(FORMER CHIEF ECONOMIST, BENGAL CHAMBER OF COMMERCE AND INDUSTRY)
KOLKATA, 11 AUGUST 2022
If you are obsessed with starting your own company, the first lesson is to understand the debt equity crossword. To take your company from a startup to steady growth you require funds. An efficient, easy, and credible source of funds. You require a steady fund flow to finance your growth story.
Efficient fund flow management is key to business success. In most cases, companies fall in distress, as they have taken too much of a bank loan, too much debt which they are unable to service. Major part of the profit is now plowed to service the debt. You are reduced to a bonded labour working for the bank.
Counter to this is equity financing. Equity financing reduces the debt burden, lowers the finance cost and improves the balance sheet. So where do we go from here? Go public with an IPO !! Follow the equity highway.
The equity route has some plus points. Equity is risk capital. No commitment to return the money invested nor pay interest on the amount invested. No doubt there is some cost to be incurred in raising equity, but when this cost is amortized, it is not much.
Can MSME companies go for IPO? Yes indeed.If your company is well managed, well complied, well documented with a vision and practical action plan, you have every chance to get your IPO oversubscribed. Once overscribed, your startup is in a position to offer investors an exit strategy, opportunity for future funding , executing future growth plans and redesigning the capital structure.
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