Why it is essential for SMEs should maintain books of account

Manish Soni, a smart businessman, started a textile business some three years back and has so far performed well. However, for record keeping, he maintained a register in which he records transactions like amount to be recovered from customers, amount due to suppliers, among others. He now wants to expand his business and avail a bank facility, that is, cash credit, but to his horror the bank has refused his request.

Since he is also not able to forecast his revenues and expenses and no accounting records are available with him, the bank refused to extend cash credit. To make things worse, he received a notice from the income tax department to justify his income tax liability. Due to lack of proper books of account, he could not justify his income tax liability and was penalized a huge penalty. At the moment due to a severe cash crunch, he is on the verge of closing his business.

This may be a hypothetical situation, but it amplifies the need to have proper accounting books. Maintenance of books of account is important in any business, whether it is small or large sized. Sad to say, most of the small and medium business entrepreneurs often neglect this process, which has a direct adverse effect on the business.

In fact, some SMEs failed in financial management due to weak or no accounting records. They do not maintain their books of account, because they think maintenance of books of account for their small business is worthless. On the contrary, financial management is very crucial to the success of a small business.

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