Preparing for an SME IPO: the readiness work that comes first

An SME IPO — a public listing on the small and medium enterprise platform of a recognised stock exchange — looks, from the outside, like a single event: a prospectus, an offer, a listing day. In practice it is the visible tip of eighteen to twenty-four months of quieter work inside the company. Most of that work is not glamorous. It is closing gaps between how the business has always been run and how a public company is expected to look on paper. Lalsar's role in this process is to do that readiness work alongside the promoters and, in due course, alongside the registered merchant banker who leads the issue. Lalsar does not act as a merchant banker itself and does not manage the issue, price the offer or file the prospectus — those are activities reserved for entities registered with the Securities and Exchange Board of India (SEBI) for that purpose.

Why readiness has to come before the offer document

A merchant banker moving to file a draft offer document needs a company whose financials, shareholding, related-party arrangements and internal controls will withstand scrutiny from the exchange, from SEBI and from prospective investors. Getting there from a typical closely-held company — where financial reporting has served tax and lender purposes rather than public disclosure — usually takes longer than promoters expect. Starting the readiness conversation only after appointing a merchant banker tends to compress work that needed a year into a few stressed months, and it shows up as delays, qualified opinions, or last-minute restructuring under time pressure.

The core workstreams

Financial statement quality

Exchanges expect a track record of audited financials, typically covering the preceding years, prepared under the applicable accounting standards and free of material qualifications. Companies that have historically kept provisional financials — management-prepared statements not yet subjected to a statutory audit — for internal use and only audited the minimum required will need to bring several years onto a consistent, fully-audited footing, restating prior periods where policies changed.

Governance and board composition

A closely-held company run by two or three family members needs an independent board, audit and other committees, and documented policies on related-party transactions, whistleblowing and risk management well before the offer document stage. Recruiting genuinely independent directors and giving them real information flow — not a rubber-stamp board — takes time and is one of the most commonly underestimated pieces of readiness.

Related-party and structural cleanup

Group companies that share premises, staff, brand names or informal loans with the listing entity create disclosure and valuation complications. Untangling these — through formal leases, arm's-length agreements or hiving off unrelated businesses — is easier done early than under a due diligence deadline.

Compliance and statutory record

Consistent filing of returns, a clean history under GST returns analysis, updated statutory registers, and resolved litigation or show-cause notices all form part of the record a merchant banker's due diligence team will examine. Gaps found late in the process are the single biggest cause of listing timelines slipping.

A typical readiness timeline

1. Diagnostic review — an honest assessment of financials, governance and compliance against listing expectations, usually the starting point for a financial wellness report engagement.
2. Remediation planning — a prioritised list of fixes, owners and deadlines, often spanning two to three audited financial years.
3. Execution — restating financials, building the board, formalising related-party arrangements, and closing compliance gaps.
4. Merchant banker appointment — once the company is substantially ready, so the issue-management phase can move at its own pace rather than waiting on basic fixes.
5. Due diligence and filing — led by the merchant banker, with the promoter's internal team responding to queries drawing on the readiness work already done.

Common gaps promoters underestimate

• Personal and business expenses that were never fully separated in the books.
• Informal loans between the promoter, family members and the company with no documentation or agreed terms.
• Key-person concentration — the business runs on one or two individuals with no documented succession or delegation.
• Inventory, receivables or revenue recognition policies that would not survive a stricter audit approach.
• No history of external credit rating or a rating that has not been reviewed in several years.

Building the internal team that carries this through

Readiness work is not something an external advisor does to a passive company; it needs an internal counterpart who can own the follow-through between engagements. Most companies that move through this smoothly designate, early, a CFO or finance head who becomes the internal driver of the audit and compliance workstream, and a company secretary — hired or engaged on a retainer if the company does not already have one — who owns board governance, statutory filings and the secretarial record the exchange will eventually examine.

Roles worth filling before the merchant banker stage

• A company secretary maintaining statutory registers, board minutes and regulatory filings to a public-company standard.
• An internal audit function, even a modest one, that gives the audit committee something real to review rather than a formality.
• A finance team capable of closing books to a timetable an auditor and, eventually, the market will expect.
• At least one independent director with genuine sector or capital markets experience, not simply a name added to satisfy a headcount requirement.

Judging whether now is the right time

Not every profitable, growing SME should list. An IPO brings ongoing disclosure obligations, quarterly reporting, and public scrutiny that some promoters are not ready to accept, whatever the fundraising benefits. Part of readiness work is an honest conversation about whether the company's growth needs and the promoters' appetite for public-company obligations actually point toward listing, or whether a structured debt raise, private equity round or working capital solution meets the same growth need with less disruption.