this as correct if we hear someone else has done something similar. Then how can we rationalize this for ourselves?

As long as my own conscience is clear and as long as I know that I am doing what I think is right, I will keep moving forward.

I have recognized that very often in order to get work done, I have to accept what is the normal pattern of working in our country and I have learned not to question why most times, favors need to be done to get what is yours by right and not because you are asking for something to be done that is incorrect or out of turn.

A senior bureaucrat in a South East Asian country once told me that there was no corruption in his country. They believed in the philosophy of Cooperation, not Corruption.

“If you are going to do business in my country and make a profit, you need to cooperate and share a part of this profit with us”, he said. Quite an interesting perspective though not necessarily something to be emulated anywhere.

Gifting is another area where can always interpret several shades of grey. In our country, it is almost a culture to give gifts at Diwali every year and if a gift is not accepted, it is seen as an affront by the person giving the gift. Yet, if the person who the gift is for makes it abundantly clear that gifts are not welcome, then the practice of giving gifts comes to a stop.

In conclusion, the leader sets the standards for integrity and honesty in any organization or indeed in any family. If the leader willingly compromises his ethical standards it is impossible to expect people down the line or other members of the family to comply to a dual standard.

The author is the Chairman of Guardian Pharmacies and the author of the bestselling books, The Corner Office and The Buck Stops Here. Twitter: @gargashutosh

Lufthansa - Asian Business Champions - Ashutosh Garg - 2011

The Corner Office - Book Signing

The Corner Office - Currently at No 3 on the best seller list

Sourcing from China

Sourcing from China

Ashutosh Garg

http://www.businessinsider.in/SourcingProducts-From-China-Keep-These-Things-In-Mind-When-Trading-With-The-Dragon/articleshow/24188677.cms

 

Over the last 10 years imports from China have grown over 400% and more and more Indian traders are rushing to but cheap and often poorly made products from the thousands of manufacturers in China. I first travelled to Beijing in 1989 and have travelled on an average of 3 times a year to various parts of the country.

I have worked with very good suppliers and very poor suppliers. I have seen very ethical manufacturers and I have burnt my hands with very shoddy goods received from unethical suppliers. My learning in sourcing from China has been

1.    Talk to at least six suppliers before you take a decision on who to source from. This is often quite easy since Chinese manufacturers are clustered together in and around one area in most provinces. You will be surprised at the significant price differential across suppliers for the same product.

2.    Do not get taken in by the certificates issued by major buyers that most manufacturers will show you. Every manufacturer claims to be a preferred supplier to the major retail chains in North America and Europe. If you have a direct contact with any of these buyers, do a quick reference check on the manufacturer you want to select as your supplier.

3.    Negotiate long and hard. The Chinese love a good bargain and they love to play the game of brinkmanship even for a small value. Keep walking away from the deal and the supplier will keep calling you back. When you reach a price that is unacceptable, he will not call you back. This is when you know that you have reached his lowest bargaining position. Use this price as the base to close the deal with the next manufacturer.

4.    Chinese businessmen will pretend not to speak English though they know the language well. They will never speak to one another in any language other than Mandarin. I used to give myself an advantage as well and talk in Hindi or your local language with your colleagues. When the Chinese manufacturers realized that we were playing their own game, they switched to English! 

5.    Never put all your cards on the table with a Chinese manufacturer. He will spring many surprises in the negotiation and therefore you must be well armed with your own set of surprises. Good poker players are great bargainers with a Chinese manufacturer.

6.    Always remember that you are the buyer and that he needs you more than you need him. The moment you show the slightest weakness with your Chinese supplier, you would have lost the advantage that a buyer should normally have with his supplier. And the Chinese manufacturer will not show any mercy or compassion with you.

7.    The only hold a buyer has on a Chinese manufacturer is money for the current shipment. As long you owe him money, he will do your bidding. I have seldom come across a manufacturer who is willing to invest for the long term in a buyer – seller relationship.

8.    You must never expect to receive any settlement for damaged or sub-standard goods. Claims are hardly ever settled. You will always be given a plausible excuse that you have no choice but to accept and if you push very hard you will be told that they will give you a discount in the next shipment. Walk away from such suppliers with your losses because your claims are bound to double with the second shipment.

9.    Agree on your pack designs and quality standards in writing. Ask for signed a test pack for approval and record this carefully in your paperwork. Once you open your letter of credit and before you give your go ahead to manufacture and do not accept any deviation in quality. Once you have given your approval to ship without ensuring quality as per the sample it is your problem.

10. Ensure that you conduct a pre-shipment quality examination before the goods leave the factory. You will never be able to recover a claim for faulty goods later.

11. Always ask your supplier to deliver your goods to your nominated clearing and forwarding agent at your designated port in China. Don’t ask for delivery to India. A Chinese manufacturer has no interest in the goods manufactured by him once he has shipped them out of his factory. Outside his factory, the goods are the buyer’s problem.

The moment the export shipment leaves his factory gate, he shall encash your letter of credit and move on to the next order. Whatever you do, be very careful. There is no recourse to law if you run into trouble.

The author is the Chairman of Guardian and the author of the bestselling books The Corner Office and The Buck Stops Here. Twitter: @gargashutosh