The Reluctant Entreuprener: Paying Commercial Taxes

A happy new year to the readers and given the situation, a safe one as well. The Christmas season is also a business opportunity. Alert, commercial taxes department decided to ensure that this festive season no one evaded taxes. So, they literally got up early, went to the interstate bus stop and caught a hapless passenger with a suitcase full of Christmas decorations. He had no bill and the INSPECTOR who had only the State’s interest at heart wanted to collect the tax. We must all give this brave and committed officer a standing ovation. He actually sacrificed his sleep and added a few rupees to the States empty coffers. Meanwhile thousands of rupees slipped in on trucks and even the roof of the bus.

We have been selling SHAKTI tanks in this State for close to two decades. When we started we had a level playing field. We were exempt from paying sales tax for some years, and the competition did not pay tax i.e. available without bill. Now, these tanks come into Goa not in a suitcase but by the truckload. I know, I caught one and handed it over to the Department. Unfortunately the officer concerned was not as energetic as the bus stop inspector and the consignment was released, to be sold without tax.

When India, joined the VAT regime, we lost our level playing field. Now we pay the tax and our competition continues to sell without bill. At that time Mr. A.T. Kamat, Commissioner of Sales Tax asked industrialists to make a sacrifice for the Nation and not oppose the loss of the sales tax exemption. My question then is relevant today; when will the Commercial Tax department start batting for the State/Nation and begin doing their job and get every item to be sold on an invoice with the taxes paid so every establishment has a level playing field?

I once gave another Commissioner Mr. Pai Bir,"intel". He was told that a truck load of tanks was headed to Goa and from the brand, I also told him it would go to South Goa. Two hours later he called me, very upset. He was waiting for the truck at the Margao end of Zuari Bridge with his team and no truck was visible. One can only laugh because everyone but this department knows that trucks cannot cross the Zuari bridge due to laod restrictions.

When you start your business you will calculate the price that should be feasible in the market. Now, on finding that adding the tax and doing business legitimately puts your company at a disadvantage, many smaller players opt to follow the same path i.e. sales without bill. Even if caught, and the chances of that happening are slim, one can assume an escape with a payment below the table. With such a low down side on one hand and on the other hand a loss of market share if sold with tax, what would you choose? This is exactly what the bus passenger did – he bought without a bill, and would also sell without the bill.

The other major hassle of registering with the Commercial Tax dept. is the paper work. You have to file returns, you have to go for assessments, you have to follow up for C forms etc., and chair bound officials keep calling you to remind you of the due date to deposit the VAT collected. If you are unregistered, then no one knows you exist and therefore there is no paperwork. Some businesses opt for dual model, show some sales officially and rest in is cash. A la, best of both worlds.

Despite the many pluses of avoiding VAT, I would suggest that each new start up and possibly even those currently avoiding any kind of taxes, pay them in the interest of your own growth and peace of mind. For your customer it is “proof of purchase” and access to after sales service. It is a bit harder but surely more profitable in the long run. As technology advances, the playing field will become level, be there to take advantage. For the customer this "proof of purchase" is very important in case he wishes to enforce his rights as a customer in case of a defective product. The customer should consider paying VAT as an insurance against a defective product.

In the meantime, petition your local industry Trade body to force the department to make the playing field level. Happy selling.

The Reluctant Entrepreneur : The Launch

I recently attended the launch of a social entrepreneurship initiative “ “, for of and by women of Fatorda. The brand was aptly chosen HOME WORK. One can easily write it of as a political initiative but that would be missing the wood for the proverbial trees.

Lets get the political issues out of the way so we can focus on the business of doing business. The launch was at the hands of the Governor of Goa, not someone who will come for every product launch, but given the fact that it was a community initiative and effects the lives of so many under privileged women, it is normal. The concept was thought of by the wife of a politician, and concerned only the local MLA's constituency. Once, we get into the business part it will be clear that there was depth and thought was applied in this project, also it was not a spur of the moment decision, it had evolved.

For any entrepreneur, the starting point is an idea which generates income. The idea here is to organise normally stay at home women to do some activity which will generate income, this inturn will help raise the standard of the women's family. What struck me instantly at the launch was the brand name HOME WORK. This was a huge change from the previous display at exhibitions of the group I had seen. Then I used to think, without a brand how will they be recognised?

This is a point lots of entrepreneur miss, branding. We know of 100's of people who make cakes, chocolates and food at home, how many brand it.? If it is not branded how will any one recognise it, how will any one recommend it, how will you know in Mapusa, that this is the same sweet brought in Margoa which tasted nice? Branding. Branding Branding.

The down side of branding is a customer knows what to avoid. How will you ensure that the customer has a positive experience when he tries the product most of the time. Product testing. And this launch showed that prior to the launch a lot of effort had gone into product testing. The unbranded displays at exhibitions would have also helped fine tune the product mix, but more important was the inclusion of the experts testimony when referring to the “SOAP” that was one of the products launched. Not every product can get away being tested by the customer “a la Tata”. This process will be on going simply because customers taste choices are on going.

The tag line which speaks for the brand was there and put so well, “MADE FROM THE HEART. MADE AT HOME”. In these days where everyone is looking for an elevator pitch, this could not be better.

To sell any product one needs to decide a “price” point and again they impressed. The usual thinking is if a product is made by struggling women then it has to be cheap. It was neither cheap nor expensive, it was priced right. Someone had done homework for sure, pun intended. Importantly the price point was chosen at the start, there is no way a product launched at the bottom can move up later or vice versa, if it is attempted it will fail. Remember the CIELO car, they dropped the price drastically and what happened, the car faded into oblivion.

Finally, they expressed their goal, it was not just a constituency, this model can be quickly deployed across Goa, India or the planet by people. UNNATI for people and planet. They have their work cut out to reach their stated goal. They know where they are headed and they are on the way. A lijjat papad or Fab india in the making?

One down side or an area where they can consider a rework is the website. A google search for UNNATI showed 2 lacs results, not the best way to start searching for this specific site and its people ideas and products. The actual website is a more complex “unnatipeopleplanet.com”. This can be worked on, even a search on “homework” will lead you nowhere. In these days where life is online, a company especially a startup misses a lot when they get lost in cyberspace.

While wishing the ladies behind Unnati the very best, after all well begun is half done. The launch was was a learning experience for startups. It is a great idea and surely it will teach us more in the future.

The Reluctant Entrepreneur: Private or Public Bank

“If a banker gives you a loan and it goes bad he will stand to lose his pension. If he does not give a loan he can become the Chairman” This was my concept of the banking sector, especially related to the MSME sector. This concept emerged out of my experiences in trying to get a loan for the new unit we were planning to set up.

Generally you need an introduction and that defines your choice. Rarely will an entrepreneur have the liberty to make a choice based on the banks fundamentals. We had our fair share of applying in vain and wasting time. The process is “manager” dependent and therein lies the rub. They can generate 101 legitimate excuses, the one that comes home to roost is they are over exposed to a particular sector. If that was the case how come individual banks had such huge exposures to the barge and truck business?

We decided to approached a top nationalised bank without any reference. The Manager here was keen to do business but he needed collateral security in the form of FD’s. Our plea that such a request is absurd because who would keep FD’s and borrows at double the cost against them. Even if an entrepreneur was naive enough to do so, if something went wrong, the bank would encash the FD’s right. So what is the bank doing lending at such a high rate when they have no risk.

The Chairman was visiting Goa and he made a statement that there is money but there are no takers. The editorials went to town stating that even if there is money one has to have guts to borrow and do business and Goans lack what it takes. Our objection to such a statement in the media, shook the top brass of SBI and a meeting was fixed. The outcome, there is no such need to give FD’s as security to borrow. So why did the manager make the demand, simple, he wanted to be chairman one day.

We spent 15 years banking with them. Once in, it was a different ball game especially if the company performs. We learned one big lesson, without the support of your banker the Company cannot grow. Therefore honesty and openness must be the bedrock of this relationship. After all if the Manager is going to support you he must know the correct picture. We also learned to structure the balance sheets so that the correct picture is presented. Eg: interest on loans from promoters should not be put under short term loans, but correctly under long term sources, but more because the ratios get affected and bankers go by ratios.

When we went in for an expansion we fell for the lesser interest sales pitch of top private bank and are we regretting this decision. In the five years we are associated with them, it is clear that at the level where bank and customer interact there is no expertise, simply postmen in ties. The money saved by the lower interest rate already snatched away under the guise of charges. The personal touch is absent as everything is system and controlled by an anonymous central operations team, somewhere. Cutting edge technology surely does not make up for a face to face discussion to sought the issue.

We have now embarked on a mission to switch back to a public sector bank, with our track record of no default over 20 years one would assume the banks would be lining up to get our custom, that is far from the truth, for MSME companies there are takeover norms. Kingfisher type companies will get cores despite defaults but for an MSME it is an uphill task. The lesson here is get into a good public sector bank at the start, and stick with them. They do take time to get comfortable with your business but once they do, both your company and the bank will benefit.