Starters’ CFO Special
Starters’ CFO is a virtual Chief Financial Officer for startups offering complete financial and taxation services including –management consultancy, tax consultancy, accounting services, manpower management, secretarial services financial accounting consultants, payroll management and other financial service etc.
The organization is a congregation of professionally qualified and experienced persons who are committed to add value and optimize the benefits accruing to clients.
If any organisation needs to raise funds, they can raise funds through equity and debts. Equity is the general form of funds which are raised for the operation of an organisation. Usually funds are raised among 40 to 50 days under the proper documentation and laws which are needed for an organisation. Once the funds are ready and accounts are maintained organisation accept that funding and start to operate. Our service in this domain is to do all compliance beforehand so investors can invest and organisation does not have to wait for investments.
Once the organisation is ready with funding for compliance perspective, organisation will not have to wait for investors for incorporation of organisation.
Earlier the incorporation of ideas into business take several years but now with the initiation of startup idea the business or ideas which are to be implemented with new innovations, techniques, strategies etc are incorporated within the time span of couple of months.
- Increase in authorised shares of company: with an increase in funds for an organisation, the raised funds can be used in increasing the authorised capital of the organisation to encourage the people for more effective and efficient utilisation of the capital.
- Discussion with founders: In the process of fund raising the most important step is to discuss the area of work that the start-up would be dealing in, breakup of funds necessary for incorporation etc with founders and investors. Such negotiation ensures better effectiveness and efficiency.
- Checking of past compliances: Before raising funds it is necessary to check that all the past compliances of the organisation are complete so that organisation do not suffer while raising funds which will ensure smooth functioning of duties and ideas.
- Share certificates: every organisation needs to maintain share certificates and registering them to authorised authority so that investors could have brief idea about the shares issued.
- Analysis of funds: To ensure transparency between the investors and the founders, it is necessary to have check on distribution of funds and all the capital where it is invested, who has invested, where it is used, who has used, what are the returns etc.
Mergers and Acquisitions not only lead to increased value generation and cost efficiency but they even cause to an increased revenue or reduction in the cost of capital for the organisations. With the rising economy, mergers and acquisitions are gaining more importance now-a-days. They both are aspects of strategic management, corporate finance and management dealing.
However under advisory activities, it does not only refer to benefits of Mergers and Acquisitions, one also needs to highlight the basic difference between the two which is quite blurred today. Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets.
Merger refers to the condition when the boards of directors for two companies approve the combination of their entities and seek shareholders’ approval. After the merger, unlike acquisitions the acquired company ceases to exist and becomes part of the acquiring company. Starters’ CFO can also help you with employee stock options.
A merger basically is a deal to unite two existing companies into one new company. There are several reasons why companies enter into this agreement for mergers. Most mergers unite two existing companies into one newly named company.
What is to be understood is that Mergers are not equal to Acquisitions. In an acquisition, the acquiring company obtains the majority stake in the acquired firms, which does not change its name or legal structure.
An acquisition is a form of corporate action in which a company buys most, if not all, of the target company’s ownership stakes in order to assume control of the target firm.
Benefits of Mergers and Acquisitions
- Diversification of Risk
- Economies of scale
- To increase market share and positioning thus giving broader market access
- Improving company’s performance and accelerate growth
Employee stock option plan (ESOP) is a plan for employees in which employees are given ownership of the shares of the company or organisation they are working for. ESOP allows employees to buy shares of their company at fixed price. ESOP allows employees to have share of wealth of the company and infuses the sense of ownership and hence encourage employees to work more effectively and promote loyalty and trust amongst them.
ESOP acts as employee compensation policy and effective retention policy.
Stages of ESOP:
- Grant Options: a grant option is a process by which an employee is given an option to acquire the shares of the company at a specified price.
- Vesting of Options: vesting is the process by which an employee receives the right to apply for and be issued shares of the company under the option granted. Until the vesting takes place, the employee does not have a right to apply for the shares.
- Exercise of Options: exercise of an option means that the employee applies to the company for the issue of shares against options that have vested. An option merely sets up the machinery for creating the benefits to the employees. The benefit accrues on its exercise.
Business Valuation refers to the technique used to determine economic value of an organization or business. Sometimes owners turn to professional business valuators for an objective estimate of the business value. It is a process where you examine economic factors of a business using predetermined formulas in order to assess the owner’s interest in a company.
Entrepreneurs need to put a value on their startups in order to raise money, and investors need to put a value on their investments to generate liquidity. Since neither entrepreneurs nor investors are known for right-brain artistic thinking, this article aims to provide some tips for left-brain thinkers to make sense of startup valuation.
If you are trying to raise capital for your start-up company, or you’re thinking of putting money into one, it’s important to determine the company’s worth. However for documentation purposes, Starters’ CFO is a one stop solution for you.
Techniques for Business Valuation
- Cost to Duplicate: As the name implies, this approach involves calculating how much it would cost to build another company just like it from scratch. The idea is that a smart investor wouldn’t pay more than it would cost to duplicate.
- Market Multiple: Venture Capital investors like this approach, as it gives them a pretty good indication of what the market is willing to pay for a company. Basically, the market multiple approach values the company against recent acquisitions of similar companies in the market.
- Valuation by Development Stage: Finally, there is the development stage valuation approach, often used by angel investors and venture capital firms to quickly come up with a rough-and-ready range of company value. Such “rule of thumb” values are typically set by the investors, depending on the venture’s stage of commercial development. The further the company has progressed along the development pathway, the lower the company’s risk and the higher its value.
- Discounted Cash Flow (DCF): For most startups – especially those that have yet to start generating earnings – the bulk of the value rests on future potential. Discounted cash flow analysis then represents an important valuation approach. DCF involves forecasting how much cash flow the company will produce in the future, and then, using an expected rate of investment return, calculating how much that cash flow is worth.
Documentation is the process which gives brief information about the highlights, outlines, etc of an organisation. Earlier paper documentations were there where all the information, highlights, outlines or briefing was given in paper form but now a days it is much more online where all the data is been stored.
Documentation involves the documents which are easy to read and understand and gives the effective and necessary information easily. The following documents serve importance:
- Term Sheet
- Shareholders Agreement
- Non Disclosure Agreements
- Co-founders Agreement
- No Operational Ambiguity: it is the first and foremost reason why documentation is necessary as it reduces the business or organisational ambiguity. As one may not be clear about the duties followed by that person therefore it can be cleared by viewing the detailed documents.
- Training Material: documentation also acts as training material as it guides and tells the way of doing task with methods mentioned in the documents. It guides and educates the person as it is a manual which trains the employee about the tasks.
- Marketing Purpose: documentation is further used to do marketing as it tells the complete potential and calibre of an organisation to achieve targets and do tasks. Investors and customers use these documentations to analyse the organisation and can built trust by having a look on the documentation of particular organisation.
It is an important thing which an organisation must make so that people can have better view about the organisation and can analyse about the capabilities of an organisation to achieve the targets as mentioned by them during making promises to their customers.
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