2019-08-29 P&L and lending company

Starting a lending company is one, sustaining it is second. Few regulators in Asia and USA understand the challenge, as the process is the same. By the end what matters is:

a) *portfolio income* - that composes of interest, fees, penalties, late charges and other income like merchant repayments (f.e. in a credit card business), marketing income (selling aggregated data or data from source), other income from cross selling and so on

b) *portfolio provisions* - following the performance of the portfolio in previous months.  It is important to have a proper write-offs setup (as portfolio shrinks and therefore provisions are lower, usually 180 days after DPD)

c)  *cost of funds* - where is calculated not only interest paid to depositors, but also costs connected with transferring the costs (tax, withholding tax, bank fees, ....)

d) **net lending result** - has to be maintained positive, as this is allowing company to sustain costs, otherwise they to be supplemented by strong enough own equity (own capital, funds, convertible notes, profits/losses from previous years...)

e) *administration costs* - to run the whole operation including of employees, rent, sundries, travelling costs and so on. It is challenging for company to keep them low, as every process could take 5 or 10  people depending on atomization, processes, management responsibility, enforceability and motivation

f) *depreciation* - is used for long term investments that decrease in value like computers, hardware, software,.....

g) *write-off* - of DPD 180 loans enetering that partical month

h) *sale of portfolio income*

i) *marketing costs*

j) **operating profit or loss** - is the good indicator of the general position of the company. Sometimes it is interchanged by EBITDA - CAPEX.

k) financial costs - from running business
l) financial costs - from exchange

m) ***profit or loss before taxes***
n) ***profit or loss after taxes***

Keeping the track of each item & following the pattern allows the lending company to seek the perfect stage. Cost of funds for such a company could be from 2% in bank to 35%+WT+Bank charges+local income tax a year for a startup. As it is 17.5x more expensive for a startup in lending to borrow money it is a good decision to make a proper management decisions and follow mitigation of risks and volatilities.

2019-08-29 P&L and lending company

Starting a lending company is one, sustaining it is second. Few regulators in Asia and USA understand the challenge, as the process is the same. By the end what matters is:

a) *portfolio income* - that composes of interest, fees, penalties, late charges and other income like merchant repayments (f.e. in a credit card business), marketing income (selling aggregated data or data from source), other income from cross selling and so on

b) *portfolio provisions* - following the performance of the portfolio in previous months.  It is important to have a proper write-offs setup (as portfolio shrinks and therefore provisions are lower, usually 180 days after DPD)

c)  *cost of funds* - where is calculated not only interest paid to depositors, but also costs connected with transferring the costs (tax, withholding tax, bank fees, ....)

d) **net lending result** - has to be maintained positive, as this is allowing company to sustain costs, otherwise they to be supplemented by strong enough own equity (own capital, funds, convertible notes, profits/losses from previous years...)

e) *administration costs* - to run the whole operation including of employees, rent, sundries, travelling costs and so on. It is challenging for company to keep them low, as every process could take 5 or 10  people depending on atomization, processes, management responsibility, enforceability and motivation

f) *depreciation* - is used for long term investments that decrease in value like computers, hardware, software,.....

g) *write-off* - of DPD 180 loans enetering that partical month

h) *sale of portfolio income*

i) *marketing costs*

j) **operating profit or loss** - is the good indicator of the general position of the company. Sometimes it is interchanged by EBITDA - CAPEX.

k) financial costs - from running business
l) financial costs - from exchange

m) ***profit or loss before taxes***
n) ***profit or loss after taxes***

Keeping the track of each item & following the pattern allows the lending company to seek the perfect stage. Cost of funds for such a company could be from 2% in bank to 35%+WT+Bank charges+local income tax a year for a startup. As it is 17.5x more expensive for a startup in lending to borrow money it is a good decision to make a proper management decisions and follow mitigation of risks and volatilities.

2019-07-12 Doing business in California

To start to do business in USA it a good choice for a small research and few meetings with business community. Ability to turn your team in to the sales is a critical skill u would need, as people specialize here a lot.

And once u sense few questions about what u do and why. Work on your webpage, LinkedIn and other presentation. U will be checked :)

And in the end dont forget to open company. It is 1500 USD plus 400 for mail scan & pickup with address in California / LA city. U would need that, otherwise u discuss but no sales. Establish corp, not LLC. LLC is connected to your personal taxes. Corp is not :).

2019-06-17 importance of audit & misunderstanding

It might be argued, especially in a small and medium size companies, that audit is a necessary evil, something that slows down operations, costs money and have little, if any value added.

It is very well far away from what audit means and that it is not a final step, but actually a tool to something more important. Tool to sit down and work with the outcome be fore it is being finalized and understand the meaning of it, signals it sends and interested parties in company to set their position. Finalized audit provides basic financial numbers together with additional information carved in the stone.

Every company shall look on the financial numbers and a set of information it provides to its stakeholders, investors, employees, CEO, management, shareholders, government, banks and suppliers.

We shall, therefore focus at least on following:
a) own capital of the company
b) equity of the company
c) CAPEX
d) EBITDA
e) turnover
f) profit
g) value added
h) AR to turover
i) AP to turnover
j) if the audit is qualified or unqualified and why
k) changes in the company management

and others.

California & Arizona - financial technology

Whole business is devided like this:

Investors and HQ - San Francisco

Back office - Around Silicon Valey

R&D - Silicon Valey

People intensive work - Arizona

Reason. U will find the most motivated people to invest in San Francisco, most motivated R&D in Silicon Valey, best support for reasonable money around valey way to Sacramento or south to Santa Cruz and more south and best intensive workers in Pheonix.

CEO & Director

In companies that are becoming bigger, entering from stage of group to holding or even from one company to group of companies is a good point to distinguish between a position of director and position of CEO. I am following SG and US model.

CEO
- the head of company acting independently within limitations of Articles of incorporation
- his basic responsibility is to follow the wish of shareholders, that are resprensented by directors
- an employee with varios schemes of renumeration
- with his own team of financial manager, operations manager, HR, PR...
- with an interest the increase perks for him and his team
- preparing with his team yearly financial statements
- influencing cash flow, growing company
- others....

director
- legally responsible for the company infornt governemnt (taxes...), suppliers, employees...
- appointing CEO and his team
- adjusting internal rules for CEO and his team
- representing wish of shareholders to maximase their returns
- closing down the company or opening new businesses
- reviewing yearly financial statements
- others...

It is critical to differentiate between this two positions as it is sometimes mixed. Director, as he is legally responsive for the company infornt of govnerment has to access his rights and act in the company's best interest. He is a last resource of the risk, as after him there is nobody.

2019-03-06 conflict of interest (loan originator vs. collection agency)

Conflict of interest between loan originator - a bank or fintech lender and collection agency may seem invisible.

Both of them care to maximise the amount of money collected and therefore deliver additional value to their liquidity (on a side of lender) or to their revenue (on a side of collection agency).

The interest difference come from the difference of the usage of the funds.

Lender needs to get the money for additional liquidity to lend money and to be able to distinguish a good borrower from borrower with high risk of not being able to repay. Any of this two options bring him a high reward, more people he can lend the money he got or bettwer underwriting to understand the market and how to grow on it.

Collection company is seing the advantage of collection from to the point it maximizes return in % of the money invested in collection company by its shareholders or investors to the point it maximases total profit from the proceedings.

Therefore there are some accounts that could be collected but are not by collection agency and there is so many accounts that could be advanced and so many underwriting models that could be improved once cooperated with collection agency on after collection cooperation.

Once taken in account the whole system of trust,  whole system of loan underwriting could be advanced and NPL ratios decreased.