India has had a major surge in the MSME sector with recent data suggesting more than 40 million SMEs functioning across the country.
This number, consisting of both registered and unregistered enterprises, is growing at an impressive rate. Currently, MSMEs contribute to 16% of India’s GDP.
- Manufacturing more than 6,000 products, MSMEs are estimated to create more than 70 million employment in India.
- Directly and indirectly combined, MSME products contribute to 40% export and 45% manufacturing output.
- MSMEs can be expected to reach 25% in terms of contributing to India’s growth by the year 2022.
The evident as well as the expected rise in MSME entrepreneurship necessitates knowledge of the basic glossary, integral for every emerging enterprise.
Consequently, a list of vital terms related to the functioning of an MSME is discussed below. It covers a wide range of terminology including finance-related terms like channel financing, equity financing, etc. as well as management and accounting terms like SCM, accrual basis, cash basis, etc.
This is an accounting method which is used to determine if a specific transaction by an enterprise is taxable. According to the accrual basis, whenever an enterprise is obligated to make or receive payment, the transaction must be taxable.
Any privately held company which raises funds faster than its evaluated worth is liable to pay angel tax under the Government norms in India.
This fund-raising can include different types of business finance options which are offered to budding startups. Currently, angel tax in India is at 30%.
Cash basis is the second method of determining if a transaction is taxable. This method simply states that every transaction is taxable when its payment is due.
Smaller businesses typically follow this method, while the former is more often used by ventures with high asset worth.
Structured schemes offered by different financial institutions, channel financing is a type of short-term line of credit where business partners are directly financed.
Essentially, these forms of financing help in maintaining the working capital of a company so that it can continue its service or production.
Invoice financing is a type of business financing which allows a company to use the due amounts from its customers to avail a line of credit.
Essentially, companies use the due invoices to avail loans so that they can maintain their working capital. While they are quite different to channel financing, both are short-term loans.
Supply chain management
The whole process of production of goods or service, its efficient supply, and subsequent revenue generation comes under supply chain management.
Among the different facts about supply chain management that every businessman should know, it is worth mentioning that it concerns the whole logistics of the functioning of an enterprise.
This is a financial report of a business venture which contains both credits as well as existing debits.
Here both credit and debit must be in balance. Consequently, this report is especially helpful in finding out if there is an error in the calculations or the functioning of a venture.
The difference between the assets of a company and its liabilities is known as the working capital.
Essentially, this is the capital asset which is used to continue the production chain, be it a manufacturing company or a service provider.
Including channel financing and other options, many financial institutions offer different types of business loans which can be used to maintain working capital of a company or to meet other overhead financial requirements as well.
- The growth rate of SMEs and MSMEs have been at an average of 10% per annum over the last few years
Reputed NBFC Bajaj Finserv also provides pre-approved offers which make availing loans very easy.
Along with all the terms discussed above, it is also advisable that entrepreneurs look up the different tax and GST related norms. Depending on the type of business venture and the asset worth, many government schemes are offered too.
These schemes include business finance options as well as taxation benefits, with the Government of India trying to further generation of employment through MSMEs.
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Entrepreneurs should learn about the tax exemptions they can avail along with all they need to know on Government business loan schemes in India. These schemes offer easy loan application along with numerous subsidies on the loan repayment.