Corona and Emerging Indian Econony :

We are entering into recession period globally and the exception is likely to be India and China with ~2% GDP growth in 2020 which is way below  ~5 - 8% in the past several years.

For the benefit of all, I am sharing my perspective on such scenario on few aspects as below:

What will change during the slow down:

1. Spend on luxury will come down drastically

2. Long-term / Capital expenditure such as construction, technology will be almost cut to nil

3. Lifestyle expenditure such as salary, rent, infrastructure, entertainment will be minimised

4. Working capital will be under tremendous pressure. Businesses will go out of business especially those who are riding on borrowed working capital

5. New innovative business models will evolve

What will NOT change during the slow down:

1. People consumption on essentials will continue

2. Rise in Investment on ideas / technology solutions that will improve efficiency

3. Short-term trading businesses with healthy cash flow practices will thrive

4. Rise in investment on spiritual / self-learning practices

5. Value for money products / services will shine

What you should do as an individual:

1. Hold back any luxury / high risk investments where visibility of returns is difficult to predict

2. Minimise expenditure on the routine stuff - keep a watch on your lifestyle spend - ask the question, is it really necessary!

3. Develop yourself on improving competency and developing skills to become more sharper and efficient

4. Share the financial situation with your family members and educate them on the family financial position and the plans to improve

5. Invest - yes invest on the right things. History repeats. Take risks based on thorough research. This is not the time to follow tips.

What you should do as an Entrepreneur:

1. Take care of your employees - communicate more than ever. Be reasonable and transparent with them

2. Use the slow down to improve your processes / people

3. Invest in technology / systems that will accelerate your reach in adding value to your customers

4. Be frugal in working capital decisions and operating expenditure

5. Capital expenditure to be on hold unless there is clear visibility on the associated returns

Let us get smarter by helping ourselves and economy to bounce back stronger. We can discuss / interact / improve upon on any of the aspects.  I would be Happy to receive your thoughts / suggestions / ideas.

by :

CA Yogesh Birla

Director
Birla WP Management
visit us at : www.YogeshBirlaCA.blogspot.com

SME expansion funding thru Venture Capital (VC)

SME expansion funding thru Venture Capital (VC)

The requirement of working funding depends on following factors:

1. Size of Business

2. Length of production cycle

3. Seasonal variations in working capital cycle

4. Business cycle with upside and downside turnings

Factors Considered by VC before investing in a Venture:

1. An innovative project is essential but within realistic and logical area, venture capitalists seek any project which promises immense growth potential and competitive ability to succeed and sustain in the market.

2. Entrepreneurial personality, experience and his management team contribute towards the execution and success of the project, since they utilize the VC’s fund the venture capitalist make sure of their major role with managing, working, guiding, and co-coordinating the team towards the right path.

3. Good team work, the mantra for modern success stories in the market, holds good for venture capital funding too.

Market characteristics covers the marketability for the product and the competition it faces from other competitors. Returns in the short period depend on the market characteristics of the project hence it is criterion in decision making for capital funding.

Decision Matrix for funding:

1. Venture capital has become a part of the popular business in India. Venture capital has also become synonymous with investing in high risk technology businesses, that could be majorly IT and can spread across further domains like healthcare, agriculture etc.

2. The VC’s final decision on a proposed venture is based on many criteria and also it differs from one to other. All seek one common thing the right and proper way of documentation for them to analyse the projects faster and easily.

3. if the project is new, promising and has innovative features then VC’s seek to have more interest and are ready to help with more amounts because of its wide market characteristics and its ability to capture the market.

4. Many SME’s usually lack the right method and technique to approach the suitable VC and thereby they seek consultants to seek funds in the startup stage through financial institution.

5. SME firms in India believe that ownership of the company is compromised with the price paid for VC funds.

6. The preference for investing entire capital is given to start-up stage may be because of innovativeness of the project and a good team. It is found that less preferences is given for expansion and turnaround stage of the venture.

7. due to the formal structure of the VC operation and more stringent evaluation process, complete business plans are compulsory.

Thus it can be concluded that even though obtaining finance from Venture Capital is rigid, but the with kind of experts and resources available with the Venture Capitalist, success of the business in which Venture Capital has invested money is ensured.

by :

CA Yogesh Birla

Director
Birla WP Mgm
visit us at : www.YogeshBirlaCA.blogspot.com

SME in India…..Risk Funding Opportunities & Challenges

SME in India…..Risk Funding Opportunities & Challenges

SME (Small & Medium Enterprises) entrepreneurs and their small enterprises are responsible for almost all the economic growth in India. Managing SME is less hierarchical and in most of the cases, the buck stops at you. It doesn’t let one hide behind the pillars. The 3Ps of a large corporate are Performance, Posturing and Politics; though the mix may differ from one organisaiton to the other.

Wherein the 3Ps of an SME are Performance, Performance and Performance. There is much lesser room for mistakes, but much bigger room for pending governance and compliances. There is much more cohesion within the team as either they all float or all sink. I feel attracting and retaining talent is the biggest challenge that an SME faces. An SME manager finds it tough to attract the risk-averse talent pool. The stock market adage, “fear is always bigger than greed”, also holds true for job market. An SME is like a high beta stock, wehre the investor and the job aspirant think alike- fear the downside more than the promise of the potential upside.

Key risk involved in Funding to SME equity:

SMEs need robust risk management as they may not have where withal to manage and control non-operational risks due to their very size and several limitations. Some of the key risks faced by SMEs are listed below:

1. Commodity Price Risk

2. Receivable Risk

3. Leverage Risk

4. Currency Risk

5. Key Man Risk

6. Cash flow Risk

Having discussed some of the prominent risk factors that contribute to failure of SMEs, many of the failures are preventable. Excessive risks taken by SMEs are usually the outcome of improper planning and it may prima facie appear that by hedging all these risks, the margins in the business reduce substantially. However, these margins are the sustainable margins in the business and hence, all efforts should be made to retain and grow this. All other profits are temporary in nature and can easily translate into losses. Calculated risks are part and parcel of any business. SMEs being more prone to failures should make sure that the risks are consciously taken with complete knowledge and clear understanding. Keeping an open minded approach and giving a close look at the common reason of failure will pave way for more sustainable future for SMEs and in-turn will create value for them.

by :

CA Yogesh Birla

Director
Birla WP Mgm
visit us at : www.YogeshBirlaCA.blogspot.com

Start-up India announced- new tax regime in India

Startup-India announcements

1 Tax exemption for start-ups for three years.

2 Rs. 10,000 crore corpus fund to support start-ups.

3 Capital gains tax to be exempted for venture capital investments.

4 80% reduction in patent registration fee.

5 Govt. to ensure 90-day window for start-ups to close businesses.

6 Self-certification compliance for start-ups across India.

7 No government inspection for three years for newly-formed start-ups.

8 New scheme to provide IPR protection to start-ups and new firms.

9 Innovation programme to start 5 lakh schools to target 10 lakh children.

10 Government is all set to launch an app to create a platform for interaction

Pre-requisites for taking benefits of Startup Scheme:

1. It must be an entity registered/incorporated as a:
    a. Private Limited Company under the Companies Act, 2013; or
    b. Registered Partnership firm under the Indian Partnership Act, 1932; or
    c. Limited Liability Partnership under the Limited Liability Partnership Act, 2008.
2. Five years must not had elapsed from the date of incorporation/registration.
3. Annual turnover (as defined in the Companies Act, 2013) in any preceding financial year must not exceed Rs. 25 crores.
4. Startup must be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
5. The Startup must aim to develop and commercialise:
    a) a new product or service or process; or
    b) a significantly improved existing product or service or process, 
that will create or add         value for customers or workflow.
6. The Startup must not merely be engaged in:
    a. developing products or services or processes which do not have potential for commercialization; or 

    b. undifferentiated products or services or processes; or 

    c. products or services or processes with no or limited incremental value for customers or workflow
7. The Startup must not be formed by splitting up, or reconstruction, of a business already in existence.
8. The Startup has obtained certification from the Inter-Ministerial Board, setup by DIPP to validate the innovative nature of the business and
    a. be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India; or 

    b. be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or 

    c. be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI; or 

    d. be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI* that endorses innovative nature of the business; or 

    e. be funded by GoI as part of any specified scheme to promote innovation; or 

    f. have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted. 

* DIPP may publish a ‘negative’ list of funds which are not eligible for this initiative

by :

CA Yogesh Birla

Director
Birla WP Mgm
visit us at : www.YogeshBirlaCA.blogspot.com

Solar Rooftop Project - Installation and Net-Metering

Solar Rooftop Project - Installation and Net-Metering

Solar Projects can be installed on open rooftop space, wherein generated green electricity can be consumed by the customer and excess electricity can be exported to the government grid. Best win-win proposition for consumer, grid, government and environment.

Main features of the Net Metering Policy for Rooftop Solar PV Plants:

1. “Eligible Consumer” means a consumer of electricity in the area of supply of the Distribution Licensee who uses or intends to use a Solar Photo Voltaic (“PV”) generating System having a capacity less than 1000 KW, installed on a roof-top or any other mounting structure in his premises, to meet all or part of his own electricity requirement, and includes a Consumer catering to a common load such as a Housing Society.

2. The capacity of the Roof-top Solar PV System to be connected at the Eligible Consumer’s premises shall not exceed his Contract Demand (in kVA) or Sanctioned load (in kW).

3. If the quantum of electricity exported exceeds the quantum imported during the Billing Period, the excess quantum shall be carried forward to the next Billing Period as credited Units of electricity. The unadjusted net credited Units of electricity as at the end of each financial year shall be purchased by the Distribution Licensee at its APPC as approved for that year. At the beginning of each Settlement Period, the cumulative quantum of injected electricity carried forward will be re-set to zero.

4. In case the Eligible Consumer is within the ambit of ToD tariff, the electricity consumption in any time block, i.e. peak hours, off-peak hours, etc., shall be first compensated with the quantum of electricity injected in the same time block.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Start-ups in India - Accounting & Legal Compliances

Startup entrepreneurs in India mostly working with business format of Company or Limited Liability Partnership (LLP) needs to be more particular on accounting, taxation and compliance procedures for better valuation. Most startups think that since they have no business transactions or accumulated losses, they do not need to file their tax returns. Every company / LLP in India has to comply with basic compliances irrespective of its business situation or profit / loss status.

1. Book Keeping and Accounting Procedure:

Recording the transactions and preserving bills and invoices to back financial statements is something that most business owners dread. Avoiding this leads to serious repercussions. For example, at the time of incorporation, a company pays the registration fees, name approval fees and stamp duty to RoC. Further, the promoters of the company also hire a professional firm to guide them through the entire incorporation procedure, which again involves cash outflow.

These expenditures, though pre-incorporation in nature, provides tax-saving benefits to the company, to the extent of one-fifth of such expenses every year. Further, invoices carrying break-ups of VAT and service tax is a boon, as far as claiming credit for both is concerned. The company should keep records of all expenses made specifically for business, since these are deductible against business revenues. Even if the company is suffering losses, it is advisable to maintain records in order to raise the losses and set it off with future profits.

In case of non-compliance, persons responsible shall, in respect of each offence, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5,00,000 or both in case of companies.

2. Income Tax Return & Compliance Filing

Filing of income tax return is the most authentic proof of the income earned as all are required to file it.  But many do not file tax returns as they are unaware of the procedure. Startups should appoint a tax consultant who will help them avail the benefits of filing tax return in time. Some of the benefits include:

· A business having losses can carry it forward and get it set-off with future profits.

· For making an investment, filing income tax return on time is essential.

· Tax refunds can be claimed only when income tax return is filed.

.Timely filing of ITR is necessary for smooth bank / debt funding for project.

The due date for filing Income Tax return is September 30 each year. Various procedures of penalty and interest are applicable for delayed filings.

3. Statutory Audit

It is mandatory to get accounts audited annually for all companies, whereas LLP has certain financial limits for statutory audit compliances. The LLP Act provides that the partners of such LLP if decided not to get audit of the accounts of the LLP then such LLP shall include in the Statement of Account and Solvency a statement by the partners to the effect that the partners acknowledge their responsibilities for complying with the requirements of the Act and the Rules with respect to preparation of books of account and a certificate in the Form 8. However no such relaxation is provided to companies.

4. Registrar of Companies Compliances & LLP Act

Every company (having or not having share capital) and LLP has to file its financial reports with the Ministry of Corporate Affairs annually. It constitutes a component of ‘Annual RoC Filing’ mandated by Companies Act, 2013. As a part of annual filing, Companies incorporated under the Companies Act 2013, are required to file the Balance Sheet, Profit & Loss Account and Annual return in prescribed format thru e-forms with the RoC. The penal provisions of RoC are so stringent that companies have been shut down due to this. The additional fees can be as high as upto 12 times of normal fees. Further, there also provisions where huge penalties are laid per day on officers as well as the companies simultaneously.

As a part of Annual Filing, LLPs are required to file Statement of Account & Solvency and Annual Return of LLP thru e-forms with the RoC.  Surprisingly, there are no slabs for late filing fee for LLPs. In this regard, the straight rule of computation of late filing fee is Rs 100 per day of delay in filing. The number of days of delay in filing is calculated from the due date of filing to the actual filing date.

As mentioned earlier, these compliances have to be adhered to irrespective of your business situation. Non-compliance of these provisions has the capacity to shut down a full-fledged business.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

REC trade-ability and future of Solar Projects in India

Entrepreneurs, Investors, Industrialist and Capitive consumers are setting up grid connected Solar Power Generation Projects in India along with inbuilt REC certificate mechanism. Wherein along with every unit of electricity generated, project become liable for REC certificate earnings. Later on monthly interval, REC are traded on Power Exchanges in India with open trade options for buyers and sellers.

As a Project Professional and Financial Advisor for renewable energy projects, I have to reach on conclusion that, which one is bigger risk......... The Tariff or The REC revenue realisation. In my views, REC is proving itself as non-revenue earning certificate credits. As we cross the halfway mark of this financial year, there has not been any change in the pattern that has been observed during almost every trading month since April 2014 – ever increasing number of sell bids, but a very stable and extremely low levels of buy bids. The only difference this time is that the number of RECs available for sale has gone beyond the 1 Crore mark.

The monetary value of these unsold RECs at their floor prices (Rs. 9300) is calculated at Rs. 1816 Crore (including of Rs. 350 Crore for unsold Solar RECs and Rs. 1466 Crores for unsold non-solar RECs). If this does not lead to any action from the regulators and policymakers to protect the investors, nothing else will boost the solar energy development in our great India.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com