Business Credit Cards – Robbing Peter to Pay Paul?

Any business, no matter how large or small, requires funding. Once the capital to launch the business has been secured, the new business owner then faces the need for regular turnover in order for the business to perpetuate itself. While this may seem obvious, it can be a tougher task than originally anticipated, especially in the early days when the business may have little or no initial reputation.

The new business owner can then be put in the position of having to pay wages or order business items, but not having the access to business capital to be able to do so. Some entrepreneurs take it upon themselves to fund the beginnings of their businesses using their personal credit cards. Whilst this may seem like a perfectly logical solution, it can cause more problems than it solves. Sorting paperwork for the tax period can become a nightmare and result in difficulties for both the business owner and the business itself.

A far better method is to apply for a business credit card, which is designed specifically for business funding. A business credit card keeps the accounts of the owner and the company separate, making life much easier when it comes to business management. Most business credit cards offer an online facility enabling you to keep track of business transactions, as well as reducing the paperwork involved at the same time. A business credit card also offers legal protection against unsatisfactory goods and services, ensuring that the company does not have to spend, where the spending is unwarranted.

Business credit cards also offer an effective way to manage a company’s cash flow. People can be paid and items can be bought without the money immediately leaving the business’s cash account. This is especially useful during times of restricted cash flow or when waiting for a customer payment to clear. Of course, the credit borrowed will have to be repaid, but careful management will allow repayments to be met monthly, and for the business to function normally.

In addition to the benefits of credit, small business credit cards come with a list of incentives and advantages that are designed specifically with the small business owner in mind. This can take the form of things such as 0% APR for a fixed period and also involve deals that can save the business money through discounts and incentives. Perks such as petrol discounts and Airmiles are very common these days, but the wise business owner can shop around to take advantage of deals that are pertinent to his or her company. These may take the form of cashback on certain products and services or even discount on hotel accommodation. If there are recurrent payments to be made, these deals can be taken advantage of and factored in to the decision of which business credit card to choose.

Finding the right business credit card need not be as difficult as it first appears. Yes, there are a plethora of business credit cards out there and, yes, each comes with its own set of advantages. However, if the owner has a good understanding of exactly what the business needs in terms of credit and perks, then the rest is just a process of elimination. Aside from old-fashioned research, there are other tools available to help the business owner select the card that best suits their business needs. Internet comparison sites are invaluable resources that condense the main ingredients of each card and display them in an easy-to-read comparison format.

A business credit card may not be a card that takes care of itself, but then neither is a business; both require attention and care. However, both can offer valuable returns and, if handled wisely, offer the opportunity for expansion and development.

Business Ethics in the World of Corporate Governance

Executive Summary

All businesses are grey. A loaded statement but one which befits today’s business milieu. The debate is on the shades of the color and not the color itself. Wealth creation precedes wealth distribution, an unalterable sequence. There is a growing realization that former belongs to the exclusive domain of business and the latter to a shared domain. Businesses demand autonomy from others to create wealth and others demand accountability from businesses for the wealth created. Both, autonomy and accountability are worthless in isolation. Accountable autonomy is the panacea. Current business landscape is unprecedented. It is a world where the ends and not the means are brought in to question leading to business ethics boiling down to a personal and not an organizational call, taken everyday by millions, closer to the ground to succeed and more importantly survive.

All the stakeholders-management, employees, board, investors and society are asserting their influence simultaneously. A historical perspective on corporate governance suggests different approaches- (organization+stakeholder)-control approach and capital-market control approach dominating at different times and in different geographies. Both approaches have come alive globally and are trying to pip each other.

India Inc. has moved away from regulation toward latitude since early 1990′s and with the markets coming into their own, the governance style seems to be headed the capital-market control way.

Board of Directors, the venerable interface has to ensure accountable autonomy by fostering its own culture which includes promoting constructive dissatisfaction, actively monitoring the firm’s risk policies and practices, not contingent on having considerable expertise in the areas concerned and avoiding soft conflicts.

Enron and other scandals happened at the best of times and at the worst of times. The aftermath ensured till then increasingly becoming adventurous management’s retreat, activism in boards, dispelled smugness of investors and an acknowledgment of fast becoming oblivious society’s rights and responsibilities. Business initiatives with social spin-offs and not the other way around initiatives are welcome as the need is of responsible corporates and not of over-hyped corporate social responsibility.

A culture, undoubtedly percolating from the top echelons fostering openness and adherence to laws is required.

It has to be appreciated by everyone involved but its adoption has to be voluntary and customizable. The organizations should disseminate the information like practices, policies and risk appetite needed to take a fair call and not accord the right to itself of other stakeholders primarily markets to judge the firm. A culture of transparency starts where regulation ends in achieving accountable autonomy. Every stakeholder must understand that she has a role to play and has certain rights and responsibilities. Separations of powers are difficult to achieve but are crucial for the organization to do the right business and for others to ensure that the former does it the right way as the eternal bottom-line is- the business has and will always be managed by executives, investors have and will always be the ultimate decision making authority on investing and society has and will always be affected by the businesses.

Introduction

The world operates like a simple pendulum. Its microcosm, the business world is no exception. One extreme is autonomy and the other is accountability. It is hard to strike a balance between the two. Both are benign in their own space but too much of a good thing is also detrimental. Business environment has and will keep on testing both extremes. When one extreme is about to be reached, then its dire consequences are realized and businesses move back from the brink. The force which pulls them back from the disaster is so potent that it adds tremendous momentum till the other extreme is tested. This process is eternal and gives businesses a grey shade, blurring the line between right and wrong. After the corporate scandals that rocked the world in 2001-02, the pendulum has swung in the favor of accountability. This shift has happened at a time when the businesses around the world are about to peak. Hitherto unexplored markets are being forayed by organizations worldwide. Issues of business ethics, right and wrong, and corporate governance are hot debating points across the business landscape. All parties- management, board, employees, shareholders, regulators and community are asserting their presence. All of them have to collectively make a decisive move as both regulation and latitude are looking equally enticing and as doing the right things is mulling on the imperative of doing things the right way. The world is waiting!

Business Ethics- Individual’s or Organization’s

Dis-connect between an employee and the ground realities widen as she moves up the ladder. Today, businesses are very target driven. At each level, targets are set and are interlinked. The performance of one’s superior is determined by one’s own performance and this process goes on till the very top echelons. Till such time one meets or surpasses the targets no questions are asked on the way of achieving those and disconnect mentioned earlier plays a huge role. It is only when the shortfall occurs, explanations are demanded and then also words like ethics are given a short shrift. In nutshell, only the end and not the means is what matters. In such an environment, where targets are means to not only success but more importantly survival, ethics boil down to a personal call. These calls have to be taken everyday by millions of people in real time with targets and survival at top of the mind.

The line between right and wrong gets blurred. Can one put a number on the price, less than which a gift is considered a culture token and above which it is considered a bribe? Doubt whether any corporate dossier conceptualized at the very top on ethics can address this issue on the ground.

Approaches to Corporate Governance

Over the years, two very distinct approaches to corporate governance have emerged. One is the mix of organization-control perspective and stakeholder-control perspective and other is based on capital market control.

The former approach sacrifices short-term focus at the altar of long-term sustainability. It is based on 1 person 1 vote dictum. The agreed upon goal for the management is to achieve stability and perpetuity of business. Board has representation of employees and society. Major chunk of equity comes from financial and non financial companies, which are ready to wait for longer periods for their investments to fructify. Firms are not too keen on going public thereby not lending themselves to the whims and fancies of markets. Employee welfare, obligation to local community, size and market share make up the essence of this approach. Myopic Market model by Marris is the fundamental pillar of this approach. According to this model, heeding the markets too much has a detrimental effect on the organization.

Excesses in this approach are created by managerial capitalism as executives are given a free hand in managing the show. At times, a host of objectives other than wealth creation are followed.

As the firm expands, it requires additional capital. If this capital is not forthcoming from stable sources like banks then the company has no other choice but to go public. This gives rise to capital market-control system. It is based on 1 share 1 vote dictum. The more the equity held by an investor, the more the firm is at her mercy. Investors are interested in the ends- dividends and capital gains. Hence, companies have to jostle for the mind space of these players. This brings in the short-termism of this approach. This perspective is based on Principal Agent model. Line is crossed in this approach when investor capitalism sets in. All other obligations of the firm are relegated to keeping the share price up and there is intense pressure on executives to perform consistently in the short-run leading at times to violation of norms.

Both the approaches are similar to the extent that they both give minority shareholders a short shrift. They have been taken for granted and most of their rights have remained on paper.

Lost Ground

Recently the stakeholder inclusive approach has lost considerable ground to shareholder savvy approach. The reason is capital becoming mobile. The global investors like private equity funds and pension funds are deluged with choices. But they lack one crucial element which the local investors have which is the closeness to the business which in turn lends stability to the equity provided. This means the firms have to attract these global investors by way of the globally acceptable parameters, toplines and bottomlines or their manifestation- the share price.

Catching up in the offing

What goes round comes back. Human capital is already the most valuable resource of organizations especially the ones operating in the technology sectors. With the focus shifting from attracting capital to retaining talent, the stakeholder inclusive approach with a sharp focus on employees might make up the ground lost in the last two decades or so to the capital-market control approach.

India Inc.’s Governance Evolution

Corporate entities in India stand out in terms of complexities in the ownership structure. The direct ownership of promoters is quite substantial and if that is not enough, the promoters indirectly have tremendous equity in and control of the firm through the rogue holding companies. It was believed that with the capital market reforms initiated in 1991, the dominance of promoters in the firms will pare. But unfortunately the last decade of the 20th century was marred by scams. The corporate entities went in for private placements making use of the relaxed regulations. These developments made the public spooky. In the last few years SEBI has put its foot down to crack down on the perpetrators and raised the disclosure standards leading to a renewed interest in the markets. The corporates are going global, a sign of their enhanced credibility.

Giants like TCS and Infosys have set global benchmarks in reporting standards and have implemented CSR in the fabric of their organizations.

With capital markets becoming dominant as the time passes and as organizations increasingly care to heed the market and keep the investors happy, it is safe to assume that the Indian corporate entities are veering away from organization-control to market-control approach toward corporate governance.

Right Directors mean Right Business

Board of directors is the highest internal governance mechanism in the organization. The board is the interface between external environment and management. The composition of the board reflects this. It has to straddle between providing necessary freedom to the management for wealth creation and protecting the interests of those who help create and of those who share this wealth. Just like an organization has a culture, it is critical for the board given the role it plays to have its own way of getting a handle on issues. No regulation can substitute for this. The non-executive members should meet separately to thrash out issues among themselves to promote ‘constructive dissatisfaction’. As far as the skills of the board members are concerned, they do not need to have finance or risk expertise to play an effective governance role. The task for the board is rather to understand and approve both the risk appetite of the company at any particular stage in its evolution and the processes for monitoring risk.

If the management proposes changing these radically-for example, by switching the portfolio of assets from low to high risk, or by engaging in off-balance-sheet financial transactions that inherently alter the volatility of the business and its exposure to uncertainties-the board should be quite willing to exercise a veto. Also, the management should be sensitive to the tricky context the board operates in and must grasp that directors’ independence can be compromised by ‘soft conflicts’ such as significant charitable contributions to a favorite institution or the employment of board members’ children.

Enron coterie Debacle – The positive fallout

There is a silver lining even in the darkest cloud that burst over the corporate world post-millennium. In the run up to the uncovering of some of the biggest frauds almost all in America, ironically a country which has always consecrated regulations, the markets were increasingly being viewed as infallible. Whatever information emanated from the organizations to the markets was taken as the last word. There was a reason behind this. The rules were set by the market and organizations were just playing by them leading to smugness all around. The disasters were eye openers for the gullible investors. Markets were vulnerable after all. Stricter rules followed. The corporate boards world over became more agile. The managements retreated. To a certain extent a long-term inclusive focus was restored in the firms having benign effects for every stakeholder.

The Undesirable side effect

Innovation is the mantra for success. But for corporates it has become a survival factor. The frauds have happened at the worst time. The organizations need to be more creative. Risk appetite should be high to capture the unexplored high potential markets. This calls for ingenuity on the executives’ part. But the atmosphere has become very restrictive. Regulations like SOX go overboard.

Boards would much rather have a conservative rather than an adventurous management. This does not bode well for the society as a whole as cagey entrepreneurs will not be able to fulfill their outstanding objective-wealth creation.

Business Initiatives with social spin-offs and not vice versa

Prima facie, ITC’s e-choupal venture seems an effort in the direction of social responsibility. But intrinsically the effort makes eminent economic sense.

It is not a subsidy but an effort which is mutually beneficial. Corporate social responsibility enthusiasts might label such efforts as social initiatives. But the bottom-line is that such efforts generate returns, which guarantees shareholder support. Till such time the business gains precede societal benefits and the society appreciates this reality, the long-run sustenance of these initiatives is guaranteed. Responsible corporates and not corporate social responsibility is the order of the day.

Crucial Culture

Culture is the way people behave when they are not being watched. It is very organization specific and very unlike regulation which is procrustean. The magnitude of damage that can be caused by an individual to the stakeholders of the firm increases as he/she moves up the corporate ladder. The power to influence attitudes also increases on the way up. Hence self evidently the top brass of the firm has a big hand in shaping the culture of the firm. If the honcho crosses the line, it sends out an implicit signal to the people lower down to knowingly or unknowingly to act in a similar manner as the stakes are not that high as they are for the men at the top. The trickling down of an open culture might take time but one can be rest assured that the only way in which it is going to impact the firm is positively. But where organizations go wrong is where they expect the same things from culture as the regulators do from regulation. It is never going to be a one size fits all story. This is where the earlier talked about concept of ethics being very individual specific and not organization one comes into picture. Do not impose culture. Let people understand and appreciate it and find their own way of incorporating it into their work life.

The information imperative

A fair judgment is based on fair information. Often, the best appraisal is done by those who are at a certain distance from the subject matter and at the same time affected by it. Organizations err when they try to preemptively guess others’ reactions. This leads to distortion of information. Doing business is the primary task of business; it is not in the best position to evaluate it from different angles. Hence, organizations should pass on information about its policies, practices and risk appetite. Let the other stakeholders primarily the markets assign an appropriate risk premium and cost of capital. Part of this information dissemination has been achieved by regulation manifested in balance sheet et al. The other part has become more crucial as the businesses have grown complex and can only be achieved with the will of the management and the board. A culture of transparency goes a long way in achieving the latter. Of course transparency has its limits.

But voluntary initiatives like Triple Bottom Line reporting which not only cover the financial but also the social and environmental impacts of the company signal a start. All kinds of companies from the ones with most to hide like chemical to the fairly innocuous ones with the least to hide have adopted this practice. Why? It does make social and environmental sense, but more importantly, thanks to competition in and integration of the world economy, it makes eminent business sense.

Conclusion

Wealth has to be created before it can be distributed. The responsibility to create wealth is of business. And responsibilities and rights must go together. Hence, the society cannot disarm business of its rights which are essential for creating value. The spookiness comes in when business accords certain rights to itself by itself. The importance of wealth creation and difficulty in achieving it blurs the fine line.

As we have seen there is no silver bullet for settling issues like business ethics and corporate governance. Separations of powers just like between executive, judiciary and legislature is imperative. No one stakeholder is an apex authority. Everyone has a role to play.

Regulation defines these roles to a certain extent. But it can only do so much. A culture epitomized by the top management and communication of the right information do much more than regulation. At the end of the day we are all human. We think differently and have different takes on different issues. Till such time this fact is appreciated and co-opted by every stakeholder and a healthy debate continues on the rightness of business, we are certain that businesses will keep on doing what they are good at and others will keep making sure that businesses do it the good way.

4 Killer Business Planning Problems – And How to Neutralise Them

Business planning is one of the most critical steps to online or offline business success. It is so much easier to work from a blueprint, when running a business, than it is to work without direction. When you work without any guidance or sense of direction, you get blown with the wind. You get lost in a sea of problems.

When you have a good business plan you can follow it to achieve your life’s dreams. You can modify it as you work from it so that your plan remains relevant at all times. A business plan is the route map to your wildest financial aspirations. All the more reason why you should pay attention to its preparation.

A business plan is a strategic document that manifests the principle of thinking before acting. As a strategic document it details the long term plan to be followed, covering a period of 3-5 years. A business plan is also a tactical document in that it is best constructed at a detailed level that makes the forecasts reasonably accurate over the first year.

Many obstacles stand in the way of constructing a business plan, and this article discusses four of them… being unsure of how to implement a plan, failure to recognise the need for regular updates, ignorance of product planning, and ignorance of marketing planning. The article also proposes solutions to these and other business planning problems.

IMPLEMENTATION

What is implementation? Why must we implement a business plan? How do we implement it? Implementation is the process of acting on a plan. We follow it and apply its findings, while watching the business environment for any significant changes. When there are changes we take them into account by modifying the plan. If the changes are minor we make only tactical changes. If they are major we make strategic changes.

It is one thing to plan, but it is a completely different matter implementing the plan to achieve the desired results. To succeed we must be disciplined while remaining flexible. We must also be objective in our assessments so that we can accurately monitor progress, and we must be ruthless in correcting deviant behaviour. Sometimes this means sacking incompetent personnel and hiring better ones. We shall deal with other implementation issues later.

UPDATES

Why must we update a business plan? A plan must always be up-to-date if it is to remain relevant. You don’t want to follow an outdated plan or it will lead your business astray. An updated plan is one that responds to environmental changes by listening for such changes and using them to adjust its methods.

The necessity to keep a plan relevant means that we must conduct business planning every year. The plan must cover a 3-5 year period in order to incorporate strategic elements. But what are the details behind updating a business plan? We shall discuss this later.

PRODUCT PLAN

A business sells products to make money. As such it must engage in product development or acquisition. What is a product plan? Why do we need a product plan? How do we develop a product plan? How do we implement a product plan? We shall deal with these questions soon.

MARKETING PLAN

Marketing is about bringing customers to your business. Without customers your business can’t survive. You can’t get customers if they don’t like your products or services. Therefore product planning must be driven by marketing considerations.

First you determine what your potential customers want and then you give it to them in the form of products or services. But what is a marketing plan? Why do we need a marketing plan? And how do we develop a marketing plan? These questions will be addressed soon.

Now let us turn to the answers to this and other questions mentioned above… Unfortunately, we do not have enough space in this article to address the aforementioned questions. So we have prepared a special page with all the answers you need. Before directing you to that page let us first summarise what we have done here.

FINAL REMARKS

This article has discussed a number of key problems that you will face when you try to construct a business plan. The problems include…

1. Your lack of skill in implementing a business plan.

2. Your failure to recognise the need for regular updates.

3. Your ignorance of product planning.

4. You ignorance of marketing planning.

The article also points at the solutions you must undertake to resolve these problems. The link to these solutions is provided below.