If you are a businessman in India, one of the first skills you should learn is to manage your finances. Many SME businessmen in India still use physical books for keeping records, they are averse to technology, and often get into trouble when it comes to getting loans or filing taxes.
How do you manage the customers who don’t pay on time? How will keep track of hundreds of transactions? Read on to know about some methods to tackle your finances as a small businessman.
Here is a quick introduction to some accounting terms to motivate you to handle financial matters properly. In several businesses, it is common practice to pay for a good or service a few days or weeks after purchase. So, every time you allow a customer to make a credit purchase, they owe you on that day, but the actual money comes much later.
If you account for the money as and when it comes, it is called cash basis of accounting. If you account for it as and when you earn it, it is called accrual basis of accounting. The accrual basis is more accurate for managing your businesses and for taxation purposes.
Tips to Manage Finances
Customers who keep delaying payments – for whatever reason – can hinder your business by making accounting much harder than it is. The tips given here are generic ways to maintain your finances and not only if you have customers who buy on credit. Even if you do have late-paying customers, remember that resorting to legal options must be your last choice.
- Keep Detailed Records and Invoices
An invoice is a detailed record of every sale that the seller keeps, which includes the date of sale, amount, date of payment, product name, and the buyer’s details. Invoices help you track past trades and transactions so that you can collect all your receivables without fail.
You should also maintain a record of all financial transactions apart from trades, like business expenses, payroll, taxes, etc. You can do this on paper, but technology can make calculations and maintenance much easier and organised. A well-formatted Excel spreadsheet is the simplest way to have a digital record of financial transactions.
- Use Software
Accounting software is particularly useful to keep tabs on the customers who owe you money. Some applications even send you alerts on the due dates so that you can contact the customer and collect the money. As much as possible, try to personalise the follow-up as opposed to sending then an automated email that goes directly to spam; it could make the payment more prompt.
Businesses that are registered on the GST portal with a unique GSTIN number must maintain GST-compliant invoices. Software apps dedicated for GST purposes help you generate such invoice templates on Excel, and they also calculate the right tax amount for you. This is useful in case you are confused about tax rates, exemptions (like the GST composition scheme), etc.
Payment applications make the process of money transaction much simpler because you can send and receive the desired amount almost instantly. Some apps also let you automate recurring payments like monthly rent. Incentivise your customers to use digital payment apps too.
- Pay Taxes Properly
Ever since the GST Act was brought into effect, taxation across the country has become more transparent and uniform. By taking the entire process – including payment of taxes and filing of returns – online, authorities can prevent illegal activities. If you don’t maintain proper records, you can erroneously report your tax liability and end up paying a huge penalty.
Based on your receivables and dues, you need to prepare your balance sheet properly or get an app to do it for you. When it comes to filing returns, GST software programmes let you upload the invoices and the other documents seamlessly. The GSTN (GST Network) stores the information of all the buyers and sellers, maintains registers and also consolidates the uploaded details for further reference.
These techniques to manage finances will be useful across all businesses. Handling your finances well will lead to the overall growth of the business too, because cash flow is the major fuel to keep businesses running. If you need help, there are plenty of software applications designed for businessmen that make money matters simple.