What is marketing?

Marketing is basically your interaction with your consumer. This interaction with your consumer is done so that you can get the consumer to purchase your product or service. Basically that is what marketing is all about, getting the customer to purchase your product or service!

There is a tendency to confuse “marketing” with other terms like “advertising” or “publicity” etc. However, advertising is only a small part of marketing. Advertising is one of the ways in which you can get the customer to purchase your product or service. There are many other ways. Like "publicity" though newspapers will increase awareness about your product or service and thus may get the customer to purchase your product or service.

The point is that marketing is a mixture of all the activities of advertising, promotion, publicity, deciding the look and feel of the product, how it will be sold and sent to the consumer etc. All of these are the different parts of marketing. They are not marketing.

Marketing can be thought of as a mixture of all these activities that will get the consumer to buy your product. In fact, this gives us one of the important terms related to marketing called "marketing mix". Marketing mix, as stated above is a mixture of all the above stated activities designed to get a particular set of consumers to buy your product. These terms will be explained later in much more detail.

This article is written for small business who want to increase their customers though marketing as well as large business who plan to target even the whole country as their target market. Besides that, it serves as a good text, that will give you a practical understanding of what the marketing process is all about.

How to make the “right” legal decisions for your new business?

A decision must be made about the legal structure of the business. That is, will it be a sole proprietorship, a partnership, or a corporation?

On this page we have just given you the basic gist of each type of legal structure. To understand each type of legal structure in much more detail, you could go though “How to incorporate?” It is complete guide on the different types of legal structures and the legal procedure of starting up your company.

Sole Proprietorship: (business owned by one person)

Advantages:

• Ease of formation
• Sole ownership of profits
• Control and decision making vested in the hands of the owner
• Flexibility
• Freedom from government control and taxation.

Disadvantages:

• Unlimited liability
• Unstable business life if the owner should die
• Less available capital in other types of business structures
• Relative difficulty in obtaining long-term financing
• Relatively limited viewpoint and experience of proprietor

Partnerships: (business owned by two or more persons)

Advantages:

• Ease of formation
• Direct rewards
• Growth and performance facilitated
• Flexibility
• Relative freedom from government control and special taxation

Disadvantages:

• Unlimited liability of at least one partner
• Unstable life of business (e.g. if one owner should die)
• Difficulty in obtaining large sums of capital
• Firm bound by the acts of one partner as agent
• Difficulty in disposing of partnership interest (e.g. if one partner wanted to buy out the other partner)

Corporations: (a legal entity distinct from those parties or individuals that own it)

Advantages:

• A shareholder or partner’s liability is limited to a fixed investment amount
• Ownership is readily transferable
• Separate legal existence
• Ease in securing capital from many investors
• Ability of the corporation to draw on experience and skills of more than one individual

Disadvantages:

• Activities are limited by the charter and various laws
• Extensive government regulations are required
• Less incentive for manager if he does not share profits
• Expense of forming a corporation is high

Considering the different advantages and disadvantages of the various structures, you could choose a legal structure you would like to go for.

How to make the “right” production decisions for your new business?

Production decisions involve the processes by which raw materials are converted into the finished products through manufacturing. These decisions play a very important role in the product quality, cash flow, control etc.

To help make your production decisions you can consider the following:

Will goods be manufactured or purchased? One may tend to think that complete ‘in house manufacturing’ of a product will reduce your costs. This may not be true in the case of most entrepreneurs.

The technical experience, quality and dependability that other manufacturers have may be far greater than yours if you are just starting up your business. Also the manufacturing process will have fixed costs as well as initial costs that shall eat into profits.

Instead of manufacturing the products you could consider first purchasing from suppliers and later think about going into production yourself. You could also consider purchasing major component parts from others and doing only the final assembly.

How many items would you like to produce? This decision will impact your decision of how much physical space is required and how many people you need to hire.

What raw materials, equipment and supplies will be needed for manufacturing? Are these readily available? Can these be leased or purchased?

What operations are required in the production process? What is the sequence of operations and how much time will be requited for each operation to be performed? Could the operations be combined or sub-contacted? This consideration will help you plan and layout, the space needed, the number of employees, the skills needed etc.

How much space will be needed? In addition to the basic production operation, space for storage of raw materials, supplies, tools, component parts, finished goods, restrooms, employee/visitor parking, employee lunch areas, an office and possible future expansion should be considered.

What level of quality is desired? How will the quality be measured? How will consistent quality be maintained? Who will be responsible for delivering quality? Quality control is an important factor if you are an entrepreneur. If you are an entrepreneur and plan to sell your products at a lower price and less quality, then this shall work against you.

Unhappy customers may return defective merchandise for expensive repair or replacement. They will tell their friends and family not to buy your products. They may even complain to your retailer who may stop ordering from you in the future. Therefore your quality control planning should be strong.

How to make the “right” employee hiring decisions for your new business?

When you start a new business, and you need to hire employees, you should investigate the following questions to guide your personnel decisions:

• What types of employees are needed?
• How many employees are needed?
• How should potential employees be recruited and screened?
• How should the employees be trained?
• How should employees be compensated and motivated?

To determine the number and type of employees needed, conduct a job analysis. That is, think through the requirements of each employee’s job. Some jobs may be grouped together so that employees performing those tasks may not be as highly skilled or highly paid as employees who perform other tasks.

Organizing jobs in this fashion could reduce the business payroll costs, and increase work efficiency. Considering all the possible factors you should decide upon:

• How many employees are needed?
• The details of what tasks each of the employees shall perform?
• Depending on the tasks, what specifications will be required for each of the positions to be filled?

How to make the “right” inventory & purchasing decisions for your new business?

An effective purchasing and inventory system is mandatory. If purchasing is made haphazardly and the inventory is not managed properly, the business could face major losses.

While making these decisions, consider the hidden costs of keeping too much inventory on hand. These costs will include:

• Financing costs: The interest expense associated with the purchases.
• Opportunity costs: Alternative income producing use of money tied up in inventory
• Insurance costs: Insurance costs will increase if more inventory is carried
• Storage costs: This cost is applicable if the space to store the inventory is leased or purchased.
• Obsolesce cost: The loss of sales that occur when new and improved models are introduced and consumers no longer want the “old” items in your inventory.
• Shrinkage costs: Loss due to breakage, damage, spoilage or theft of your inventory.

For the above reasons, having a huge inventory can be very costly. Having a small inventory on the other hand results in frequent buying. This also turns out very costly.

Therefore, there should be some optimum number of units one should purchase per order. To find out what this optimum number of units is, use the following formula:

Here:

• EOQ : is the “economical order quantity” or the optimum quantity to purchase per order
• S : is the estimated annual sales
• V : is the variable costs to place an order
• I : is the inventory holding costs as a percentage of average inventory
• C : is the cost of one item

Using this formula, you can find the quantity of units one should purchase every time the inventory is to be replaced.

How to make money in the stock market?

Inroduction

This article is a COMPLETE guide to the basics of making money in the stock market! If you are considering investing in the stock market, you MUST read this article! We have explained all the concepts and talked about all the "myths" that people have about the stock market!

What are stocks? Definition:

Plain and simple, a “stock” is a share in the ownership of a company.

A stock represents a claim on the company's assets and earnings. As you acquire more stocks, your ownership stake in the company becomes greater.

Note: Some times different words like shares, equity, stocks etc. are used. All these words mean the same thing.

So what does ownership of a company give you?

Holding a company's stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim to everything the company owns.

This means that technically you own a tiny little piece of all the furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company's earnings as well.

These earnings will be given to you. These earnings are called “dividends” and are given to the shareholders from time to time. 

A stock is represented by a "stock certificate". This is a piece of paper that is proof of your ownership. However, now-a-days you could also have a “demat” account. This means that there will be no “stock certificates”.

Everything will be done though the computer electronically. Selling and buying stocks can be done just by a few clicks.  

  

Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, “one vote per share” to elect the board of directors of the company at annual meetings is all you can do. For instance, being a Microsoft shareholder doesn't mean you can call up Bill Gates and tell him how you think the company should be run.

 

The management of the company is supposed to increase the value of the firm for shareholders. If this doesn't happen, the shareholders can vote to have the management removed. In reality, individual investors like you and I don't own enough shares to have a material influence on the company. It's really the big boys like large institutional investors and billionaire entrepreneurs who make the decisions.

For ordinary shareholders, not being able to manage the company isn't such a big deal. After all, the idea is that you don't want to have to work to make money, right? The importance of being a shareholder is that you are entitled to a portion of the company’s profits and have a claim on assets.

 

Profits are sometimes paid out in the form of dividends as mentioned earlier. The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, you'll receive what's left after all the creditors have been paid.

Another extremely important feature of stock is "limited liability", which means that, as an owner of a stock, you are "not personally liable" if the company is not able to pay its debts.

In other legal structures such as partnerships, if the partnership firm goes bankrupt the creditors can come after the partners “personally” and sell off their house, car, furniture, etc. To understand all this in more detail you could read our “How to incorporate?” article.

Owning stock means that, no matter what happens to the company, the maximum value you can lose is the value of your stocks. Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets.

Why would the founders share the profits with thousands of people when they could keep profits to themselves?

How to Incorporate?

What is Incorporation?

When starting a company, once the company idea is decided, and the company is about to start business, the first thing that needs to be done is, the company has to be registered. After the company is registered with the Govt., then it can start business. The process of registering a company is known as incorporation.

Most of the people reading this article are entrepreneurs. They have decided to start their own business. If you are one of them, we strongly suggest that you read the “How to start a company?” article. That article covers all the basics you need to consider and know before you think about starting the business.

“This” article talks about how you should go about the process of turning your business idea into a registered business. It talks about the various kinds of options available and gives you the information that you will require while making these choices.

If you are starting a business, there are different kinds of legal structures among which you can choose your business to be. These are:

• A Sole Proprietorship
• A Partnership Firm
• A Private & Public Limited Company

You could move directly to the kind of legal structure you are interested in if you know what you want. If you are not sure, we suggest you read though all the structures. This will give you a much better idea about what choices you have.

Note: Even though, forming sole proprietorship and partnership firms are not technically referred to as incorporation, we have explained them too in this article for the benefit of everybody.

How to make a “perfect” business plan? & why make one?

Once you have your “brilliant” business idea, the next step is to form a business plan.

What is a business plan?

A business plan is basically a carefully prepared document that gives all the possible information about what is going to happen in the company that you want to start. It gathers all the information required to take decisions about the business.

Why make a business plan?

The process of planning makes you think. This makes you understand what decisions and steps need to be taken.

A comprehensive business plan gives you a better understanding of the details than would be possible if the business were just run on a day to day basis.

A well-written business plan will be very effective if you try to communicate with partners, employees, investors or venture capitalists ideas about your business.

A well thought out business plan will convince investors that you are serious. This greatly increases your credibility.

A written document is a reference to how much a business has achieved and how much it plans to achieve in the future.

In conclusion: I you are a serious entrepreneur, you have to have a business plan. If you don’t, your business will not be going in any direction in particular. You shall waste a lot of time making haphazard decisions instead of progressing.

Steps in the planning process:

The following steps are followed in the process of making a business plan:

1. Understanding your business - Situation Analysis

2. What do “you” want? – Forming Personal Objectives

4. Forming the right business objectives

5. Forming Strategies and Tactics

6. Written Document

7. Review & Control and back to Step 1

This guide takes you step by step through the entire process of forming your business plan.

How to invest? - The basics!

Before we get into specific things that you should invest in, let us take a look at the general procedure of investing. How you should view investments, what are “risk-profiles” etc. These are the basic concepts of investing that will guide you though all your investments.

Step I: Setting Investment Objectives!  

As we mentioned earlier, there are many reasons why you should invest. Some of them are “short” or “medium-term” things like the “big buys” that you want to make. Some of them are more “long-term” like “you want to retire at 45” or “you want to become a crorepati at 45” etc. Setting the objectives for an investment before making a particular investment is the first step!

Just to give you an idea, let us take an example. Suppose there is a Mr.Hari krishna and he wants to take his wife for a trip 5 years from now. Now, Mr.Hari krishna has a elaborate trip planned for his wife. He calculated his expenses and it has come to Rs.400,000. Hari Krishna is wise and he knows all the bad effects of taking a loan from the bank so he has decided to invest some money every month so that 5 years from now he has Rs.400,000 in hand.

This is Hari Krishna’s investment objective. This is what Hari Krishna keeps in mind while investing. So Hari Krishna finally does the required calculations and figures out that: If he invests only Rs.6,800 every month then after five years, if the money grows at 15% then he will have Rs.587,000. Hari Krishna thinks that this is perfect since he can afford to invest Rs.6800 each month.

This is how investments are done. Before you make any investment, you must first decide “why are you making that particular investment?”. Then you will know how much money you need to accumulate and in how much time. Once this is known, you can calculate backwards and you will know how much you need to invest each month to reach your aim.

Don’t just make random investments. This generally gives you the feeling that you are investing a lot but later on you will realize that it was not much since you invested in an unorganized manner! Before making any investment, decide your investment objective. This means that you have to basically decide two things:

1. How much money you want to accumulate?
2. In how much time?

Step 2: What is your “risk-profile”?

In investments there is a relationship between “risks” and “returns”. The higher the risks the higher the returns. The lower the risks the lower the returns. There are some investments you can make which will “double” your money within a very short time. However, these investments are really “dicy” or “risky”. If they do not go as planned, you may end up losing the money you invested.

For example, a friend of yours comes to you and says, “I have a great business plan! I want Rs.40,000 from you and within 6 months I will give you Rs.80,000! Please help me out…” This might work, or it might fail badly. The risk involved is high. However, the return of the investment is also quite high! A 100% rate of return in 6 months!

There are other investments that are very secure. They have very little or no risk involved in them. For example, if you invest your money in a bank that offers a 6% interest rate, then irrespective of what happens, your money will grow at the small rate of 6% each year.

So, basically, before you invest, you first need to check out what is the risk associated with the investment. Is it a risky investment? Can you end up losing all the money you invested? Or is a safe or “sure-shot” investment?  

Then you need to see your situation and your “investment objectives”! Can you handle the risk of the investment? Is it crucial that the investment pays off for your objectives to be accomplished? Is the time in which your objective must completed so low that you NEED to take up a risky investment with high returns?

Think wisely about this and your situation and your objectives! If you do not, you may end up losing a lot of money! Think practically and realistically! We are not able to give you more practical information about this because everyone has a different situation and different objectives and can take up a different amounts of risk.

Generally young people can take up more risk. They have time on their side! Even if something bad happens and the risk causes them to loose some money, they can always recover it since they are young. Since young people can take more risks, they can enjoy higher returns also. One more benefit of investing when you are young!

Older people cannot take up so much risk! They do not have time on their hands. If they loose too much money, they do not have that much earning power and they may never recover from the loss.  

Next, when we talk about all the possible ways in which you can invest your money, we will also talk about the risk and returns involved in each kind of investment!

How to check if your business idea is really that good?

Most people who are reading this already have a great business idea and now they want to start a company and enforce their idea.

Everyone has “brilliant” business ideas. To keep business ideas in check, in all big companies there is some sort of idea screening process. Most of the time the problem with ideas is that the ideas are brilliant but not very feasible in the real world.

The first way to screen your ideas is to answer the following questions. These questions are designed to give you a better understanding of your own idea. If you find that you cannot answer these questions, you might need to research about your idea some more.

• Is there a genuine need for your product/service?
• Is the need substantial enough to support a profitable business?
• Do competitors currently offer similar products/services? If “yes”, do your ideas offer distinctive advantages and customer benefits that competitors don’t?
• Is the product/service feasible to produce?
• Is the product/service legal?
• Is it safe?
• If the product/service is a durable good, can it be easily serviced? (Who will service it?)
• Are the investment costs required to develop, produce, and market the product reasonably, within your financial realities?
• Is the “pay-back period” fast enough to allow you to stay in business?
• Can the product be expanded into a line of similar or compatible items later, if the original product was successful?
• Can you protect the product with a patent or copyright?
• Does the product infringe upon anyone else’s patents or copyrights?
• Are all the needed raw materials and supplies readily available?

In many cases, once you answer these questions you realize that your idea is not that great. You might have to brainstorm and come up with another idea. But, sometimes, what happens is that people are so convinced about their idea they disregard all the information that clearly points out that their idea is not profitable. This always results in failure. What ever you do, make sure you do not fall for this mistake!

If your idea has passed the initial questionnaire you should screen your idea further. To further screen your idea, do the following:

Conduct “Experience Surveys”

What we mean by “Experience Surveys” is that you will have to find and then ask professionals about your idea. Query the following people to get a better idea about your idea:

Engineers: Ask them whether the product/service can be designed and built in a feasible way? What will go into the designing and building of the product?

Suppliers: Ask the suppliers whether the raw materials or whatever may be required to make the product/service available at a reasonable rate?

Middlemen: Ask the middlemen whether there is a market for your product/service? Would the middlemen be interested in carrying your product/service?

Government officials/lawyers: Ask them whether there is any licensing, safety or environmental requirements of which you should be aware. Will warning labels or disclaimers be required?

However “original” you think your idea is, there is a good possibility that someone out there has already done it. Make sure to use the Internet to look up your competitors product. Learn as much as you can about your competitors product.

Read up all the news items about your competitors and their product. Read up about their pricing, profits, distribution, marketing etc.

At the end of all this, you will have a pretty good idea about your product/service. You your self will know whether it is a profitable idea or not.

Be sure to let the idea go if it not a profitable one. As I said earlier, many people can’t let go of their idea even though they “know” it will not work. This always leads to failure. Do not do this.

If you realize that your idea is not that great let it go. Brainstorm and find a new idea. But for now, let us assume that you have found a good idea! The next step is to make a business plan.....

Fixed Deposits (FD's)

FD’s are one of the oldest and most common methods of investing. Incase you do not know how it works, you have to give the financial institution a certain sum of money for a certain fixed period of time. After that time period is over you will get the original amount with some interest that you have earned for the time period you invested your money.

Just to give you an idea about the time periods and the interest rates you can earn, you can check this out. It is a link to the ICICI Bank FD interest rate chart. All the major banks and other financial institutions also have different FD offers.

FD’s are not very “liquid” investments. If you invest your money in FD’s, you will not be able to withdraw it until the FD matures. Generally, if you need to remove your money before the maturity of the investment, you will be able to do so but you will loose the interest that you were supposed to earn. There are some FD’s that allow you to claim your interest every month or every 6 months etc. There are many different schemes with many different offers!

Besides this, if a particular interest rate is decided at the time of investing and the interest rate goes up while your money is invested, you will not be able to enjoy the higher interest rate.

However, now-a-days the banks and the financial market is becoming very competitive. You need to check up on the different types of FD schemes available before making any FD investments.

There are FD’s offered by non-financial institutions like companies etc. also. These are generally FD’s that will give good rate of returns. They are called Company FD’s.

However, the risk involved is also moderately high. However, the companies try to get themselves an AAA rating according to the specifications of the RBI. If a company has an AAA rating, then it can be considered to be a safe investment.

How do I buy a company fixed deposit?

Company Fixed Deposits forms are available through various broking agencies or directly with the companies.

What is the minimum investment for a company fixed deposit?

Minimum investment in a Company Fixed deposit varies from company to company. Normally, the minimum investment is Rs.5,000. For individual investors, there is no upper limit. In case of recurring deposits, the minimum amount is normally Rs.100 per month.

What is the duration of the Company FD scheme?

Company Fixed Deposits have varying duration; they may vary from a minimum of 6 months to 5 years or even more. 

Employees Provident Fund (EPF)

The EPF program is a fund, providing money upon retirement, resignation or death, based on the accumulated contributions plus interest.

In this scheme both the employer and the employee contribute 12% of annual income towards the fund. Of this 24% contribution, 8.33% is given towards a family pension plan. The remaining portion (15.67%) grows at a rate of 9.5% per annum. This return is guaranteed. Also, investments up to a maximum of Rs 70,000 per annum are not taxed!

Withdrawals from EPF is allowed under certain special circumstances like buying a house, children's wedding, etc. If you quit your job and provide a declaration that you do not intend to work for the next six months you can withdraw your EPF.

How to invest in EPF?

This is generally done though your company if you are an employee.  You need to find out from your company! 

Earnings per share (EPS) ratio & what it means!

Even comparing the earnings of one company to another really doesn’t make any sense, if you think about it. Earnings will tell you nothing about how many shares the company has. Because you do not know how many shares a company has, you do not know how many parts that companies earnings have to be divided into. If the company has more shares, the earnings will be divided into more parts.

For example, companies A and B both earn Rs.100, but company A has 10 shares outstanding, so each share holder has in effect earned Rs.10.

On the other hand, if company B has 50 shares outstanding and they too have earned Rs.100 then each shareholder has earned Rs.2. So you see it is important to know what is the total number of outstanding shares are as well as the earnings.

Thus it makes more sense to look at earnings per share (EPS), as a comparison tool. You calculate earnings per share by taking the net earnings and divide by the outstanding shares.

 

EPS = Net Earnings / Outstanding Shares

So looking at the EPS ratio, you should go buy Company A with an EPS of 10, right? EPS is not the only basis of comparing two companies, but it is one of the methods used.

Note that there are three types of EPS numbers: 

• Trailing EPS – last year’s numbers and the only actual EPS
• Current EPS – this year’s numbers, which are still projections
• Forward EPS – future numbers, which are obviously projections 

EPS doesn’t tell you whether it’s a good stock to buy or what the market thinks of it.

Assured Return Investments!

These investments that are 0% risk investments. Because they are 0% risk investments, they also give low returns. The retunes are fixed and not very high! However, for people who cannot take too big risks, these are good investments. Below, we have explained all your choices of assured return investments.

The possible choices for assured return investments are:

1. Fixed Deposits (FD's)
2. Public Provident Fund (PPF)
3. Employees Provident Fund (EPF)
4. National Savings Certificate (NSC)
5. Kisan Vikas Patra
6. Post Office - Monthly Income Scheme
7. Post Office - Time Deposits

We have explained all of these in the next few pages!

3 important things you must know and follow as an new investor!

You need to KNOW some “unforgettable basics” before you enter the world of investing in stocks. The stock market is a field dominated by savvy investors who know the ins-and-outs of the market. For people who are not “on the inside”, the stock market can be a VERY dangerous place.

Don't even consider "tips" that tell you about "hot stocks". Consider the source: There are many people in the market who put in all their time and effort in promoting certain stocks. They do this because they have their money invested in those stocks. If they can get enough people to buy the stock and they can get the stock price to rise, they will sell the stock for a huge price, the stock price will crash and they will walk off to promote another stock.

Always use your own brain: It's extremely important. You must always use your own brain. Relying on the advice of others, no matter how well intentioned it may be, is almost always a complete disaster. Make sure you dig in and really examine the "facts about the companies" before you invest. Ignore press releases which have very little substance, and rely on "hype" to tell the company's story.

And finally the most important tip!!!

Only invest money you can afford to lose!! Sure this is a basic point, but many many people miss it. You should only invest money that you can honestly afford to lose!! Everyone enters into investments with the idea of earning big profits, but in many cases, this never works. (Especially if you are new to investing in the stock market!)

Please understand that the above tips are tips for beginners. Once you really get into the stock market you do not need to follow these rules anymore. But if you are a new investor, you MUST follow these rules. They are for your own safety.

But then again, nothing comes free. Everything has a price. You will have to loose some money, make some bad decisions and then only will you really understand the market. You cannot understand the market by just looking at it from far. By following these rules, you will basically not loose too much!