A S BANKA ADVISORS

Key Takeaways

• SME IPO readiness is a financial hygiene problem, not a paperwork problem. Eligibility gets you in the door. Your last three years of books decide whether anyone is willing to walk you through it.
• The three financial years before you file are the ones that get restated, re-audited and read line by line. You cannot fix them retrospectively, which is why readiness work starts roughly two years before the listing you are picturing.
• Six things end more SME IPO conversations than weak profits: money moving informally between your own companies and accounts, revenue that never went through a bank, undocumented related-party dealings, a share history nobody can evidence, an irregular filing record, and a gap between the numbers you manage by and the numbers you audit.
• A merchant banker is putting their own name on your offer document. They screen for what would embarrass them later, and they do it before they quote you.
• Eligibility criteria for the SME platforms have been tightened more than once in recent years. Confirm the current criteria with your merchant banker at the point you actually file, rather than working from a number you read online.

Most founders who ask me about an SME IPO start in the same place: do we qualify. It is the wrong first question. Qualifying is a test you either pass or fail on a given date, and it is the easiest part of the process to find out about. SME IPO readiness is the harder thing, and it is what actually decides whether your listing happens: whether the last three years of your books can survive being opened, restated and read by people who are paid to find the problem. This article is what that inspection looks like from the inside, the six issues that end these conversations most often, and how far ahead you have to start if you want the answer to be yes.

SME IPO readiness is not the same thing as eligibility

Eligibility is a set of conditions the exchange and the regulator apply at the time you file: things like your track record, your financial performance and the shape of the issue itself. Those conditions are public, they are checkable, and they have been revised more than once in the last few years as the SME segment has grown and the rules around it have been tightened. That volatility is the point. A number you read on a blog eighteen months ago may not be the number that applies to you on the day you file, so treat eligibility as a question for your merchant banker at the time, not as something to lock in from memory.

Readiness is different. Nobody publishes it, nobody certifies it, and it is not a test you pass on a date. It is the condition of your company’s financial history. Two companies can be equally eligible on paper and only one of them will find a merchant banker willing to take the mandate, because only one of them has three years of books that can be explained without flinching.

Here is the practical version of the difference. Eligibility is assessed on where you are. Readiness is assessed on where you have been.

Why your last three financial years decide it

An offer document does not present the current year. It presents a multi-year financial history, restated on a consistent basis and re-audited for the purpose. That means the year you ran loosely while you were still finding product-market fit does not stay in the past. It gets pulled forward, reopened, and put in front of an auditor, a merchant banker, a legal team and eventually the public.

This is the single most important thing to understand about timing. Everything else in an IPO process is work you can do when you decide to do it. The financial history is the one input you cannot go back and change. If you want to file in two years, the books that will be read are the ones you are keeping right now, this quarter, before anyone has been appointed and before any of this feels real.

Founders routinely discover this too late. They decide to list, appoint advisers, and are then told that the cleanest path is to wait, because the earliest of the three years in scope has problems that cannot be resolved except by letting it fall out of the window. Waiting is not a failure. But it is a year, and it is usually a year nobody had budgeted.

Six things that end SME IPO conversations before the profit numbers do

In practice these are the recurring issues. None of them are exotic. All of them are ordinary habits of a company that grew faster than its finance function.

1. Money moving informally between your own companies and your own accounts

A founder pays a vendor from a personal account because the company account was frozen for a day. A sister concern covers salaries one month. A director’s account is used to receive a customer payment because the customer had the old details. Each of these was solved in a minute and forgotten in a week.

In an IPO review, every one of those movements becomes a line somebody has to explain, evidence and justify. The problem is rarely that the transaction was improper. The problem is that there is no contemporaneous record of why it happened, and a reviewer cannot sign off on an explanation that was reconstructed from memory three years later.

2. Revenue that never went through a bank

If a meaningful part of your sales was collected outside the banking system, that revenue is effectively unverifiable. It does not matter whether it was declared. A reviewer can only rely on what is independently traceable, and cash that arrived and left without a trail cannot be traced.

The consequence is not a penalty. It is worse than that for a listing: the revenue quietly stops counting. Companies discover that the three-year story they were proud of shrinks the moment it is restricted to what can be evidenced, and the shrunken version is the one that has to carry the issue.

3. Related-party dealings nobody wrote down as related-party dealings

Renting premises from a family trust. Buying from a company your co-founder’s brother runs. Paying a consultancy fee to an entity you also own. These are all legitimate, common, and completely survivable in a listing, on one condition: that they were identified as related-party dealings at the time, approved through the right internal process, priced defensibly, and disclosed.

What does not survive is discovering them during diligence. A related-party transaction found by a reviewer rather than disclosed by the company changes the tone of the entire engagement, because the reviewer now has to assume there are others they have not found yet.

4. A share history you cannot evidence

Every share your company has ever issued or transferred has to be traceable: who got it, what they paid, how the money moved, what was filed, and what the paperwork says. Early cap tables are where this breaks. A co-founder who left with a handshake. Shares promised to an early employee on a WhatsApp message and never formally issued. A friend who put money in before there was a proper agreement and was to be sorted out later.

Cap table history is unforgiving because it is binary. Either the chain of title is complete or it is not, and an incomplete chain has to be repaired before anything else can proceed. Our startup data room checklist covers what that evidence trail is expected to look like in a fundraise, and the listing standard is higher, not lower.

5. An irregular filing record

Your company’s filings across corporate, tax and indirect tax are a public, dated, permanent record of whether you do things on time. Nobody expects them to be interesting. They expect them to be regular.

An irregular filing record is read as a proxy for everything a reviewer cannot see directly. A company that files late and inconsistently is assumed to reconcile late and inconsistently, and that assumption is applied to the parts of your business the reviewer has no other way to test. This is the cheapest of the six to fix and the one most often left alone, because fixing it produces nothing visible.

6. Two sets of numbers that do not agree

Not two sets of books. Two sets of numbers: the management dashboard the founder runs the company on, and the audited financial statements filed at year end. In a lot of growing companies these have drifted apart, and everyone internally knows which one is “the real one”.

When both get put on the table, the difference has to be explained, and the explanation is usually that revenue is being recognised differently, or costs are being capitalised in one and expensed in the other, or the management numbers were never reconciled after the audit adjustments. Our note on financial due diligence covers how the same gap gets found in a fundraise. In an IPO it is found with more time and less patience.

What does a merchant banker actually screen for?

It helps to understand the incentive. A merchant banker signs their name to your offer document and carries responsibility for what is in it long after the money has been raised. They are not screening for whether you are a good business. They are screening for whether representing you will cost them later.

That screen happens early and quietly, usually before a formal proposal exists. In that first pass they are looking at how your company files, how your money moves, who else transacts with you, whether your history is documented, and whether your own numbers agree with each other. It is exactly the list above. A polite decline at this stage is rarely explained in these terms, which is why founders often walk away believing the issue was size or sector.

How long does it take to get SME IPO ready?

Assume two years of deliberate work if you are starting from a normal, fast-grown, lightly documented company. The sequence below is the one that keeps the financial history clean rather than trying to repair it at the end.

What founders get wrong about SME IPO timing

Three mistakes account for most of the lost years.

1. Treating readiness as something advisers do for you. Advisers restate, document and file. They cannot retroactively make your money have moved through the right accounts. The part only you can do is the part that has to happen first.
2. Optimising the last year and hoping the earlier ones are not read closely. They are read closely, and a strong final year sitting on top of two undocumented ones reads worse than three ordinary consistent years, because it invites the question of what changed.
3. Confusing profitability with readiness. Profitable companies get declined regularly, and the reason is almost never the profit. If your unit economics are strong but your history is undocumented, the history is what gets priced.

Frequently asked questions

What is SME IPO readiness?

SME IPO readiness is the condition of your company’s financial history, records and governance, judged by whether the three financial years before filing can be restated, audited and explained without unresolved gaps. It is separate from eligibility, which is a set of conditions applied at the time of filing.

How many years of financials does an SME IPO look at?

The offer document presents a multi-year financial history rather than a single year, and in practice the three financial years before filing are the ones that get restated and examined in detail. Your merchant banker will confirm the exact period required for your filing.

Can we fix our books just before filing?

Not usefully. Presentation, documentation and reconciliation can be improved at the end. How money actually moved in a prior year cannot be changed, and that is what most of the six issues above come down to. This is why readiness work has to start while the years in question are still current.

Do we need to be profitable to do an SME IPO?

Financial performance conditions do apply and they have been tightened in recent years, so confirm what currently applies with your merchant banker before you plan around it. Separately, profitability alone does not make a company ready. Undocumented history stops profitable companies regularly.

What is the single most common reason an SME IPO does not proceed?

In our experience it is money that moved informally between the company, its founders and related entities, without a contemporaneous record of why. It is almost never improper. It is simply unexplainable after the fact, and unexplainable is enough.

Where to start

If a listing is somewhere in your two-year plan, the useful first step is not talking to a banker. It is opening your last three financial years and asking which of the six issues above you would struggle to evidence today. That is the same list a merchant banker works through, and you can run it yourself before anyone else does.

If you want a second pair of eyes on that history before you take it to market, book a quick call with A S Banka Advisors Private Limited: https://calendly.com/asbanka-info/30min

Disclaimer: This article is general information for founders and does not constitute professional advice. Eligibility conditions, financial requirements and issue structure for SME platform listings are set by the exchanges and the securities regulator and have been revised more than once in recent years. Confirm the criteria applicable to your company, as they stand on the date of your filing, with your merchant banker and professional advisers before acting.