How Proper Maintenance of Your Books of Account Impacts Your Financial Health & Overall Growth
Millions of small businessmen are employed across a variety of sectors and industries in India. Some of the major problems that the majority of them face arise because they do not maintain their records and account properly. This can include not getting loans, arguments when settling dues, and so on.
Proper maintenance of your books can have a strong impact on your financial health as a small businessman. This article highlights some of the good account-keeping practices that will help in the overall growth of your business.
Benefits of Proper Maintenance of Your Accounts
- Keeping Track of Receivables and Dues
It is a common practice with small businesses to purchase a product and pay for it later. Many times, there is only a verbal agreement between the seller and the buyer about this and no proper invoice or document mentioning the details. Similarly, you might owe someone money but not have a written record of it.
When you maintain records of all transactions, including receivables and dues, you know exactly who to pay how much and when, and how much you should get. Wrong calculations on monthly expenses and income lead to wrong financial planning or overpaying of taxes or worse, a pile of debts secretly building up.
- Invoices Keep Your Trades More Organised
Ideally, at the end of every trade, the seller is supposed to issue a receipt as proof for the trade. However, the seller needs an invoice for taxation purposes (think of invoice as a more detailed bill with details like date, product name, price, buyer account details, etc.). Only a few businesses enforce this practice, while others often don’t give invoices.
Issuing invoices is a good business practice because it helps you track all your trades (since you know all the details). But, keeping all the sheets of paper in a single place in a neat fashion can be difficult. That is why you must digitise as much of your account-keeping as possible.
- Usage of Technology
Digital technology is taking over every industry and sector, as people realise that it makes their business faster and simpler. When you deal with a large number of customers daily, maintaining digital records of your accounts and transactions can be extremely useful as compared to doing it on paper. There are several software applications available for keeping accounts and generating bills.
A simple Excel spreadsheet is sufficient to track all transactions. Other advanced bookkeeping and payment applications can also automatically send you reminders in case of dues and automatically make regular payments like rent. Software applications meant for tax purposes also help you download GST invoice formats, which contain all the details and formulas already added to the invoice.
- Personal vs Business Account
This is another common mistake that businessmen make: mixing up personal and business accounts. If you spend 5000 rupees to buy a new desktop monitor to use in the office, then it can be considered a business expense. However, spending as much for family shopping is a personal expense.
It is recommended that you have distinct account books and separate bank accounts for personal and work expenses. Use one dedicated credit/debit card for business expenses. It is a good practice because it is another way of keeping track of your purchases.
- Taxation Process Becomes Easier
All e-commerce businessmen, intra-state traders and suppliers, and others whose annual turnover is more than a certain value should register on the GST portal for GST verification. Using your unique GSTIN number, the tax authorities can keep tabs on your business to prevent illegal activities. At periodic intervals, you also have to file GST returns.
At that time, you have to let the authorities know your income, expenses, and other details, and upload the invoices as proof. The GSTN (GST Network) stores the information of all the buyers and sellers, maintains registers and also consolidates the uploaded details for further reference. If you can afford it, you should hire a professional accountant to manage the tax work, since it can get cumbersome and time-consuming.
If you haven’t been following these record-keeping practices, it is still not too late to start. The sooner you organise and digitise your business, the faster will be your progress in running the business smoothly. Check out some of the services offered specifically for small businesses to enable you to take your business online.