Difference between accounting for a start-up and a traditional MSME Company
Accounting for Startups
A startup is a concept that has been overgrown in India and across the globe. It is a business that is paving towards growth, innovation, and development and has anything less than 10 years of registration is said to be a Startup or Startup company. It is unlike any traditional business and has its foundation around newness and growth.
To understand it better, we can call any new business idea which has recently started its establishment a startup. The primary goal of any startup is to have its product sustain in the market, develop a scalable and repeatable model to drive sales and profit for the business. They generate considerable employment and contribute towards productivity.
As stated by – The Government of India, the legal definition of a Startup from The Ministry of
Commerce and Industry is as follows-
- It is incorporated as a private limited company.
- Registered as a partnership firm or a limited liability partnership.
- Turnover should not exceed above Rs. 100 Crores in any financial years.
- They are recognized as a Startup until 10 years from the date of their incorporation.
Accounting for MSME (Micro, Small and Medium Enterprises)
An MSME is an independent enterprise modeled to achieve profits and sell services or products to consumers of a diverse market. Any business that runs traditionally in different diversified sectors like service based, manufacturing, etc. MSMEs aren’t bound to innovation, growth, or any such ideology. The generic approach makes the business profitable from the start of its commencement; these businesses rely upon only market requirements and customer satisfaction. MSME has the advantage of getting bank and NBFC loans, whereas startups receive funding from investors.
The technical definition for an MSME is subdivided into two section-
- Micro & Small Enterprise – Any business with an annual turnover of Rs 50 crores minimum with an investment in the range of Rs. 0 to 10 crores irrespective of the sector they belong to service, product, manufacturing, etc.
- Medium Enterprise – Any business with an annual turnover of about Rs. 100 crores and a minimum investment in the range of Rs. 0 to 30 crores irrespective of the sector they belong to service, product or manufacturing, etc.
Difference between accounting for Start-up and MSME
MSME is profit-based, and a single person can own all the profit, which means less workforce; unlike start-ups, the profit divided is between more people as more people are required to make startups move ahead. Startups are said to be labor intensive and require a joint workforce; therefore, more people, more accounting technicalities follow. Whereas MSME embodies one person at times and accounting technicalities bother one person only. The profits are made according to one’s needs.
A startup is India’s 3rd largest ecosystem with a total value of 115.5 billion USD, and this value is 55,000 startups in total by 2020. Compared to this, MSME has about 47% of the country’s product, manufacturing, and service sectors.