7 Advantages of Maintaining Proper Books of Accounts for Start-ups, Small & Medium Business

0
1074

Of the 400 odd start-ups we consulted, most of them often ask, “We are not making enough money yet, do we still have to maintain books of accounts?”

Why do you think we are supposed to maintain proper books of accounts?

Is it mandatory? If YES, what are the pros & cons?

Well, let me walk you through it. Basically, the financial records, ledgers and journals make up the accounts of a company and we call them as “books of accounts”.

It represents the financial memory of the company and is crucial for decision making and ensuring regulatory compliance. By this you will be able to understand your books of accounts very easily.

Just to give you a bit of insight about what the law says, as per Sec 2(13) of Companies Act of 2013, Books of accounts includes records maintained in respect of:

1-   All sums of money received by a company and matters in relation to which the receipts and expenditure take place.

2-   All sales and purchases of goods and services by a company.

3-   The assets and liabilities of the company.

4-   The items of cost as may be prescribed under section 148 in case of a company which belongs to any class of company specified under that section.

Now that you know what Books of Account means, let me take you through the importance of maintaining them.

1.  Reduce the TAX Liability : By maintaining proper Books of Accounts, we can reduce the tax liability of the company. Speak to your Chartered Account immediately to know more about the Tax Structure which reciprocates the nature of business & your industry.

READ  Color Psychology for Websites

2.  Helps you forecast your business better: Your business growth depends on how you connect the dots of your past performance to your future goals.

It gives you a clear picture on strategizing on your Finances better, which further helps in planning your budgets for marketing, HR, operations and other key verticals of your business.

3.  Helps to stay organized when dealing with customers and suppliers: Producing invoices is vital as we cannot rely on supplier’s statements. Planning the receivables and releasing payments is of utmost importance too. All these would be easier done if the books are up to date.

4. Makes it easy to prepare management accounts: As a business owner, you will have full control on the expenses and income. Having proper books will help you and your management be prepared for any unforeseen shortcomings.

5. Easy access to Critical Data: By maintaining books of accounts in an organized manner helps you find critical data at your finger-tips.

6.  Makes it easy to get Funds: Any VC would require a healthy financial track record to trust and invest their money in your business. Your books of accounts talk about your financial credibility and you need to have a minimum 2 years on record for you to get funded.

7. Avoids interest and penalties: It is a statutory obligation for all the companies to maintain their books of accounts on accrual bases and as per to the double entry system. They are required to keep their books for inspection at the registered office of the company during business hours.

What if you aren’t a company?

READ  Beyond Bitcoin: Blockchain tech’s promise for a Digital India

Well, you can’t escape maintaining books of accounts as it is a statutory requirement from the taxation point of view that every person carrying on business or profession to maintain proper books of accounts, if his/her annual sales exceeds rupees ten lakhs annually (Rs.10,00,000/-).

All of this can be tedious especially when you transact almost on a day to day basis, and if you feel, “Oh! Chuck, let me not maintain them now” OR “Year end me Dekhlengay”. Hear me my friend, you will be subjected to the following penalties unnecessary.

WHAT is the Penalty if no proper books of accounts are maintained:

 Min. 1 year jail and / or fine up to Rs 5,00,000/-

Comments

comments

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.