While every industry has been facing good and bad times with the recent announcement of de-monetization, small and medium-sized enterprises (SMEs) are more exposed to the effects. The reason being that they have fewer resources to enable them to bridge difficult times and may find it harder to gain access to credit to help them weather temporary difficulties. Keeping that in mind, a lot of forums for small and medium enterprises have shared some steps for Small and Medium Entrepreneurs in view of Demonetization of 500 and 1000 Rupee notes:
- Calculate Cash In Hand in Company / Partnership / Firm Books- it is advisable to update the accounts immediately till date. It should include all cash receipts and cash payments as well. It is to ensure that you know that your cash in hand is matching with your correct accounting cash in hand in your books. You need to then deposit that cash in your bank. Even if you have old currency, 100% of this accounting cash is valid and your Chartered Accountant and your accountants will have no problem in handling this.
- Calculate Cash In Hand in Personal Balance sheet – Knowing what is the actual cash in hand will help you in further dividing your available funds into your day to day and weekly operation
- Deposit Money in Bank – it is again advisable to divide and deposit your money in different accounts. Avoid depositing huge amount in a ‘single’ savings account. The way we divide our investments and spread it over different resources, the same needs to be done in this scenario.
- Usage of the deposited funds- The money that has been deposited in the bank should be used only for your business payments. Modes like NEFT, Cheque, RTGS, Debit card, and other mobile wallets like PayTM, etc. can be used. In case you are not tech –friendly, this is the time when you can explore them and even train your team for future usage.
- Payment to Vendors – As on date, a lot of vendors are shifting to opting the online ways to receive payments. The ones who are not using them are being forced to shift to the e-payment. Our Prime Minister has always shown us the dream of a Digital India. These are the initial steps towards it. Still, if you have vendors who want ‘cash only’, withdraw cash and pay them.
- Using money for creating a Fixed Deposit / Mutual Funds- If the money is explainable, then deposit in your bank account, and then relax! Go ahead, make the FD from this bank account. Let your money earn interest for you.
- Using money for giving Unsecured Loans for your company – Yes you can, but avoid doing it for next 6 months. First, create a Fixed Deposit from this deposited cash and later when the FDR is matured, only then bring this to the business. Else, it will be difficult to explain that in the Income tax Scrutiny if any.
- Payment of wages for workers- Today, almost every employee of yours, even a driver or a machine operator has a Bank account. He/she will be happy to receive money online. Also, as soon as he/she gets it, they also get a SMS, ensuring that the transaction is complete. It is currently strongly advised by the PF departments to pay only by cheque or Bank transfer. So, you should not pay in cash anyway. Moreover, the income tax deduction is also available for Cheque or funds transfer payments only. So, again, it is always advisable to avoid cash as much as possible
- Old Debtors payment recovery – Demonetization has helped many small and big businesses in recovering the past dues as old as 4 years and they are also getting an advance for new orders. So you can call all your old debtors and ask for the pending payments.
While demonetization led to changes like small shops installing debit card machines, every industry is willing to bear short-term pains for long-term gains. India is once again on the way to regaining its position in the global economy. A very loud and clear message has been sent to the world that despite being a large diversified democracy, India can take tough decisions and same has been well-received its people.