Budget Potpourri for SMEs

The year 2012 has witnessed a lot of political upheavals and financial uprisings are also expected in the year ahead. The Indian finance minister Pranab Mukherjee in his recent budget speech has offered a variety of moves to boost the small businesses sector.

The FM has mentioned that the government would source about 20 per cent of their purchases from the micro and small enterprises sector. This is expected to encourage the growth of this sector. The government has hiked the service tax rates from 10 to 12 per cent which may contribute to an overall hike in prices of various commodities. Encouraging the field of agriculture, it has provided duty relief to it. Similar attempt has been extended to other troubled sectors including infrastructure, railways, roads, civil aviation, health, nutrition and environment. Also, the agricultural credit has been promoted to Rs 5,75,000 crores.

Service tax would be based on a negative list with all services being taxed except for a list of 17 items. Some sectors have also been exempted from the taxation. A common tax code is planned which will combine the Central Excise and Service Tax.

Providing more sops for SMEs, the turnover limit for mandatory tax audit has been raised to Rs 1 crore from the previous Rs 6o lac. This would encourage growth among the SMEs which can utilise the necessary relief.

With regards to special SME industries, tax rebates are extended to sectors such as steel, textiles, branded readymade garments, labour-intensive sectors producing items of mass usage, low-cost medical devices and semi-mechanised units producing matches. Similarly, energy saving devices have been encouraged along with plant and equipment needed for solar thermal projects. The budget announcement also brought a special smile to MSMEs working in the handloom, power loom and leather enterprises who received a special waiver. The FM has also proposed weighted deduction for expenses related to skill development which will assist the MSMEs in investing more on skill development supporting quality production.

Government is planning a series of measures keeping in mind the need for infrastructural development and achieving a high rate of growth. Thus, resource raising would be facilitated in the coming financial year for SMEs. The government would be investing about Rs 5, 000 crores in setting up on an India Opportunities Venture Fund along with SIDBI to offer easy equity to MSMEs. This is in addition to setting up of Bombay Stock Exchange (BSE) & National Stock Exchange (NSE) SME exchanges. There would be an exemption on capital gains tax for property sales which are focused towards investments in SMEs. This can greatly solve the issue of funding for SMEs which are starting out or the ones which are planning to expand their business.

Also, the government is planning to come out with the Goods & Sales Tax (GST) in August 2012 which is expected to address the issue of multiple taxes faced by the Indian MSMEs. The MSME industry is eager to know about this implementation which will accelerate the growth of SMEs in a big way. 

MSMEs want Centre to offer access to sufficient credit: FISME

Indian Micro, Small and Medium Enterprises (MSMEs) have requested Centre to offer access to sufficient credit, which is important for survival and growth of SME production. 

 

The Federation of Micro, Small and Medium Enterprises (FISME) in the budget proposal to the Union Finance Ministry has stated that the venture capital and private equity funds are required by the SME sector to commence new ventures and surge the current ones.

The securitisation of trade receivables is likely be introduced to allow the bond market to develop and also lure funds in large volumes and at concessional rates in the interest of MSMEs.

Moreover, FISME has said that Non-Banking Financial Companies (NBFCs) can help to offer finance to the micro and small enterprises, but they are required to be actively boosted via supportive policies.

Read more: http://news.indiamart.com/story/msmes-want-centre-offer-access-sufficient-credit-fisme-156338.html

NIESBUD partners with International Finance Corporation for MSMEs

The National Institute for Entrepreneurship and Small Business Development (NIESBUD), which is an autonomous institution under the Ministry of micro, small and medium enterprises (MSME) has collaborated with the International Finance Corporation, which is a member of the World Bank Group, for undertaking various projects in regard to entrepreneurship development in this country.

A memorandum of understanding (MoU) has been inked and NIESBUD will partner with the IFC in conducting training of the trainers (TOT) programme for boosting the training skills of the MSME trainers.

For more information: http://news.indiamart.com/story/niesbud-partners-international-finance-corporation-msmes-155248.html

Choosing Your Investor: Lessons in Finance for the SME

Rising from the recession, with the economy getting back with strength, there are many new opportunities being churned and created, especially for the emerging SME sector. There is increased risk taking by the SMEs, which is spurning new areas of growth and development.

SMEs are increasingly becoming the backbone of the emerging Indian economy and one critical aspect of the entire chain is, funding/ investment.

The funding ecosystem in India for the SMEs
There are many sources of raising capital and funds for the SMEs in India, each with their own existence and functional methodology. SMEs may require funds at various stages of existence, from start-up to working capital and scaling up. Broadly classifying, the various ways of raising these funds are:

• Angel Investment
• Banks
• Venture Capital
• Private Equity etc.

But how do you choose your investor?

This is a major and critical step. Choosing your investor will always affect your business in more ways than one. As the stakeholders in the business increase, the responsibilities get more diligent and hence the ownership and also the decision making.

As you venture out on your entrepreneurial journey seeking funds, there will always be many good investors who would want to put money in your business. But it may not always be the best thing as an entrepreneur to give into all such offers and temptations.

Its like a marriage - a relationship of a man and a wife

The relationship between an investor and an entrepreneur is like the bond of matrimony. And any experience person would say that it is better to stay single, than to marry a wrong person, it is better to boot-strap your enterprise than to get stuck with the wrong investor.

Serious investors come on board with a thoroughly professional and experienced approach to investing and they have done it multiple times over years. They do their own due diligence before committing themselves/ their resources/ their money/ support to a budding enterprise.

A strong lesson for all emerging businesses is, while you are looking to raise funds, it does, in no way mean that you cannot have your say in choosing your own investor

What are the pointers that you must take into account while raising funds?

• Are you prepared to share ownership?

Letting go, is one lesson which the entrepreneur must learn and be prepared with, even before going in the market to raise funds. Anyone who parts his money to invest into your business, will surely ask you to part with some ownership of the company, and the ownership status and rights may change. This change at times is not something which the entrepreneurs are always mentally prepared for.

• Take help from experts

Raising funds is not an easy game. Valuations as a word in the English dictionary sounds very good, but not a word which would really be yours at all times and may not be music to your ears at all stages of your growth as a business.

The best way generally is to go to your successful entrepreneurial friends, who have been through the process, they are the best placed to share their insights and experiences.

Source: http://affordablehousinginstitute.org/blogs/us/wp-content/uploads/follow_the_money_small.jpg

• Funds don't come in a jiffy

Fund raising is not like a part time job. It is a full time activity which requires a lot of focus and effort from the entire core team of your enterprise. It requires rigorous planning, focus, host of meetings and presentations. There is no particular template which you present your Bplan in which fetches you the magical money! Be prepared to shelve off time from your daily schedule towards raising funds in a focused manner.

• Big words may not work big

Valuations, Equity, Shares, Projections, Net profit, Gross profit, P&L - these are all big words which you will encounter many a times during your process of raising funds, be sure of it. But what you must do is, to focus and ensure that the real thing is the transaction. The legal documents that you sign off. Read through each and every team and word carefully. Many a times you may or may not understand many terms, ensure you take help.

• Dont' over raise

Your investor at times may be over generous and offer you more buck for your bang and similarly at times you may wan to raise more bang for your buck. Just as they say under-commit and over achieve/ deliver, well, even while raising funds, ensure that neither of you over promise things. Keep your roles and understanding very clear.

• Investor's stake - is it only money?

Is your investor going to come on board with only money or is it the fact that he would bring in business as well? Ensure that your investor is someone who is as interested (if not passionate) in your business and has as much conviction in your execution capability, delivery, team, idea etc. that he adds value in the form of ideas, mentoring, advisory as well, other than just money.

Many a times, the actual value which a start-up needs other than money is, the right hand holding and mentoring.

Fund raising is critical to the growth of the business at the right times of the enterprise scaling up. Ensure that you are prepared well. To know more about raising funds, drop in a comment to this post and our team of experts will come back to you!

Finance for the SME: Government Funding and Schemes

Every SME requires a continuous flow of funds not only in the initial start-up phases, but also for ensuring successful operational efficiency.

Raising funds for the SME: various ways:
There are multiple ways for SMEs today to raise funds. Also there are multiple factors which the SMEs need to consider while raising funds. At various stages of business the requirement of funds are different. They could range from setting up a new business vertical, to scaling up in terms of human resources to expanding geographically.

Some of the popular existant ways to raise funds for the SME are:

1. Angel Funding
2. Venture Capital
3. Private Equity
4. Government Schemes
5. Banks

Focus: Government supported schemes!
There are many ways to meet financial requirement for the SMEs, the Government (both at the Central and State level) has taken several steps like formulating various policies and schemes, setting up of banks and financial institutions; etc.

This clearly shows the focus of the government towards emerging realization of the power of the growing and emerging SME segment in India. All such measures are focused towards helping the SMEs scale to the next level and play an empowered role towards nation building.

Banks:
The public sector banks are the major source of financial assistance to the SMEs. They extend credit support to the firms in the form of loans, advances, discounting bills, project financing, term loans, export finance, etc. Some of the active banks extending schemes for the SME are:

• State Bank of India (SBI)
• Bank of Baroda
• Andhra Bank
• IDBI Bank

Policies and Schemes for the SMEs by the Government:

Finance for the SME is a continuous need, basis the business. Recognising the need for a focused financial assistance to such industries, the Government of India, along with State Governments, has formulated several policy packages including schemes and funds to fuel the growth and development for the SME. Most of these programs of the Central Government are implemented through two principal organisations:-

National Small Industries Corporation Ltd (NSIC): has been established with the objective of promoting, aiding and fostering the growth of small scale industries in the country. NSIC has been assisting emerging enterprises through a set of specially tailored schemes which facilitate marketing, credit, technology and other supporting services.


Small Industries Development Organisation (SIDO) : is an apex body for promotion and development of small scale industries in the country. The major activities it undertakes are:-

• Conducting periodical census/survey of the small scale industry and generating data/reports on various important parameters/indicators of growth of the SME sector.
• Maintaining close liaison with other Central Ministries, Planning Commission, State Governments, Financial Institutions concerned with the development of small-scale industries.
• Advising the Government on formulation of policies and programmes for the small-scale industries.
• Facilitating the development of human resources by creating the necessary infrastructure for enabling skill upgradation through training.

At the State level, various State Financial Corporations (SFCs): have been set up by the respective State Governments for providing financial assistance to the industrial units. These local financial corporations emerge out as a close window of opportunity for emerging companies across India.