Small Business Finance

Although the definitions of capital and revenue expenditure provide a clear basis for distinguishing between them, it is always useful to use examples to understand fully how the definitions translate in reality. Capital expenditure is basically expenditure on the acquisition or improvement of a non-current asset. Revenue expenditure is that on the acquisition of tradable assets or mere maintenance of the earning capacity of a non-current asset.

== Acquisitions and costs associated with acquisition ==

Both forms of expenditure can result in the acquisition of assets, but for different purposes. Examples of capital acquisitions include the purchase of an office building and the purchase of a vehicle for business use. However, in acquiring a capital asset, certain costs are incurred, such as carriage inwards, installation costs, import duties and valuator fees. Those costs are included as part of the acquisition cost and form part of capital expenditure as well.

Revenue expenditure acquisitions involve those of trade able assets or assets that can be fully utilized within one accounting period. As a result, the purchase of trade able goods or raw materials is an expense to be written off in the period. Recurring expenditure, such as stationary, also form part of revenue expenditure since these costs are minor and the assets require frequent replenishing or replacement. In addition, an entity might acquire a vehicle or building, but pays rent for it. Such expenditure is of the revenue genre since it is consumed fully utilized in the period.

== Improvement or maintenance ==

The distinction between revenue and capital expenditure is also the distinction between improving and maintaining a non-current asset. Let us use a movie theatre for this example. Assume that the movie theatre is merely repairing old seats and re-upholstering, without increasing the seating capacity of the movie theatre.

Although the benefit of that change would extend to several accounting periods, it is not capital expenditure. This is because repairing the seats does not necessarily improve the earning capacity of the movie theatre. However, if the theatre added more seats, it is improving its asset-not merely maintaining it. In addition, if the movie theatre replaces the old seats with new ones, it can consider this capital expenditure.

== Other examples of the forms of expenditure ==

Depreciation of non-current assets: Revenue Exp.

Insurance, salaries and regular maintenance: Revenue Exp.

Major repairs of a fixed asset that increases its productivity: Capital Exp.

Transport costs for trade able assets: Revenue Exp.

Transport and installation costs for non-current assets: Capital Exp.

The examples of capital and revenue expenditure are by no means exhaustive. What is important is that an entity classifies its expenditure correctly, according to the business context, and consistently, according to prior classifications.

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An industry buzz is growing but Ardyss stands out as a revolutionary wellness program for total health with a two step program. Is Ardyss worth your time and effort as a business endeavor?

Review of Ardyss International’s Powerful Program.

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Ardyss: Making Your Business Grow

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A business model (also called a business design) is the mechanism by which a business intends to generate revenue and profits. It is a summary of how a company plans to serve its customers. It involves both strategy and implementation. It is the totality of:

·        How it will select its customers

·        How it defines and differentiates its product offerings

·        How it creates utility for its customers

·        How it acquires and keeps customers

·        How it goes to the market (promotion strategy and distribution strategy)

·        How it defines the tasks to be performed

·        How it configures its resources

·        How it captures profit

Business models converts new technology into economic value. A business model draws on a multitude of business subjects, including economics, entrepreneurship, finance, marketing operations and strategy.

The main components of Business Model are

·        Value proposition

·        Market Segment

·        Value Chain Structure

·        Revenue Generation ad margin

·        Position in value network

·        Competitive strategy

Types of Business Model:

·        The subscription business model

·        The razor and blades business model (bait and hook)

·        The pyramid scheme business model

·        The multi-level marketing business model

·        The network effects business model

·        The monopolistic business model

·        The cutting out the middleman model

·        The auction business model

·        The online auction business model

·        The bricks and clicks business model

·        Loyalty business models

·        Collective business models

·        The industrialization of services business model

·        The servitization of products business model

·        The low-cost carrier business model

·        The online content business model

Applicability of  appropriate Business Model for Indian PSUs

·        Monopolistic Business Model :- It is a nearly a situation in which a single firm is the sole provider of a product or service. Indian PSUs is likely to command such situation for certain capital intensive high end product although Globalized economy can always  throw up challenge.

Pricing Strategy should be to set price where Marginal Cost should be at least equal to Marginal revenue. Reduction of operating cost by virtue of all Management techniques will maximize earning.

It is also often argued that monopolies tend to become less efficient and innovative over time, becoming “complacent giants”, because they don’t have to be efficient or innovative to compete in the marketplace.  Regulations and creating business focus of the company may have limited instrumentality in arresting such situation.

·        Razor and blades business model  or “tied products model” works by selling a “master” product at a subsidized price, and making the profit on high margin Service/ “consumables” / Spares etc. that are essential to the use of the master product.  Indian PSUs has got the scope to use this business model where it has to compete with International players.

·        The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers in the expectation that corporate objectives will be met or surpassed. All encompassing support to the customers are primary requirement for such model. Indian PSUs are better poised in terms of Infra Structure to use such model.

·        Service Quality Model . In it, customer satisfaction is first based on a recent experience of the product or service. This assessment depends on prior expectations of overall quality compared to the act

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