Why is accounting and bookkeeping essential for a startup?
A business without effective accounting or bookkeeping is as dead as a fish out of water. For most, bookkeeping may sound and seem insignificant or perhaps excessive. Especially if you are a budding entrepreneur or an SME with each foot on financial and marketing strategies, bookkeeping could seem trivial and something you can do away with, till the right time comes.
But the bitter truth is that you take it out of your business planning and your venture will eventually breathe its last.
Top Five reasons why professional bookkeeping is essential:
Bookkeeping, in a nutshell, is the effective organization of your company’s financial information. Bookkeeping records and maintains financial transactions and documents on a day-to-day basis. Meticulous accounts-keeping ensures that the documents of transactions are precise and comprehensive. How much ever irrelevant it might seem, Accounts & Bookkeeping is fundamental to any business and more so if you are a new-born entrepreneur.
For small businesses or start-ups, the cash flow and accountability are the breath and the pulse. Organizing and storing financial and accounting documents like ledgers, income tax records, financial statements, etc., provide you clarity over your profits and expenses. It helps SMEs or start-ups in India to have a firm foot on the decision-making platform and plan for future growth.
1. Legal Requirement:
“As per the Income Tax Act, India, Section 44AA, those whose income exceeds Rs. 1.20 lakh either from business or profession, or the Total sale/turnover/gross receipt goes over Rs. 10 lakh are mandatorily expected to maintain books of account for income tax purpose”. Also, Section 128 of the Companies Act 2013 demands that every company shall maintain books of account.
2. Budgeting for your start-up
A budget makes a financial roadmap for your business. Start-ups must have a budget that assesses all the financial needs of their businesses like paying the bills, the employee paychecks, etc. to ensure the operation stays on track.
When income and expenses are correctly organized, it makes it easier to review as well as plan for financial resources and costs, the failure of which could easily lead to a business crisis.
3. Tax Obligations
When you do business, you need to pay the income tax, sales tax, service tax, central sales tax, excise duties, etc. Accurate and adequate books of accounts are rudimentary to have explicit knowledge and information on the amount of tax obligation as well as to settle the legal litigations.
A bookkeeping service makes the tax filing process more straightforward and efficient and provides your CA the required information to categorize expenses and revenues. Without proper accounts-maintenance, there occurs a cash flow crisis, wastage of money, or other financial issues, which can affect your business.
4. Constructive Financial Management
Bookkeeping helps you to have control of your company’s finances by mapping out your expenditures like timely payment of bills, receiving payment for your services or products on time, etc. This effectual balance of cash inflow and outflow is essential for the progress and smooth flow of business.
Productive bookkeeping, with applications like MIS (Management Information System), provides a summarised and bulletin view of various verticals that play crucial roles in the proper functioning of any business.
5. Secure approval for loans/aid in financials due diligence
When you are a start-up, the hurdles to get a bank loan approved or raise monies are many. Banks or lenders or investors tend to be skeptical about new entrepreneurs as the chances for debts or losses are more and severe. To top that, if you are unable to provide a robust and accurate record of your business financials, getting an investment or business loan can be very difficult.
An excellent bookkeeping service will always maintain a clear and precise record of your accounts that will help in validating the financial road map of your company.
Advantages of Bookkeeping Services
❏ Analyze business performance
❏ Track profit and growth
❏ Ensure better cash flow
❏ Help you to focus more on business strategies
❏ Easy audits
❏ Better management of time and growth
❏ Define your business, its growth, and status in a snapshot
❏ Aids in securing fundraising process
Setting an in house accounts team may prove costly, especially when you are bootstrapping or new on foreign soil. Hiring virtual accounts & bookkeeping services helps your operations run smoothly without having to invest heavily.
SetMyCompany’s can help you set your accounting and bookkeeping process straight right from the start!