The Challenges that SMEs faced when Listings
Listing is the gateway for a company into capital market where funds can be raised for business development and expansion. Many SMEs in Malaysia are family -run entities and with their own unique of managing the business.
However, once a company grows to a certain level, it could require more capital and the most promising option to look for, is entering into the capital market.
Key challenges that most SMEs face where listing is concerned are:
Before listing, the business is managed and controlled mainly by a family and all important decisions are resolved within the family. However, after listing, management structure and style will change as it will now be managed by a team of professionals designed to be more systematic and policy driven. Besides, they develop a mindset that the company does not belong to them. It belongs to the public instead. Thus, internal control / corporate governance is crucial to ensure public interest is protected.
Before listing, a company is owned by a family. After listing there are public shareholders thus accountability to public interest. Any outstanding issues against public interest needs to be settled.
Related party transactions
It is common for many SMEs to have a group of companies under one roof for certain business needs and there are business transactions between these companies. For listing purposes, is the listed company is not allowed to have another business entity in its group and have the same nature of business. It will create a conflict with the listed company. It is common for existing businessmen to manage the company with the mindset of right left pocket. Before going for listing, all related party transactions that consists of conflict of interest like loans to directors, loans to related company or related persons must be settled to ensure public interest is being protected. There are some levels of related party transactions that can use the means of disclosure instead of full settlement and it all depends on the situation.
This is the greatest challenge as most of SMEs are family based and they manage the business like the do the . SMEs will feel that being tight up after go for listed as every business process must have the written SOP and policy to governance. Besides, the SME also must be in compliance and implement internal control on each process to ensure the risk is being mitigated to ensure the public interest is protected.
Conclusion – Key take away
It can be said that all the challenges faced by company are merely due to “getting use to” issue. The company’s stakeholder and directors will have a easier time moving towards the path of listing when their mindset is adjusted to align with the objectives and regulations of the company.
Additionally, the company must engage with a AOB registered auditor, experience secretary, consultant, and lawyer externally to ensure the listing process goes smoothly. Company should also ensure that the internal operation such as the finance department is efficient and performing, as a strong financial standpoint reflects the company’s position and image in the market. Therefore, the SMI/SMEs company looking to go public should acquire suitable and qualify finance specialist to cater the need.
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