Monthly Archives: December 2021

In simple terms, a share is a percentage of ownership in a company or a financial asset. In other words, a share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value and the total face value of issued shares represents the total capital of a company (that may not reflect the market value of shares). Shares are the smallest denomination of a company’s stocks, indicating a portion of ownership of the company.
Investors who hold shares of any company are known as shareholders. As a shareholder, one stands to benefit in the event of the company’s profit and also bears the disadvantages of the company’s losses. Shares of privately held companies or partnerships are owned by the founders or partners. As small companies grow, shares are sold to outside investors in the primary market. These may include friends, family, or venture capital investors. If the company continues to flourish, it may decide to raise additional equity capital by selling shares to the public, via an initial public offering which is referred to as IPO. After an IPO, a company’s shares are said to be publicly traded and they become listed in a stock exchange.

TYPES OF SHARES :

Broadly, there are two types of shares – Equity  Shares and Preference Shares.

• Equity shares – Equity shares are also known as ordinary shares and they consist of bulk shares being issued by a particular company. Equity shares are the long-term financing sources for any company. These shares are issued to the general public and are non-redeemable by nature. Investors in equity shares hold the right to vote, share profits, and claim assets of a company. Equity shares are transferable and traded actively by investors in the share market. As an equity shareholder, you are not only entitled to voting rights on various company issues but are also eligible to receive dividends. However, the amount of dividend issued from the profit incurred by the company is not fixed. Here it is mention-worthy, that equity shareholders are subject to maximum risk, courtesy market volatility, and other factors affecting stock markets. On the basis of definition, equity shares can be classified into Bonus Shares, Right Shares, Sweat Equity Share, and Voting/Non-voting shares.

• Preference Shares – Preference Shares, more commonly referred to as the Preferred Stock, are shares of a company’s stock with dividends, which are paid out to shareholders before the common stock dividends are issued. Thus, these are the next types of shares issued by a company. As compared to ordinary shareholders, preference shareholders receive preference in receiving profits of a company. Not only that but also in the event of liquidation of a company, the preferential shareholders are paid off before ordinary shareholders. Some of the different types of Preference shares include Cumulative/Non-cumulative Preference Shares, Participating/Non-participating Preference Shares, Convertible/Non-convertible Preference Shares snd Redeemable/Irredeemable Preference Shares.

BENEFITS OF INVESTING IN SHARES :

When you buy a share in a company, you are effectively becoming a part-owner of that company. For ages, shares have been considered a very important instrument in the financial market. Some of the benefits of investing in shares include –

• Part ownership of a company.
• Real-time dealing throughout the trading day with the limited offers available when markets are closed.
• Receiving dividends either as income or re-investing to buy more shares.
• Ability to vote on important company decisions. 

A Business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will have to be repaid with added interest. Businesses loans are a form of credit offered by lenders to businesses. In exchange for this money, lenders require repayment of the principal with interest and fees added to it. There are a number of different types of business loans, including Bank loans,  Mezzanine financing, Asset-based financing, Invoice financing, Microloans, Business cash advances, and Cash flow loans. A bank loan may be obtained from a bank and can either be secured or unsecured. For secured loans, banks will need collateral security, which may be lost if repayments are not made. While sanctioning loans, the bank may wish to see the business’s accounts, balance sheet, and business plan, as well as study the principals’ credit histories. Many smaller businesses are now however turning towards Alternative finance providers, especially in the case of smaller firms.

HOW TO APPLY FOR A BUSINESS LOAN? :

When it comes to applying for a business loan, it is best to apply for one before you need it. You should assemble the documents and other information necessary to qualify for a business loan well before you step into an office. For securing a loan, you will need to have the following information and documents on hand.

• Credit Score – One of the first business loan requirements for both the company and the owner, is to have credible credit scores. The lower the credit score, the higher the perceived risk, according to the lenders. This is because most lenders believe that past results reflect what will happen in the future. Over time, you can improve your personal credit score by paying all your bills on time and having a low personal debt to credit ratio.

• Annual Revenue – One of the chief business loan requirements for a lender is a clear picture of the trends in your business, especially how sales and cash flow have grown. It is mention-worthy that the qualifications for a business loan depend more on growth in cash flow and less on revenue. Many lenders will also ask for copies of your bank account transactions, so they can confirm cash flows that are reflected on your financial statements.

• Updated Business Plan – Be ready to share an up-to-date copy of your business plan, which includes projected financial statements and a plan of how you will pay the money back. Besides all the financial numbers and documents, one of the critical business loan requirements is proof that the people who help operate your businesses have the relevant experience and credentials to repay the loan.

• Additional Collateral – Every lender wants to reduce their risk to a minimum when making a loan. One of the common ways to do that is for the business owner to provide a personal guarantee to their loan, or pledge additional collateral like personal real estate or other financial resources, in case the business fails to meet its repayments.

TYPES OF BUSINESS LOANS :

Business needs can vary between purchasing assets such as land or leasing a factory/shop or purchasing assets or working capital requirements or basic operating expenses such as overheads or salaries. There are different types of business loans in India. These are Term loans, Start-up loans, working capital loans, loans against property, Invoices financing, Equipment financing, Business loan for women, overdrafts, merchants’ cash advances, and Business credit cards. 

Since 2017, one of the terms that have impacted the Indian economy hugely is GST. GST  is the abbreviated form of Goods and Service Tax. It is an indirect tax or consumption tax used in India, on the supply of goods and services. GST is a comprehensive, multistage, and destination-based tax. It is collected from point of consumption and not the point of origin like previous taxes. The tax came into effect from 1st July 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian Government. The GST has replaced existing several taxes levied by the Central and State Governments. India has adopted a dual GST model. This means that taxation is administered by both the Union and State Governments. Transactions made within a single state are levied with Central GST ( CGST) by the Central Government and State GST (SGST) by the State Governments. The impact of GST has been as such that it has slightly increased the cost of services such as the ones related to hotels and restaurants, communication, business services, and financing for the end consumers.

SERVICE SECTOR AND GST :

It can be said that the GST impact on the service sector has been mixed. It has benefitted the sector in several ways but has also created a few barriers. While it has eliminated double taxation and added more clarity to the taxation process, some services have become more expensive. Moreover, the lack of central registration has increased the compliance burden. It is obvious, that the implementation of GST has posed some advantages and a few disadvantages to the services industry.

POSITIVE EFFECTS :

Of the various positive impacts of GST on the service sector, some are

• No double taxation – In the previous model of taxation, the works contract was complete and this took a toll on many people. Here the transfer of goods is a part of the service contract. This means that every invoice has the value of the goods used as well as the services provided. With the implementation of GST, these two are considered to be one and thus taxed as “supply of service”.

• The cost of inputs is likely to drop – Now that the multiple taxation systems are abolished, the cost of inputs will go down. Inputs taxation like VAT, Excise duty, and other taxes like that will no longer be an issue to deal with.

• It will bring equality in all states – The previous taxation system did not cover states like Jammu and Kashmir. This presented a disadvantage to other states in India. However, now GST covers the whole land, bringing all service sectors under the same taxation laws.

NEGATIVE IMPACTS OF GST :

Other than the positive impacts, there are also downsides to this system.

• Lack of a centralized registration – Earlier, the service providers rejoiced over being able to register all their businesses in different areas, from a central place. Now they have to register their businesses in the respective state and pay the CGST tax.

• Increased cost of service to the final consumer – Since the rate of taxation will become higher in the GST system, the end consumer will feel the pinch of extra expenditure. The taxation is between 18% and 20%. As this rate is high, the cost of service will be higher.

• Burdensome filing of return – In the case of GST, as a business owner, one needs to file returns for all businesses in all the different states separately. This can prove to be burdensome and tiresome as well. 

Cost control is a very important aspect of building a business’s finances and also increasing its profitability. Cost control is a practice used by finance professionals that analyses a business’s overall expenses and reduces project costs to increase profit. Understanding cost control methods can help you maintain a budget for your project and increase project profitability. In other words, cost control is the process of defining and minimizing business expenses to boost profits. As an example, a company can obtain bids from different vendors that provide the same product or service and decide on the lowest cost. Typically, a company hires finance professionals to monitor their cost performance, plan a budget for each project, and change projects that can increase a business’s financial performance. Financial professionals also develop, maintain, and organize a project’s budget from start to finish, to ensure that the budget is being followed closely by employees.

THE IMPORTANCE OF COST CONTROL :

Cost control enables a business to cut down its expenses and hence generate more profit, the ultimate goal of any commercial venture. Here are some of the reasons why cost controlling is essential for business –

• Budget helps to stay on track – Cost control methods often involve setting a strict budget. If the budget demands for a project to be completed by a certain time, employees may feel more compelled to complete the project by meeting the budget’s deadline.

• Keeps the project cost from growing – As a project progresses, its cost keeps escalating. Using the cost control method can help to keep that in check. Project members can consult a financial expert in this regard.

• Keeps the profitability high – Proper cost control methods allow the revenue earned from the project to be higher than the cost of the project. This keeps the profitability high and increases a company’s finance.

FACTORS OF COST CONTROL :

There are several factors, a proper rein on which can ensure cost control.

• Cost of labor – The sum of wages paid to employees working on a project, including employee benefits and taxes, is the cost of labor. If labor costs can be reduced, profit will increase in a business.

• Cost of materials – The total cost of all supplies and equipment that are required for a project is the cost of materials. A reduction in material cost can reduce the overall expenses and hence reduce the profit.

• The cost variance – Cost variance refers to the differences in price between the actual cost of the project and the budgeted cost.

• Return on investment – Return on investment also known as ROI refers to how profitable a project is, compared to how much money you invested in a project.

COST CONTROL METHOD :

There are several cost control methods that allow a company to maintain and track its overall costs. Some of them include –

• Planning the budget properly – Setting aside enough time to develop an accurate budget for new projects is important because budgeting helps eliminate costs, keep finances organized and ensure that the cost variance is relatively low. It’s essential to leave sufficient space in the budget for any unexpected expenses.

• Monitoring all expenses using checkpoints – Businesses often have checkpoints that are analyzed periodically throughout a project. Monitoring all expenses pertaining to a project is a common cost control method followed by businesses, to ensure that the budget is being strictly followed.

• Having time management – Time management is a cost control method, that can keep the expenses of a project low, by meeting the project deadlines.