April 23, 2024

Annual Contract Value (ACV) is the average annual revenue generated from each customer contract, excluding fees. If a customer signs a 5-year contract for $50,000, averaging this value per year will give you an annual contract value of $10,000. What is ACV ? Annual contract value (ACV) breaks down the total value of a customer’s contract into an average value per year. For example, a $10 million, 10-year contract has an ACV of $1 million per year.Annual contract value (ACV) is a revenue metric you can use to analyze your data and get a deeper understanding of the impact of sales and marketing initiatives so you can highlight strategic insights for your business. How to Calculate Annual Contract Value There are multiple ways you can calculate the ACV for your customer base. But at the highest level, the ACV formula is total contract value divided by the total years in that contract (focusing solely on recurring revenue). ACV Formula Let’s see how the formula works in an example. Say a new customer signs a 3-year contract with you for $30,000 per year of service, and you give them a 30% discount on the first year.  Their annual payments would look like this: Year 1 = $20,000 Year 2 = $30,000 Year 3 = $30,000 For a total contract value of $80,000 over 3 years. To calculate the ACV for this customer, you would take the total contract value and divide it by the number of years in the contract.  ACV = $80,000 / 3 = ~$26,667 By calculating the average amount you receive each year, you can easily visualize how your SaaS pricing strategy affects your annual income from this customer. There are several ways you can look at ACV in your business, including:  Individual ACV per customer (like the example)  Total ACV of all customers Average ACV of all customers Total ACV for a time period Average ACV for a time period How to use ACV ? Because ACV normalizes your contract amounts, you can use it to: Compare customers whose contracts differ in type or duration Discover which accounts provide the greatest revenue value Better service individual clients, especially those with the greatest long-term potential Why ACV Is Important Leveraging ACV as a strategic finance tool helps you get a better understanding of your SaaS business in two ways: It can help you understand the true value of each customer when you have variable pricing.  It informs which type of SaaS products you offer so you can tailor your growth strategies accordingly.  Helps Shape Your Pricing Strategy- SaaS companies are increasingly shifting toward consumption-based pricing, which means they offer pricing tiers that depend on usage variables. This pricing strategy puts annual income from individual customers in flux, impacting your ACV calculations. There are several reasons why the actual income you earn from a contract varies each year, including:  Discounted pricing Onboarding costs and other one-time fees Service and feature add-ons  Product usage variables such as user licenses, features, queries, and number of integrations ACV gives you a clear picture of the monetary value of each company by normalizing the total income over contract length. This way, when you look at historical data, you can see the effect your pricing strategy has on the value of a customer or various customer cohorts. Informs Business Strategy & Decision-Making- SaaS companies come in a wide variety of shapes and sizes. But from an annual contract value perspective, you can split the SaaS industry into two broad categories: high ACV and low ACV. High ACV companies rely on bringing in fewer contracts with higher ACV. They’re more common for B2B companies that serve enterprise-level organizations.  Low ACV companies focus on attracting a large number of low ACV contracts. This is more common in the B2C industry, especially with paid mobile apps.  SaaS companies with products that can be used by individuals and organizations of all sizes might have a high ACV product tier and a low ACV one. You see this from companies like HubSpot and Salesforce, which have free tiers that are meant to drive up customer acquisition for later expansion and increases in ACV.  Understanding which ACV strategy applies to your business can help you focus on the right activities and avoid getting caught up in industry trends that don’t work for your business model.  ACV vs. Annual Recurring Revenue (ARR) Annual recurring revenue (ARR) is a subscription metric that also measures annual revenue. It tells you how much income you generate each year from all of your subscription accounts (including new bookings, upgrades, and renewals). ARR also accounts for customer churn, which is the total revenue lost from customers who stop using your service  Visualization of ARR by month in Mosaic SaaS companies and startups use ARR to measure growth over time and predict future revenue. Compared to ACV, ARR is the more fundamental financial metric that companies and investors use to benchmark growth.  ACV vs. Total Contract Value (TCV) Total contract value represents the total income you receive from a fixed-term contract, and it’s used in the ACV formula. When you calculate ACV, you divide TCV by the number of years in the contract.  TCV is based on customers you’ve already won, and it’s useful for providing an accurate report of the income generated by multi-year contracts with a clear end date. With TCV, you can look at which customer segments bring in the most income and use it to help focus your customer acquisition efforts.  Automating Annual Contract Value Financial metrics are necessary when evaluating your growth and pitching to investors, but they’re also valuable strategic tools that can help you put your limited resources to better use. Using ACV to understand the annual value of your existing contracts can help you improve your marketing strategies, identify the best upsell opportunities, and optimize your sales strategy. FAQs What is the difference between ACV and ARR? Annual contract value (ACV) is the value of a customer’s contract when averaged for every year of the contract. On the other hand, annual recurring revenue (ARR) measures the annual value from all contracts and considers things like upgrades  What is included in ACV? Annual contract value solely looks at the total contract value of your customers and divides it by the number of years in the contract to give you the average value of the contract per year. Similar metrics, like ARR or MRR, also take expansion

Before the establishment of the National Company Law Tribunal and National Company Law Appellate Tribunal the powers and functions of the Companies were discharged by the Company law board and Board for Industrial and Financial Corporation. The Central government constituted NCLT under Section 408 of Companies Act, 2013. It commenced on June 1, 2016, and it was set up on the basis of the recommendations of the Justice Eradi Committee. In India, the National Company Law Tribunal is a quasi-judicial organization. It is tasked with handling cases concerning Indian businesses. The tribunal was created by the government of India on 1 June 2016 under the Firms Act 2013 and is based on the proposal of the V. Balakrishna Eradi committee on legislation pertaining to insolvency and the winding up of companies. The Central government formed the National Company Law Tribunal in 2016. It was established under Section 408 of the Companies Act of 2013. National Tribunal shall not have power to review its own decisions. The National Company Law Tribunal, which succeeded the Company Law Board, was established as a quasi-judicial authority to oversee businesses incorporated in India. What is NCLT? National Company Law Tribunal (NCLT) is a quasi-judicial body which was set up to resolve the disputes which are arising in Indian Companies. It is the successor to the Company Law Board. It is governed by the rules framed by the Central Government. NCLT is a special court where cases relating to civil court have been barred from the jurisdiction. Under section 408 of the companies act, 2013 the NCLT has been constituted by the central government on 2016 by the recommendations of Justice Eradi Committee. The NCLT has replaced the company law board. It is a quasi-judicial body which has the jurisdiction to resolve only the matters in relation to company law. The tribunal is governed by the central government. The NCLT has its principal bench located at Delhi and it has 10 more benches located at Ahmadabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Allahabad, Jaipur, Kochi, Mumbai and Kolkata. The President, members of the judiciary, and technical members sit on the benches of NCLT. If any individual is not satisfied with the decision of the National Company Law Tribunal, they may appeal to the National Company Law Appellate Tribunal. An appeal filed before the National Company Law Appellate Tribunal must be resolved within six months of the appeal’s filing date. Any dispute that comes to the National Company Law Tribunal is not subject to civil court jurisdiction. The National Company Law Tribunal’s decision may be appealed within 45 days after the day the tribunal issues its order. COMPOSITION OF THE NCLT: The NCLT is presided by the president, a person can be appointed as a president if he has been a high court judge for a period of five or more years and should be aged between 50 years to 67 years of age. Then the NCLT consists of judicial members, a person can be appointed as a judicial member if he has been a high court judge or district court judge for a period of five or more years or should have practiced as an advocate for a period of 10 years or more and should be aged between 50 years to 67 years of age. At last the NCLT consists of technical member, a person can be appointed as a technical member if he is a member of Indian Corporate Law Services for 15 years or more or should have practiced as a Chartered Accountant for more than 15 years or should have been a Company Secretary for 15 years or more or should have special knowledge in a specific field for a period of 14 years or more or should have been a presiding officer of labour court for 5 years or more and should be aged between 50 years to 5 years of age. All the members are appointed for 5 years from the date of appointment and can also be reappointed for one more term. COMPANY LAW BOARD UNDER THE COMPANIES ACT, 1956 The central government established the board of company law administration commonly known as the company law board on February,1964 according to section 10F of the act. The company law board is to exercise the powers and functions of the central government under this act or any other law as conferred by the central government. The Board has its Principal Bench at New Delhi, and four Regional Benches located at New Delhi, Mumbai, Kolkata and Chennai. The board is a quasi- judicial body and is given with some powers and functions while some of these are judicial, others are administrative in nature. The Board has the authority to set its own rules for operation and take independent decisions. In conducting its business, the Board would be guided by the principles of natural justice. Any individual who is aggrieved by the decision of company law board or order has sixty days from the date of decision or order to file an appeal to the High Court on any legal issue resulting from such an order. The Company Law Board was made up with a maximum of nine members by the Central Government and a chairperson would be chosen amongst the members. POWERS AND FUNTIONS OF THE TRIBUNAL Class Action: According to s. 245 of the companies act, 2013 an application can be filed before the tribunal stating that affairs are conducted in a manner which is prejudicial to the interest of the company. The company may be restrained from doing any act outside the scope of MOA, AOA. De-registration of Companies: According to Section 7(7) of the Companies Act of 2013, if the tribunal finds that the company provided false or inaccurate information at the time of incorporation or by suppressing any relevant facts, information, or declarations, the tribunal may issue any of the following orders: o        Pass whatever orders that it deems appropriate. o        Pass orders

Reserve Bank of India (RBI) recently rejected six out of eleven applications by entities aspiring for on-tap banking licenses. RBI turned down all the applications for Universal Banks (UBs) on the ground of non-suitability. It rejected applications of VSoft Technologies Pvt Ltd and Calicut City Service Co-operative Bank Ltd for SFBs. The remaining five applications for SFBs are presently under scrutiny. UBs are financial entities like commercial banks, financial institutions, NBFCs, etc. that undertake multiple financial transactions. Small Finance Banks (SFBs) are focused financial institutions registered as a public limited company providing banking and credit services to unserved & unbanked regions of the country like marginal farmers, MSMEs, and other non-risk sharing financial activities with RBI’s prior approval. UBs were underscored as a development financial institution (DFI) by the Narsimham committee and the concept of SFBs was laid down in Raghuram Rajan Committee.  On-tap bank licensing facility enables a window for making applications for bank licenses at the RBI throughout the year. This year-round window was introduced in 2016 with the view to further financial Inclusion and creation of more financing institutions. Prior to that, banking licenses were granted upon invitation of applications by RBI to prospective players. The last time RBI granted UB licenses was in 2015 to Bandhan Bank and IDFC Bank. It approved Unity SFB in 2021 to rescue the scam-hit Punjab & Maharashtra Cooperative Bank. What is the selection process? UBs and SFBs are subject to Banking Regulation Act, RBI Act, and all statutes as applicable to banking entities. The specific guidelines for on-tap licensing of UBs and SFBs in the private sector were issued on August 1, 2016, and December 5, 2019, respectively.  In the first stage, the applications are screened by RBI to ensure prima facie eligibility. Post-screening, it is forwarded to the Standing External Advisory Committee (SEAC) constituted of industry experts and eminent persons with experience in the BFSI sector, appointed for three years. SEAC’s recommendations shall then be examined by the Internal Screening Committee (ISC) consisting of Governor and Deputy Governors.  ISC’s observations shall be forwarded to the Central Board (CB) of RBI that exercises the final discretion to grant in-principle approval for 18 months. Upon the culmination of this period, RBI shall on satisfaction with compliances grant the regular license for commencement of banking business. Who can apply for UB, SFB and UCB licenses? Any individual/entity with at least 10 years of experience in banking and finance at the senior level or private entities with 10 years of successful track record are eligible to apply for on-tap licensing as UBs. Secondly, aspiring entities ought to have assets of Rs. 5000 crore or above. Thirdly, the required net worth is Rs. 500 crore that has to be maintained at all times. However, large industrial houses are restricted to only invest in UBs up to 10% only.  While the guidelines do not restrict applicants to only corporate entities, they vest discretion upon RBI to look for a strong promoter with significant experience and a proven track record. RBI emphasizes the entity’s track record in conforming to the best international and domestic standards of customer service, integrity, and efficiency. It implies that RBI would grant the licenses on the basis of discretional prudential factors, in addition to rule-based eligibility criteria.  For an application for SFB, the individual entity must have 10 years of experience in the BFSI sector at the senior level. In the case of a corporate entity applicant, it must have at least 5 years of successful track record. Corporate applicants also encompass NBFCs, microfinance institutions, local banks and cooperative banks also. This aids such entities to expand their business on the liability side. Secondly, the minimum paid-up voting equity capital or net worth is Rs. 200cr., considering the size of operations and limited scope of activities.  In the case of urban cooperative banks (UCBs) voluntarily transitioning as SFB shall have an initial net worth of Rs. 100 crore only but shall be increased to Rs 200 crores within five years from the commencement of business. However, this conversion model is plagued by ambiguities in promoter identification, investment plans and capital infusion by promoter groups.  Summarily, there are five aspects that applicants ought to fulfill: (i) financial inclusiveness, (ii) soundness of business & technological model, (iii) strong management track record, (iv) sustainable governance, and (v) adequate capital structure.  The idea is that local players would be able to align themselves with respective target customer segments. Thus, it is imperative for the remainder and future applicants who fulfill the eligibility criteria that they maintain sustainable financial principles.  FAQs What is a universal bank? universal bank is a type of financial institution that offers a wide range of financial services, including deposits, loans, investment banking, wealth management, and other financial products and services. What are the eligibility criteria for obtaining a universal bank license? The RBI has set forth various criteria, including the entity’s structure, capital requirement, governance, track record, and more. Generally, entities should have a strong financial track record, a minimum paid-up capital of ₹500 crore, and a diversified shareholding pattern. Who can apply for a universal bank license in India? Eligible entities for applying for a universal bank license include existing non-banking financial companies (NBFCs), public sector entities, private sector entities, and foreign banks operating in India, subject to meeting the Reserve Bank of India’s (RBI) eligibility criteria. Practice area’s of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases

Societies and companies controlled and owned by residents, professionals or residents having 10 years of experience in finance and banking would be eligible for setting up small finance bank.You can read about the Granting License for Small Finance Banks by the Reserve Bank of India (RBI)  After conforming to the guidelines and requirements of various regulatory and legal requirements of different authorities, the existing microfinance institutions and non-banking finance companies which are controlled and owned by residents will have the permit to be the promoters and set up small finance banks. What is a Small Finance Bank (SFB)License? It is mandatory for small finance banks must be registered as a public limited company under the Companies Act, 2013. Small Finance bank is considered a kind of niche banks in India. Banks that hold a small finance bank (FFB) license have a right to offer basic banking services of acceptance of securities & lending. The purpose behind these to give financial formation to sections of the economy not being accepted by other banks. Like small company units, small and marginal farmers, micro and small industries and unorganized sector entities.It will be permitted under Section 22 of the Banking Regulation Act, 1949 and administered by the terms of the Banking Regulation Act, 1949 and Reserve Bank of India Act, 1934 and with other related Statutes and the Directives/Regulations and other Guidelines/Instructions circulated by RBI and other regulators from time to time. Objectives Give structure to boost rural and semi-urban savings Offer credit in local areas to carry out economic projects Give saving vehicles to the underprivileged sections of the society By doing hi-tech, low-cost technology, the amount of credit to small businesses Registration of a Small Finance Bank The SFBs or small finance banks must be licensed under the Banking Regulations Act Sec 22(1). These banks too must be supervised by the RBI Act 1934 and Companies Act 2013 as a public company. They must support payments and settlement act 2007 Credential information Companies regulation Act 2005 must also comply. Deposit insurance and credit guarantee corporation Act 1961 additionally comes with sufficient pressure on these banks Any act or support that comes from RBI in within. Once operational and working with complete significance these banks must attain scheduled bank status as per Reserve Bank Of India Act 1934 Sec 42(6)(a). These banks too must live by all prudential norms as per the RBI like norms for CRR and SLR i.e. Cash Reserve Ratio and Statuary Liquidity Ratio individually. Who can apply for a small payment bank license FDI policies will be similar to those of private sector banks which means a maximum foreign investment of 74% shall be allowed all sources included. Already existing NBFCs, LABs and MFI owned by residents can apply for a license Voting rights to shareholders will be considered complete, as per policies of Banking Regulation Act, to10% The promoter shall pass the “Fit and proper” status based on previous credentials by the RBI One of the net value reaches 500cr listing of the banks will be done mandatorily. Companies owned by local residents shall be eligible. In the overall experience, a minimum of past 5yrs should be a period of successful professional functioning of the business. 5% of RWA shall be the tier 1 capital and tier 2 capital needs to be limited to a maximum value of 100% of tier1 total capital. The promoter shall be giving a minimum of 40% of the total paid-up equity in the initial phase of 5yrs. Capital Adequacy ratio should always be maintained as 15% of RWA i.e. risk-weighted assets. Benefits of Small Finance Bank Licenses Small Finance Banks licenses are more definitive & strict than a regular bank license, such as one provided to State Bank of India (SBI) or ICICI Bank. While small finance banks can offer basic banking activities like deposit-taking and lending. They are not permitted to set up subsidiaries. Also, the loan ticket size is very less in Small Finance Banks related to regular banks. RBI has made compulsory that the activities of promoters of small finance banks must not be mixed with banking operations. Procedure supported by RBI to grant Small Finance Bank License Screening of application to verify the ability of the applicant The RBI serves every step of screening and evaluation very rigidly and licenses are given in tight management. Hence only 10 such banks have been in permanence to date. If seen eligible an EAC or external advisory committee, which forms of CAs, bankers, finance professionals screen and assess the application. If seen significant the EAC calls the applicant for some clarifications and information. Within 18 months of getting the approval of the applicant is inadequate to set up an operative bank, the RBI cancels the approval automatically. Principal permission is given by RBI is all the steps above are passed by the applicant Minimum capital adequacy requirement for Small finance bank License Particulars % Minimum Capital Requirement 15% Common Equity Tier 1 6% Additional Tier I 1.5% Minimum Tier I capital 7.5% Capital Conservation Buffer Not Applicable Pre-specified Trigger for conversion of AT1 CET1 at 6% up to March 31, 2019, and 7% thereafter Document Required For Small Financed Bank License Following the Rule 11 of the Banking Regulation (Companies) Rules, 1949, applications had to be submitted in the directed form. Form III to the Chief General Manager Department of Banking Regulation Reserve Bank of India. Additionally, the applicants must offer the business plan & other important information as directed. Applications were to be held till the close of business as of January 16, 2015. After the experience with Small Finance Bank, applications will be received constantly. Though, these guidelines are subjected to periodic review and revision by the RBI How to apply for Small Finance Bank License Small finance banks must be enrolled as a public limited company under the Companies Act, 2013 and will be authorized under Section 22 of the Banking Regulation Act, 1949. Also, it