Some basics about "Profit"

When people talk about "Profit"; it's actually an enterprise level term. Every business having same category, product may still have different 'profits' though the general industry level profit "margin" may be same or equal.

For example, in Bottled Water in India, the production cost per bottle may be appx Rs 5 per bottle. This becomes 60 per case of 12 bottles. The same case is sold by the business owner at (general trend) Rs. 80 per case.

Revenue 80 * 10000 ( Cases sold per month ) = 8 Lakh

Less Prd cost 60 * 10000 = 6 Lakh 

Gross Profit  = 8-6 = 2 Lakhs ( 25% ) : 25% is the Margin

But the operating profit is something else. You need to deduct expenses such as :

S& GA ( Sales & Gen Admin Expenses ) , then you will get the Operating Profit, which is called as EBITDA : Earning before Interest, Tax, Depreciation & Ammortisation.

This will vary from business to Business

After this, EBIT will appear, by deducting Depreciation &/ ammortisation. 

Still this is NOT the Net Profit. Net profit will come after deducting Interest & Tax from the EBIT.

All of these ( After EBITDA ) don't tell you the operational efficency. The business might be loading unnecessary equipment costs or might be investing in certain non-business assets, on which it might have procured certain loans & paying interest, it might reflect here.

Point is : Never judge a business from its NET profit, look at the EBITDA first.

Why you need to calculate Financial Projections ?

Every entrepreneur comes out with his set of ideas. And truly, Idea IS the catalyst for a business to take existence. However, it's continuous cash-flow/ profit awareness which makes the business succeed. For this, every business should get their Financial Projections done after the initial built up of Business Model Canvas.

What are financial projections, and why they are vital ?

An idea is an imagination. A Business Model Canvas is a little detailed imagination. Once you actually document the revenue-expenses on each of the component, it gives you a near-true picture as to where do you stand financially. So you can adjust factors.

How long should one project ?

Minimum 3 years and ideally 5 years. As any business is expected to go through some hi-lows during the period. After this passage, the business owner knows the tricks of the trade. I would recommend to make 5 year projections for 1-gen entrepreneur and 3 year projections for 2nd,3rd gen entrepreneurs.

Standardized Project Reports are useless

There are many available on the internet. However, I would suggest you to get it done from a chartered accountant who will need inputs from you, for your project. There can't be a standard project report for a 2000 LPH plant. True, it can give you a nearby cost, but finally your overheads are different. Other costs like distribution cost, admin expenses will be different in each area.

Myth of a standard "Per Bottle Costing"

 "What is the manufacturing and selling cost per bottle"

This is a usual question posted by so many people on youtube, since we have many videos on various aspects of packaged drinking water business. No fault of them. However, let me clarify this aspect through a post below :-

Manufacturing Costs are costs incurred while producing the packaged drinking water till a particular point in the whole business process. Let us assume that it starts with Groundwater extraction process and ends when the bottle is inspected for quality after producing & packaging in its required quantity, say 1 Ltr or 1/2 Ltr, and kept in ready condition for despatch.

Similar Way, Selling Costs are costs incurred right from leaving the factory, distribution through various points and ends when payment realizes in the account.

All the instances, where the business pays out something, is COST to the business.

Here, to calculate the exact, non-varying cost per bottle, we need following inputs :

1. How many bottles are produced in the time-cycle
2. What were the pay-outs during the same

In these cost components, certain are Fixed ( Indirect Expenses ) while certain are varying ( Direct Expenses ). Usually Indirect Expenses are constant irrespective of your production whereas direct expenses vary, change with the quantity of bottles produced.

To take an example; Admin/Office Expenses, Financial payouts are constant, whereas Preform, Label, Packaging Supplies payouts will change, vary as per the quantity of bottles produced during the day/ cycle/batch.

You may clearly understand that there is 1 component in the costing is non-varying, and another is varying. To match this cost, you will need :-

• A fix production plan ( irrespective whether you have own plant or get it done )
• This plan has to be flexible, which replies to changing market conditions
• A non-defying commitment to execute this plan till we achieve first set of results, say 1st quarter.

Otherwise this blanket rule of "Per bottle Cost" is a pure shallow market pulling myth.

Let "Paper" be the deciding factor

Yesterday, I met a "would be" businessman in Packaged Drinking Water. Age : 50's. Some important Q n A between him & me ....

Q : What is the Capacity of Your Plant ?

A : 60 BPM. I'm buying an Old Machine

Q: And the RO Plant ?

A: Not a confident answer ( couldn't specify) 

Q: How much Total Investment You have decided to put-in ?

A: Whatever it comes to. Till Now, I've put in some 15 Lakhs, let it be anything. I will see to it that it succeeds. I will always be a King, and if not, drop the whole thing. ( Then he presented a so-called think big slang from his community )

 Now, he started Questioning me.

His Q: How much is the profit per bottle ?

My A: Per bottle profit is Gross. It will increase or decrease as per your daily production. You need to make at least 10,000 bottles per day & sell them for 3-4 years, then you will come out of your investments, with a minimum 25% ROI.

His Q: See ...One gentleman who asked my piece of land ( 5000 sft ) on rent has agreed to pay Rs. 30,000 per month. And he is putting a Packaged Drinking Water Plant on my land. If he is making Rs. 30,000, he's definitely making better money. Then why not me ?

From here, it was more a discussion, no QnA

Me : The logic is good. However, tell me , the person from whom you have been inspired, what is his background.

He: Prior to Covid, he was in this same line. He has been doing it for years.

Me: So, this is his another plant, right ?

He: No, first venture. All these years, he has been working for someone.

Me: Sir, with all due respects to your optimism, I suggest you to be ready with a proper financial statement for 5 years. I suggest to go for smaller but New set of machines. Start with a small distribution business first, and when you build sufficient client base, launch your own plant

Conclusions :-

• Look Carefully whom are you listening to. Follow him/her if he/she has implemented the model. 
• Working as the manager of a business, be it a CEO, still is very different from being a Business Owner.
• If it's a first gen business, learn to sell first. Start small. Build community. Learn to accept "Nos". If you still persevere, you are the right cut for Business.
• Be paper smart. Prove your credentials on paper with a financial Consultant, a CA, then venture.
• Emotions ? Yes, important, as a prime-mover. Then keep them aside. Let Paper guide you from time to time. What gets measured, gets achieved.

Tata is NOT buying Bisleri : As of Now

So, Tata Consumer has officially confirmed that they won't be buying Bisleri as of yet. And the deal is still on, for Bisleri. 

Many say that the asked price by Bisleri was not agreed upon by the Tatas.

Some say, Jayanti, daughter of Mr Ramesh Chauhan has sprung back to lead & control.

We can't exactly know these reasons. However, a profound business house like Parles, Ramesh Chouhan in particular, is well verse with game of buying-selling brands, he has already done it quite successfully with his own brands like Gold-Spot, Limca etc. He has sold these to Coca-Cola. So, the game is not at all new to him.

Have these trading skills transferred to Jayanti ? Might be. However, his wisdom & experience in this game must be in working. He knows that the 1990's Chauhan is not the same as of today, 30 years later; and the buyers are also not the same. Bisleri what it was way back in 1993, is not the same as well. It is BUILT systematically & deserves the price Chauhanji is asking for. How much is the buyer's concern, but surely there is no match to Bisleri as such. If Tatas fail to buy it, they will be loosers for sure. 

Chauhanji will find a buyer, he must be already in the game, as it's very obvious to him, and naturalistic too. Let's wait & watch for who buys out Bisleri .....