Small Businesses- With Big Thrust to Succeed- BEST Practices for Small Business

Every business when starts it’s a small business, which starts with an idea, backed by lot of enthusiasms. Business has its life cycle or stages like:

• Start-up phase
• Growth phase
• Scalability and Mature

The biggest challenges, in the start-up phase to growth phase is to remain complied with applicable rules and regulations, set the good practices to run the business, establish good internal controls and make standard operating practices. Entrepreneurs often wants to save cost on compromising such important aspects and unaware the fact that such practices build that foundation on which a business scale-up and sustain in long run. Here are some Best practices from the point of view of compliances, risk management and books of accounts, which will help businesses not only to improve their working abilities but also create a base for prospective investors to do seed investments in their business.

I. Financial Standard Practices:

• Keep business and personal accounts separate
• Personal expenses not to do from business account
• Cash Flow tracking- If business keep good control on cash flow, profit will also follow. Owner must know how the expenses and receipt will come for next month or quarter
• Keep some money in Fixed deposits or liquid investments for need of business
• Try to find out ways to maintain credit with suppliers and better recovery from debtors
• Make a credit policy and adhere to that policy

II. Accounting and Book keeping Practices:

• Approval of all expenses, either by general or special approval
• Recording of all transaction on real time or daily basis
• Maintain and store all records in soft copies
• Use a licensed software like Tally/Zoho etc for accounting
• Reconciliation of ledgers through confirmations or bank balances on weekly basis
• Policy for routine expenses like travelling etc
• Compliances with Documentation and retention of books related requirement for audit, income tax and GST Act.
• Avoid cash transactions as much possible except very small routine expenses

Burn cash wisely, a penny saved is penny earned

III. GST related Practices:

• GST Law related compliances can’t be ignored, non-compliances will not only affect reputation of business but also a costly affair to pay penalty, interest etc
• File GST returns correctly and timely (GSTR-1, GSTR 3B, GSTR 9 and 9C)
• Not to take GST input on personal expenses or personal use assets
• Take genuine input only
• Maintain a practice to reconcile input and output liability quarterly or half yearly.

Ignorance of law will cost you more than, what you saved.

Income Tax Act, related Practices:

• Compliances of TDS/TCS related provisions- monthly payment and quarterly return
• Pay Advance tax, to avoid interest on tax payment- 15^thof the last month in every quarter
• Not to claim personal expenses to reduce tax liability
• Keep all agreement or supporting for expenses claimed
• Evaluate whether your business covered under Income Tax Audit
• File ITR timely

IV. Payroll and HR compliances:

• Issue appointment letter to all employees- requirement as per new wage code also
• Maintain proper attendance records- better biometric attendance machine to use
• PF/ESI/Gratuity- if applicable based on threshold of number of employees (PF-20 employees, ESI and Gratuity 10 employees)
• Salary calculation sheet on monthly basis to prepare and sign off by a reviewer. Salary slips to send to all employees
• Proper TDS if applicable to be deducted and pay

Happy satisfied employees are best growth drivers for new business

V. Internal control or standard operating practices

• Cash purchases-NOT allow
• Quotation system for all purchases
• Maker checker concept for all transactions- if less employee and segregation of duties not possible, make all payment approvals by yourself
• Set the Budget for all expenses and review with actuals
• Make SOPs ( or compliance calendar)for people responsible for statutory compliances to avoid any non-compliances or missing a deadline
• Management’s review system- MIS review for all operational and financial aspects. Business plans and budgets are base for such performance review.
• Keep control of all cost related aspect- variable vs fixed to get benefit of marginal cost for bidding or new client acquisition

Manage the cause, not the result- only way to become big

VI. Risk Management

• Insurance policies to obtain as per business need (fire, loss of business or professional indemnity etc.)
• Obtain all necessary registration and licenses to operate
• Keep MOA/Deed etc updated for any change in business
• Obtain Employees health or accidental insurance
• Get associated with professional consultant to guide

These are some best practices an entrepreneur should follow to make their idea convert in to a successful business which sustain and grow for years.

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Author – CA Mohit Bhandari (Start-up Mentor) – Can be reached for detail discussion on your problem area at mohit.bwm@gmail.com or mobile-95844 68017

Disclaimer: Views are author’s personal views based on his experience, for any queries or suggestion, please bring to my notice. Thanks