The past eighteen months after the coming to power of the NDA government have seen a lot of noise being made about the need to encourage start-ups. Conversely, India’s ranking on the World Bank’s ‘Ease of Doing Business’ ranking continues to languish, the last ranking being 130. This was still a big improvement over the previous ranking of 142, but shows that India has a long way to go.
While we would probably need to wait a little longer to see India compete with countries like Singapore, let us take a look at the practical steps involved in launching a startup in India.
Every great business starts with a great idea. It might be something completely new, it might be a better way to do something already existing, a faster or cheaper way to produce it, or a different method of delivery, but there should be something that you can do differently for the idea to have business viability.
Building your business plan. You will need this at all steps of the start-up processes. To get finance from investors, from banks, and sometimes, to convince yourself of what you are doing. A good business plan should answer the following questions:
- What is your business about?
- What research have you carried out? The results of such research?
- How do you plan to organize and manage your company?
- What are your long-term goals?
- How do you plan to reach your market and maximize your market share?
- What are your copyrights and patents, if any, taken for your ideas and processes? (If you have a technological or scientific innovation, do take a patent for it)
We have covered elsewhere the importance of preparing a detailed financial plan for your proposed business. From a funding perspective, most Banks and investors will seek at least a three-year fund-flow statement. Take into account a best-worst-realistic scenario of the industry you will be operating in, and make a detailed plan setting out how much money you need, when you will need it, and where you expect the money to come from.
Explore how much money you can put in yourself first. Are you planning to quit your job to pursue your entrepreneurship dream? In that case, do ensure you build up a buffer to take care of non-business expenses. How much are relatives and friends prepared to invest? Crowd-funding through online campaigns like Kickstarter and Indiegogo have also become quite popular and you might want to look at how that might help you out as well. But finally Banks are likely to get involved at some stage, so be prepared for that.
At this stage you will get an idea of what legal structure works best for you. Is your enterprise going to be a for-profit entity or a not-for-profit? Most likely a for-profit venture, so you then need to look at options between sole proprietorship, partnership and private limited companies. While a sole proprietorship is the easiest to get off the ground, it is highly restrictive for raising funds if you want to scale up quickly. For the typical present-day start-up, the preferred option is to float a private limited company.
Now that you have a plan and have decided what you are going to constitute your startup as, get your team working on establishing the legal structure.
There are four things you need to do first and foremost –
- Register your company with the Registrar of Companies. In case of a sole proprietorship, this is not required, nor for a partnership.
- Obtain a PAN in your company’s name from the Income Tax Department
- Open a Current Account with a Bank
- Get a license under Shops and Establishment Act for your place of business
Now that you have these things in place, you can start raising funds in your company’s account and proceed to the rest of the compliances. Service Tax Registration, VAT Registration, applying for a TAN etc are matters that your Chartered Accountant might have to help you with, and are essential at this stage.
Finally, do also look for State-specific guidelines that may be applicable to the state you are operating in. In fact, you might want to take a call on which state you want to operate in depending on which one has the most business-friendly environment, since this also varies considerably within India.
Build a team
Now that you have the legalities in place, start building a team of people. Do not hire more people than you need at this stage, but ensure you have the right people for the right jobs. If the number of people who propose to employ is more than the prescribed limit, you may have to registered for Employee Provident Fund, ESIS etc. In any case you will need to do this eventually.
Branding and advertising
Spread awareness about your business / products. Depending on the scale of your business, this could range from distributing pamphlets locally to advertising on national television and everything inbetween. Spend your money judiciously, and only after you have the means to deliver on your promises. The last thing you want is to promise the moon and be unable to deliver even dirt.
Finally, once you have established your presence, scale it up. Look for ways to grow your business. If you have started well, funding will be easier to get. Additional compliance requirements may become operational now, but these need to be taken care of. In fact, you might find that you are repeating steps 1 – 7, and that’s precisely what scaling up is – starting all over again, to become bigger, better, stronger. Standing still is no option for an aggressive entrepreneur!
This article seeks to provide a primer for young entrepreneurs pursuing a start-up idea. For specific legal and financial aspects of the process, professional advise should be sought.