Why startups are preferring Virtual CFO services?

What are this virtual CFO services or outsourced CFO services and how it works good for startups?

Having worked as CFO of company and worked in accounting/finance department for almost 20 years, I have seen virtual CFO services are need of the day and will continue to grow.With this article I would like to share important insights as to virtual CFO services, which will help you as startup/SME business owner or as professionals.

What is Virtual CFO services in one line?

It’s mere outsourcing of CFO function to save costs #payasyouuse

Why startups/SME want this type of services?

1. Experts are better at accounting: Experts are doing this thing in day to day job and they can do it better and faster. Many compliance changes and experience gained while working for other clients would be added advantage for your business while performing your accounting. for e.g. how to deal entry of TDS deducted but not paid by due date, later it was paid after due date. Experts can do it better 100%.
2. Less dependability on staff on payroll: Most of SME and startup faces issues of hiring staff and retaining them. It is very big problem for SME as they have limited staff and limited amount to pay them. Once accountant see better opportunity, he will naturally leave organization. Issue here is that SME hires staff and gives him/her multiple responsibilities and over a period becomes dependable on the staff. Now if staff leaves them it becomes more difficult for SME as it starts with again new challenge i.e. hiring, training and again retaining…
3. Cost efficient: It helps you to save lot of cost in terms of hiring costs and training costs. In addition to the same, if you check at day to day schedule of accounting employee, if it has its core function for not more than 2-4 hours a day, you can give a thought about outsourced accounting and evaluate options of outsourcing accounting. If your accounting work is less than 2 hours a day then you should definitely go for outsourcing accounting. generally, for 2 hours kind of job a day which is 8 hours a week, experts charges INR 15,000 to INR 20,000 per month, which is very cost effective considering other cost attached to inhouse accountant like space in office, higher salaries, training costs, infrastructure in office, bonus, labour law compliance, accounting software costs etc.
4. Third party opinion: Advise from third party who is not on your payroll would be much better than advise from person on your payroll especially when you as boss doing something wrong which is not good for your business. Many times inhouse team view things collectively and miss the third party independent review and opinion. In case of outsourced accounting you get opinion of third party expert for free, which acts as third eye for your business or CCTV camera for your business.
5. Value added services: Many outsourced accounting professionals provide value added services like periodical MIS reporting i.e. predefined report sent at regular intervals i.e. stock statements, debtor ageing analysis, sales mix, product mix which helps SME or startups to make better decision.
6. Sustainable services: It is business for accounting service providers and it will be more sustainable than employee. Further to say, it is cost effective for outsourced accounting professional as he will hire the same quality of accountant which you were planning, but professional has more utilization capacity. i.e. Accountant will be hired by outsourced firm and he will be given 4-5 such accounting tasks. It makes it more cost effective for outsourced firm same as ola and uber, who just do better utilization of car and human resources. This is to say your accounting partner is not going anywhere as he is making enough money.
7. Focus on core business: Once your accounting is outsourced you can focus on your core business and stay relaxed for your accounting and compliance needs as they have been given to experts. In fact now you as owner of business have more time to focus on core business and new business initiatives.
8. Service options as per your business needs: You as startup can have multiple options i.e. daily reporting, weekly reporting, monthly reporting and also some of outsourced partners provide managed human resources on their payroll but they will operate from your office, if you as SME or startup want it that way for data privacy issues.
9. Outsourcing contract: You can define your service requirement, get quotation and finalise the outsourcing accounting contract to give it legal value. You can include important points as to service requirement, deliverable definition, handover clause, ownership of accounting data, payment clause etc. Outsourcing contract is B2B contract which holds better legal value in terms of enforceability. It can be entered on letter head of client as well as stamp paper(franking).

Now looking at these benefits, you can understand why more people are opting for this service

 

Taken from expertmile

Three Imp Judgements On Core Issues

 

The Peerless General Finance And Investment Co Ltd vs. CIT (Supreme Court)

1. 4: The primary liability and onus is on the Dept to prove that a certain receipt is liable to be taxed. Deposits collected by a finance company are capital receipts and not revenue receipts. The fact that the deposits are credited to the profit and loss account is irrelevant. The true nature of the receipts have to be seen and not the entry in the books of account (All imp judgements referred)

Impact of Budget 2019 on Start-ups

The Start-ups were having high expectations from the first budget of Modi Govt. 2.0 and the Finance Minister, Smt. Nirmala Sitharaman hasn’t let down their expectations. She proposed to start a television programme within the DD bouquet of channels exclusively for start-ups. Further, tax proposals made by Finance Minister were aimed to encourage start-ups by releasing entrepreneurial spirits. The key tax proposals announced in the union budget impacting start-ups are discussed as under.

1. Investment of LTCG from Residential House Property in shares of Eligible Start-up

[Applicable from Assessment Year 2020-21]

Section 54GB provides exemption to an Individual and HUF from the long-term capital gains arising from transfer of a residential house property. The exemption is allowed if the amount of capital gains is invested in equity shares of an ‘eligible company’. The exemption is allowed subject to fulfilment of following conditions:

  a.  The company is incorporated in India on or after April 1 of the previous year, in which capital gains arises, and up to the due date of furnishing the return of income.

  b.  It is engaged in the business of manufacture of any article or thing or in an eligible business.

  c.  The transferor (assessee) of residential property has more than 50% share capital (or voting right) of such company (after subscription).

  d.  The company is either an eligible start-up or SME.

  e.  The company utilizes the amount to purchase new assets, which shall not be transferred for 5 years from the date of acquisition.

The exemption is available only if the original asset is transferred between April 1, 2012 and March 31, 2017. However, if the capital gain has to be invested in an eligible start-up, the original asset can be transferred up to March 31, 2019.

To incentivize the start-ups, the Finance Bill 2019 proposed following amendments in section 54GB:

  a.  It extended the sunset date for transfer of original capital asset (residential property) for investment in eligible start-ups from March 31st 2019 to March 31st 2021

  b.  The condition of minimum holding of 50% of share capital or voting rights in the start-up is proposed to be relaxed to 25%

The condition which restricts the transfer of new asset for 5 years is proposed to be reduced to 3 years in case of computer or computer software.

2. Exemption given to Category II AIF from ‘Angel Tax’

[Applicable from Assessment Year 2020-21]

As per section 56(2)(viib), if a closely held company receives, from any resident person, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares is taxable as income from the other sources.

However, exemption from this provision has been provided for the consideration received by a venture capital undertaking from a venture capital company or a venture capital fund or by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Currently the benefit of exemption is available to Category I Alternative Investment Fund (AIF). The Finance Bill, 2019 proposed to amend this provision to extend the exemption to capital received by venture capital undertakings from Category II AIF as well.

3. Exemption given to Category II AIF from ‘Angel Tax’

[Applicable from Assessment Year 2020-21]

As per section 56(2)(viib), if a closely held company receives, from any resident person, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares is taxable as income from the other sources.

However, exemption from this provision has been provided for the consideration received by a venture capital undertaking from a venture capital company or a venture capital fund or by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Currently the benefit of exemption is available to Category I Alternative Investment Fund (AIF). The Finance Bill, 2019 proposed to amend this provision to extend the exemption to capital received by venture capital undertakings from Category II AIF as well.

4. Conditions of Section 79 relaxed to allow an eligible start-up to carry forward the losses

[Applicable from Assessment Year 2020-21]

The current provisions of Section 79 have imposed following certain conditions to carry forward the losses in case of closely held companies:

  a.  In the year of set-off of losses, at least 51% of voting power should be beneficially held by the same persons who held them on the last day of the year in which loss was incurred.

  b.  In case of an eligible start-up, 100% of shareholders, on the last day of the previous year in which loss was incurred, should continue to hold the shares on the last day of the previous year in which loss is set-off. Further, losses should have been incurred during the period of 7 years from the year of incorporation.

To further facilitate ease of doing business in case of an eligible start-up, it is proposed to amend section 79 so as to provide that loss incurred, by the closely held eligible start-up, shall be allowed to be carried forward and set off against the income of the previous year on satisfaction of either of the two conditions specified above, i.e. continuity of 51% shareholding or continuity of 100% of original shareholders.