IFRS for Small & Medium Enterprises (SME's):

In 2009, the International Accounting Standards Board (IASB) issued the IFRS for Small and Medium sized Entities (IFRS for SMEs). This Standard provides an alternative framework that can be applied by eligible entities, in place of the full set of International Financial Reporting Standards (IFRS) in issue.

IFRS for SMEs is a self-contained Accounting Standard, incorporating accounting principles that are based on full IFRS but that have been simplified to suit SME’s. IFRS for SME's reduces the volume of accounting requirements applicable to SME's by more than 90 per cent, when compared with the full set of IFRS, by removing some accounting treatments permitted under full IFRS, eliminating topics and disclosure requirements that are not generally relevant to SMEs, and simplifying requirements for recognition and measurement. The benefit for SMEs would be that may find that this internationally recognised ‘cachet’ for their financial statements will improve their access to capital.

The IASB has not set an effective date for the Standard because the decision as to whether to adopt the IFRS for SMEs (and also, therefore, the timing for adoption) is a matter for each jurisdiction.

Key features of the IFRS for SMEs:

1. They are based on full IFRS, but that have been simplified to the extent suitable for SME's - The Standard has been organised by topic to make it more like a reference manual – intended by the IASB to be more user-friendly for SME preparers and users of SME financial statements.

2. Entities that are eligible to apply the IFRS for SMEs, and that choose to do so, must apply that Standard in full (i.e. they are not permitted to ‘mix and match’ the requirements of the IFRS for SMEs and full IFRS's).

3. The following are the key simplifications made:

• Some topics in IFRS are omitted because they are not relevant to typical SMEs, e.g. Earnings Per Share, Interim Financial Reporting, Segment Reporting.
• Some accounting policy treatments in full IFRS are not allowed because a simplified method is available to SMEs, e.g. – Revaluation of PPE & Intangible Assets, easier rules for recognition of Investment Property, Amortisation of Goodwill & Intangibles.
• Simplification of many of the recognition and measurement principles that are in full IFRS.
• Substantially fewer disclosures, when compares to the full version of IFRS.
• Simplified language and explanations throughout the standard, compared to the full version.

Benefits to small and medium-sized entities for adopting the IASB for IFRS for SME's:

As the accounting rules in IFRS for SME's are prepared in a simplified format, it is easier for entities to read and understand. the IFRS for SME's provides users of accounts the improved comparability, which will have global acceptance.

Benefits of preparing Financial Statements under IFRS:

1. Entity’s financial statements that are prepared in different jurisdictions are easier to be compared, when prepared under IFRS. This had encourages more cross-border trade and merger and acquisition activity. Also, the simplified IFRS enhances the overall confidence in the accounts of SMEs; this is because it is easier to follow than full IFRS.

2. Reporting in IFRS for SMEs helps in reducing the costs of maintaining standards on both a national and international basis.

3. Adoption of IFRS helps in reducing the costs of regulatory compliance on SMEs, including lower audit costs.

4. SMEs which adopt IFRS reporting will have more time, money and resources to focus on their business operations; this will eventually helps in enhancing the company’s production activity.

Implementation:

Globally, the IASB has not set an effective date for this Standard, because the decision as to whether to adopt the IFRS for SMEs (and also, therefore, the timing for adoption) is a matter for each jurisdiction

Currently, India has converged its own Accounting Standards, in line with IFRS, effective from April 2017. For companies classified as SME’s, they are not required to apply Ind AS. However, once IND AS are applicable, an entity shall be required to follow the Ind AS for all the subsequent financial statements. Hence any updates to the global standard on IFRS for SME’s is likely to also bring changes to Financial Reporting requirements for SME’s.

As per a latest update dated January, 2020, the International Accounting Standards Board is considering an update to IFRS for SMEs, a 2^nd major update to the standards since it was introduced in 2009, to reflect the changes over the past decade in the complete set of standards used by Small & Medium Sized companies around the world.

The IASB is currently asking for views on the approach it should take. IFRS for SMEs is required or permitted in more than 80 countries and is used by millions of companies. The objective of the consultation is to seek views on whether and how to align the IFRS for SMEs Standard with the full IFRS standards, which are aimed at public companies and currently required by financial regulators in more than 140 jurisdictions around the world.

There are thousands of Start-Ups being incorporated with novel ideas, taking advantages of modern technologies, emerging trends and future growth opportunities. As per reports by Government of India, currently the United States has the highest number of Start-Ups, with India holding the second position.

Specifically, the Start-Up India initiative promoted by Government of India has helped to set up a platform for generation of New Business ideas, promote Entrepreneurship and incentivise Start-Ups to succeed. Some successful examples in India include OyoRooms, Swiggy, Flipkart, Ola.

We have laid out some of the key considerations that need to be factored in, if you are thinking of looking for Venture Capital Funding, to help with your expansion & growth plans.

Stage 1 – Bootstrapping / Pre-Seed Funding stage:

This stage of a Start-Up represents the time period when Business commences and when the Start-Up sets up Operations. In this stage, the Business is self-funded and most likely Investors will not make an investment, in exchange for Equity.

This stage can last for a long time or you can get pre-series funding in quick time. It depends on the nature of your Start-up, the market segment and the growth opportunities and the initial costs that you must consider while developing the business model. Startup owners invest from their own pocket and try to grow themselves in the most resourceful manner, and being able to successfully show “Proof of Concept” and validate the idea – this is very important, before moving on to the next stage.

It is very important to keep costs under control during this stage and Founders should allocate resources (self funded cash) which will add value to the Business or contribute to its growth (example – Website, R&D)

Stage 2 – Family & Friends funding, bringing in Specialist Expertise (Seed Financing)

Once there is a viable product (Proof of Concept) or service offering, the Business can look at sharing the Idea with the Founders own network, family and friends, to seek investment, exchange of Equity.

This stage should also focus on building a core team of expert individuals who can provide direction and guidance to operations and business growth. Chances of securing funding will be limited, if a Business does not have a strong founding team. It presents risks to Investors, specifically one being the dependency on a single Founder, for day to day matters

Stage 3 – Securing Angel Investment (Seed Financing)

A start up can into development financing, in exchange for Equity shares, to build onto its POC by approaching Angel Investors who could look into potentially finance Operations for further development and allocate funding for driving sales, customer acquisition, paying retainer fees for consultants and contactors.

Stage 4 – Series A funding – Venture Capital (Development Financing)

Below are some of the important aspects which any aspiring Entrepreneur should take note of, if planning to get funded by the Venture Capital route.

Management Team:

Much of a company’s success or failure depends on the management team. When preparing for Venture Capital (VC) stage, the Business will need to think from the point of view of a VC, in order to successfully secure VC series A funding from a VC. Venture capitalists ideally look for a company that’s run by managers with a track record of success, hence bringing onboard a team of high qualified Specialists with industry experience is critical. From the VC’s perspective, they will need to depend on the team running the Business.

Market Trends & Events

VC's look for companies with high growth potential. The risk factor lies in the word “potential.” Market trends can impact the growth of a company once poised for success. VC's seek business investments with companies that offer a competitive advantage often is based on projections and assumptions about the future of a product or service, the market’s acceptance of the new entry and the movement of the competition. While they may do their due diligence in depth before providing the funds, outside market factors can ultimately decide the fate of a new company – for eg. Several travel Businesses have gone bankrupt due to the COVID 19 pandemic 2020. Even though the fundamentals of a Business might be strong, external events can play a huge role in securing backing by a VC.

Barriers to Success

While entrepreneurs seeking venture capital funding may have covered all the bases they need to get their product or service on the market, every company still has barriers that must be overcome. Government regulations are barriers that may or may not be predictable. There are also several other Business Risks that a start-up is exposed to, which the Entrepreneur needs to factor in to increase chances of success.

Potential for Timely Exits:

Ultimately, VC’s must be able gain from their investment in the Start-Up. The two most common ways of exits are through an Initial Public Offering (IPO) and a Buyout. When exit strategies fail, venture capitalists either cut their losses or stick around and try to turn the company around by taking a more active role in its management. There are also other mechanisms to hedge the risk exposure which are adopted by a VC, to secure their investment.

Stage 5 – Series B funding and beyond (expansion phase):

Series B rounds are all about taking businesses to the next level, past the development stage. Investors help Start-ups get there by expanding market reach. At this stage, the Business would have already built up a substantial user base and have proven to investors that they are prepared for success on a larger scale. Series B funding is deployed, to support expansion of the company and to expand into new markets, establish a solid presence.

If you would like to know further, please contact as at enquiries@fincapconsulting.in

A Business Continuity Plan (BCP) is a comprehensive plan which provides a documented guidance on how to deal with contingencies for business processes, assets, human resources, and business partners in case of an emergency. It defines steps that can be taken to re-establish productivity, secure key assets, and continue operations despite the disruptions.

In the current environment, with the emergence of COVID 19, we could see that several Small & Medium Enterprises (SME') businesses have been shut down or the fact that they cannot operate, as they do not have a BCP for their Business.

BCP's are a necessary tool in ensuring your business preparedness. They build confidence, cultivate resilience, and provide valuable business data to safeguard the business during challenging times. Large scale organisations and global corporations have a BCP in place, to deal with emergencies. Typically, in highly regulated& critical institutions such as Banks, there is a periodic review of every BCP and a live test is performed, at least annually.

If your Business does not have a BCP in place, it this time to establish one.

Establishing an effective business continuity plan

A good BCP is one that’s effective in addressing the situation it’s designed for.

A BCP for a cyberattack, for example, should be able to secure your digital infrastructure and protect sensitive data without having to pay the requested ransom.

A BCP for a health pandemic (such as COVID 19) should ensure your employees’ safety while also keeping productivity stable and ensure continuity of business operations.

Why are BCPs important? Threats to businesses are, on the whole, increasing. Some of the common possibilities is around lack of strong IT security infrastructure, leading to cybersecurity threats.

• Risk management is especially important for any business. A single catastrophe can destroy infrastructure or debilitate your team, leaving you unable to recover.
• Disasters can be hard to predict. Many things can go wrong, and impromptu catastrophe management is difficult because you may miss important details. So when developing a BCP, it’s good to follow a guide to ensure you’ve covered all your bases.

One simple guide is the 5W1H format answering the questions: Why, Who, What, When, Where, and How.

1. Explain Why the plan exists and what the objectives are, in the event of an issue or crisis. Failing to convey the objective of a BCP clearly to all employees will lead to lack of clarity and support from employees.
2. Determine Roles and Responsibilities (Who) for the BCP, who will be affected and who is responsible for each action, during an actual crisis. When planning a BCP, there should a point person nominated that function, who would be responsible for each action during an actual crises. Every BCP plan should also have a plan for the continuity of leadership in the absence of key decision-makers and managers. The team should know their responsibilities and understand which decisions that are need to be made.
3. Explain What steps are need: This aspect of the BCP should address what needs to be done to mitigate risks. Essentially, these are the steps that needs to be followed when disaster or crisis hits.
   • A BCP has to be tailored to each Business operating activities and model. For example, a Business which is in the area of providing Financial Advisory services can plan their BCP in such a way that in the event of a crises, any core operations can continue from home by the staff, while any critical client facing staff can operate from back up site, if there is a need to visit clients or they can work from the clients location.
   • The BCP should clearly identify roles are responsibilities in the event of any event, and a BCP lead should be appointed whose role is to ensure execution of the plan and looking into any matters that are escalated.
4. Establish Timelines (When) of your Business Continuity Plan: Every BCP should include a timeframe. It’s like fighting a fire. You need to deal with the emergency as quickly and efficiently as possible to reduce your losses and minimise damage, before normal business activities can continue.
   • Eg. In case of any hinderance to physical premises (eg. Electricity outgage), a back up plan could be to immediately inform staff to work remotely, until any issues have been resolved.
5. Address How to implement the plan: Addressing the how of your BCP involves defining the tools you will use to carry out each step of the process and also describe how and when the communication will take place, at every stage, in the event of an actual crises.
   • We witnessed during in the COVID 19 global pandemic, businesses in the SME sector could use the directives of the government and accordingly execute the BCP strategy, based on the advisory from the Government.
6. Prepare for an actual crisis: Large established and global organisations always ensure that their staff is made aware of their divisions BCPs. SMEs and Start-Ups should also periodically communicate and test their BCP, at least annually.

We have seen that widespread disruption the current COVID 19 pandemic has created, therefore it is a lesson for all Businesses to be alert for similar situations. Several businesses now face wind down, as they did not have a Business Continuity Plan in place.

If you would like to know further, please contact as at enquiries@fincapconsulting.in

With Government of India's Start-Up incentives and Make in India initiatives, there remains tremendous opportunities to be a part of the US$ 5 trillion economy by 2025, as projected by the Government of India. Start-Ups looking at establishing base in India need to take note of the current Foreign Direct Investment (FDI) policy in India. Currently, there are 2 routes through which Government of India is encouraging investments:

1. Automatic Route - Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment.

2. Government Route - Under the Government Route, prior to investment, approval from the Government of India is required. Proposals for foreign investment under Government route, are considered by respective Administrative Ministry/ Department.

Below are the sectors in which FDI is PROHIBITED:

1. Lottery Business including Government/private lottery, online lotteries, etc.
2. Gambling and Betting including casinos
3. Trading in Transferable Development Rights (TDR)
4. Real Estate Business or Construction of farm houses
5. Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
6. Chit Funds

Sectors where FDI is ALLOWED:

Agriculture & Animal Husbandry, Air-Transport Services (non-scheduled and other services under civil aviation sector), Airports (Greenfield + Brownfield), Asset Reconstruction Companies, Auto-components, Automobiles, Biotechnology (Greenfield), Broadcast Content Services (Up-linking & down-linking of TV channels, Broadcasting Carriage Services, Capital Goods, Cash & Carry Wholesale Trading (including sourcing from MSEs), Chemicals, Coal & Lignite, Construction Development, Construction of Hospitals, Credit Information Companies, Duty Free Shops, E-commerce Activities, Electronic Systems, Food Processing, Gems & Jewellery, Healthcare, Industrial Parks, IT & BPM, Leather, Manufacturing, Mining & Exploration of metals & non-metal ores, Other Financial Services, Services under Civil Aviation Services such as Maintenance & Repair Organizations, Petroleum & Natural gas, Pharmaceuticals, Plantation sector, Ports & Shipping, Railway Infrastructure, Renewable Energy, Roads & Highways, Single Brand Retail Trading, Textiles & Garments, Thermal Power, Tourism & Hospitality and White Label ATM Operations.

UPTO 100% AUTOMATIC ROUTE

• Infrastructure Company in the Securities Market - 49%
• Insurance - upto 49%
• Medical Devices - upto 100%
• Pension - 49%
• Petroleum Refining (By PSUs) – 49%
• Power Exchanges – 49%

UPTO 100% FDI PERMITTED UNDER GOVERNMENT ROUTE

• Banking & Public sector – 20%
• Broadcasting Content Services – 49%
• Core Investment Company – 100%
• Food Products Retail Trading – 100%
• Mining & Minerals separations of titanium bearing minerals and ores, Its value addition and integrated activities – 100%
• Multi-Brand Retail Trading – 51%
• Print Media (publications/ printing of scientific and technical magazines/ specialty journals/ periodicals and facsimile edition of foreign newspapers) – 100%
• Print Media (publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with news & current affairs) – 26%
• Satellite (Establishment and operations) – 100%

UPTO 100% FDI PERMITTED UNDER AUTOMATIC & GOVERNMENT

• Airport transport services (scheduled air transport services, regional air transport services) – upto 49% (auto) + above 49% (Govt.)
• Banking (Private sector) – upto 49% (auto) + above 49% (Govt)
• Biotechnology (brownfield) – upto 74% (auto) + above 74% (Govt)
• Defence – upto 49% (auto) + above 49% (Govt)
• Healthcare (Brownfield) – upto 74% (auto) + above 74% (Govt)
• Pharmaceuticals (Brownfield) – upto 74% (auto) + above 74% (Govt)
• Private Security Agencies – upto 74% (auto) + above 74% (Govt)
• Telecom Services – upto 49% (auto) + above 49% (Govt).

If you require further information or are interested in opportunities, please contact us at enquiries@fincapconsulting.in.

This article explains why, as a Business or a Start-Up should migrate from a traditional desk-top based accounting solution, to leverage on latest accounting technologies.

Think about when we use internet banking. Every time you access this data, you’re using the cloud. Cloud technology offers a platform to make data and software accessible online anytime, anywhere, from any device. Your hard drive is no longer the central hub.

Similarly, now with latest cloud-based technologies, you can also manage your regular accounting and financial management. Below are several issues with managing your accounting the traditional way:

• The data in the system isn’t up to date and neither is the software (legacy data, lack of IT support and spend to update
• It only works on one computer and is therefore dependent on that physical machine, exposing all data and records to risk.
• Only one person has user access. Key people can't access financial and customer details.
• It's expensive, due to licencing requirements and complicated to keep backups (if done at all)It's costly, difficult and time consuming to upgrade the software.
• Customer support is expensive and slow.
• Incremental costs on overall Business due to limited features, leading to incremental manual work (such as data analysis, leading to higher payroll costs.

Why the cloud based solutions like QuickBooks and Xero are a must have for any new Start-Up or a Small Business:

Use cloud-based software from any device with an internet connection. Online accounting means small business owners stay connected to their data and their accountants. The software can integrate with a whole ecosystem of add-ons. It’s scalable, cost effective and easy to use.

In cloud based platforms, there’s no need to install and run applications over a desktop computer. Instead, you pay for the software by monthly subscription.

• Cloud security is world class
• User-friendly software, which can be accessed at a click of a button. In addition, the platform provides a holistic solution right from Invoicing, to reconciliations to preparation of Business and Financial Reports.
• Highly cost-effective and leads to business efficiency and cost control in the longer run.
• You have a clear overview of your current financial position, in real-time.
• Multi-user access makes it easy to collaborate online with your team and advisors.
• Everything is run online, so there’s nothing to install and everything is backed up automatically. Updates are free and instantly available.
• Upfront business costs are reduced – version upgrades, maintenance, system administration costs and server failures are no longer issues. Instead, they are managed by the cloud service provider.
• Work smarter with accessible data in the cloud.

If you are interested to transform your legacy processes and migrate your accounting function to a Cloud based technology, please contact us at enquiries@fincapconsulting.in.

Most established Business Owners have an instinctive understanding of the more common risks they face, and will have taken mitigating action, often without even realising it. On the other hand, there are new Entrepreneurs who would not focus on the risks associated with their Business.

Establishing a structured method for managing risks has several advantages. It needs to start with developing a risk register formalises the consideration of the different categories of risks, and threats, in a way that enables wider consideration and discussion within management or at board level.

A risk register can be particularly valuable to Business Owners as it gives visibility to them of potential risks, threats and the mitigation measures. Although a risk register tends to focus on negative risks, if used sensibly it should also address the opportunities which face the business.

Large Corporations have dedicated risk functions managing the review and monitoring process for Risk Registers and have complex methods of risk evaluation. Similarly, the same practice could be adopted by smaller companies, with the creation of a Risk Register. An appropriate system would be to include at least an annual review, when the risk register is presented formally to the board.

There are several benefits with the establishment of a Business Risk Register and a structured review process:

• A Risk Register can be useful as part of the documentation for a company sale, because although it may not answer all the questions a buyer may ask, it gives some useful leads, and indicates how well or badly risk has been covered in the past.
• It shows evidence on the governance and the management of the company. The principles are equally worthy of consideration by owner/directors of small businesses.
• It provides a structured medium of ensuring oversight and governance of inherent risks in the Business.
• Helps the early detection and prevention of any threats to the Business.

Below are some of the common risks which any Business should consider – have you considered them how these apply to you?

Business Strategy, Natural Calamities, People, Competition and Markets, Financial Risks (e.g. Foreign Exchange transactions, Funding, Liquidity), Supplier / Vendor, Logistics & Supply Chain, Fraud, Technology & IT Infrastructure, IT Security, Political and Macro-economic, Regulatory, Legal & Taxation.

Please contact us at enquiries@fincapconsulting.in if you are interested to implement a BCP for your Business.