Finance health check for smes: Audit-ready books, faster cashflow

Key takeaways

• A finance health check India is preventive medicine for business finances, it validates compliance, measures reconciliation hygiene, diagnoses KPIs, and surfaces red flags early.
• Build a solid data foundation first, gather Tally or Zoho backups, bank statements, GST filings, TRACES, payroll registers, MCA filings, and licenses, create one source of truth with access protocols.
• Run a comprehensive compliance checklist across GST, TDS and TCS, payroll, income tax and ROC, licenses, maintain a color coded scorecard to keep filings timely and accurate.
• Execute reconciliations for bank, GST, TDS, AR and AP, intercompany and suspense, summarize exceptions in a reconciliation status summary so owners can close aged items fast.
• Track KPI diagnostics for liquidity and profitability, working capital efficiency, discipline and leakage, link runway math with months of runway, and resolve trends before they become crises.
• Move findings into a 7, 30, 60, 90 day improvement roadmap, visualize progress on a real time status board, and consider automation like AI Accountant for ingestion, reconciliation, and dashboards.

Table of contents

Why Finance Health Checks Matter More Than Ever in India

A finance health check India keeps compliance on track, books clean, and cash flow visible. GST rules change often, TDS provisions multiply, bankers and investors demand timely numbers. A structured health check validates filings and payments, measures reconciliation hygiene, diagnoses KPIs that reflect liquidity and profitability, and clearly marks red flags requiring immediate action.

Think of it as preventive medicine, you would not wait for a notice or overdraft to check financial fitness, you run periodic diagnostics and act early.

For Chartered Accountants managing multiple portfolios, this becomes a repeatable service, for SMB founders preparing for fundraise or audit, it removes last minute surprises, for finance teams drowning in reconciliations, it brings order to chaos.

Scope and Preparation, Building Your Data Foundation

The preparation phase determines speed and quality. Gather core financial records, trial balance, ledgers, master data from Tally or Zoho with prior year comparatives, twelve months of bank statements across operating accounts, GSTR-1 and GSTR-3B filings, GSTR-2B downloads, e invoice and e way bill logs.

Pull compliance artifacts, Form 26AS, TRACES downloads, advance tax schedules, TDS ledgers, payroll records, PF challan registers, Form 12BA, attendance, vendor and customer aging, loan agreements with interest schedules, board approvals for related party transactions.

Include MCA filings, AOC-4, director KYC, MSME returns if applicable, add all licenses, Shops and Establishments, pollution, sector certificates. Create clear access protocols, decide who pulls data, designate one source of truth, distribute a checklist with dates and owners.

Stand up tracking from day one, a status board monitoring compliance health, reconciliation progress, KPI trends, and red flag severity, a findings log that captures issues with impact and owners, and an improvement roadmap with 7, 30, 60, 90 day milestones.

Compliance Status, India Specific Checklist

Your financial compliance checklist answers one question, are filings on time, accurate, and free of notices.

GST Compliance Health

• Confirm GSTR-1 was filed by the 11th, reconcile filing dates to invoices.
• Verify GSTR-3B was filed by the 20th, ensure liabilities were paid.
• Reconcile purchases to GSTR-2B, watch credit notes, rejections, and amendments.
• Check e invoicing for eligible B2B supplies, validate e way bills for movement of goods.
• Log and prioritize GST notices, demands, and replies.

TDS and TCS Compliance

• Verify TDS deduction against thresholds for vendors, professionals, contractors, confirm challans by the 7th, cross check with TRACES.
• Review Form 24Q quarterly returns, and TCS if applicable, ensure Form 16 for employees and Form 16A for vendors, reconcile 26AS to internal ledgers.

Payroll Compliance Verification

• Check PF deduction and deposit with monthly challans reconciled to membership.
• Verify ESIC where applicable, confirm professional tax per state deadlines.
• Review Labour Welfare Fund, Form 12BA, bonus and gratuity accruals, and any TDS recovery defaults or wage disputes.

Income Tax and ROC Compliance

• Verify advance tax on June 15th, September 15th, December 15th, March 15th, confirm return filings before deadlines and reconcile acknowledgments to 26AS.
• Check ROC, AOC-4 within 30 days of AGM, MGT-7, director KYC, MSME returns if registered, log penalties or delays.

License and Permit Status

• Review Shops and Establishments renewal dates per state, validate pollution, ISO, and safety certificates.
• Confirm professional registrations, and sector permits remain current.

Pro tip, maintain a Green, Amber, Red compliance scorecard, Green for on time, Amber for minor delays or discrepancies, Red for unfiled items, notices, or missing data.

Reconciliations Status, What to Reconcile and How

Reconciliation in accounting is your hygiene layer, it catches fraud, reduces audit adjustments, and accelerates monthly close.

Bank Reconciliation Excellence

• Match each bank line to ledger monthly, flag items beyond 15 days.
• Identify stale cheques older than 6 months, consider reversal, book unposted bank charges and interest.
• Ensure UPI and digital receipts are captured with transaction IDs, investigate round number cash deposits, escalate items unreconciled beyond 30 days.

GST Reconciliation Framework

Master the 2B triangle by reconciling GSTR-2B auto populated records to vendor GSTR-1 filings and your books, resolve mismatches from delayed vendor filings, wrong GSTINs, duplicates, credit notes as negative lines, and prior period amendments.

Reconcile GSTR-3B totals to GSTR-1 and 2B combined, investigate variances immediately, watch credits blocked under Rule 36(4), especially where 2B mismatches persist.

TDS Reconciliation Process

• Match your TDS ledger to Form 24Q and TRACES downloads, identify over or under deductions.
• Reconcile by vendor where split payments create double deductions, compare 24Q to vendor 26AS receipts.

Working Capital Reconciliation

• Build AR aging buckets, 0 to 30, 31 to 60, 61 to 90, beyond 90 days, trigger collections or write off review beyond 90 days.
• Create AP aging, flag beyond 120 days for payment or disputes, confirm balances with customer and vendor statements, document write off approvals with tax impact.

Special Account Reconciliation

• Confirm intercompany balances with agreements, board approvals, interest accruals, and adherence to terms.
• Review employee advances, flag beyond 3 months for recovery or write off, clear suspense using materiality thresholds like 5,000 or 10,000 rupees.

Summarize exceptions and owners in a reconciliation status summary, spotlight priority items exceeding 15 days or materiality thresholds.

KPI Diagnostics, Metrics to Assess Business Health

KPI analysis reveals whether the business is cash healthy, profitable, and growing, especially relevant before audits, fundraising, or banking interactions.

Liquidity and Runway Metrics

• Calculate cash in bank across operating accounts, track twelve month trend.
• Measure operating cash flow as receipts minus expenses, exclude financing and non cash items, review month over month and year over year changes.
• Determine months of runway as cash divided by monthly operating outflow, below three months requires immediate mitigation.

Profitability Indicators

• Monitor gross margin, benchmark at 30 to 50 percent for services, 20 to 40 percent for retail or distribution.
• Track net margin, healthy SMBs maintain 5 to 15 percent, watch EBITDA trends for operational signals.

Working Capital Efficiency

• Compute Days Receivable Outstanding, Indian B2B services typically average 45 to 60 days, beyond 75 days signals collection risk.
• Measure Days Payable Outstanding, 30 to 60 day benchmark is healthy, beyond 90 days hurts vendor relationships, below 30 days may indicate cash pressure.
• For inventory businesses, track inventory days, and cash conversion cycle as DRO plus inventory days minus DPO.

Collection and Payment Discipline, Cost Leakage Detection

• Aim for over 80 percent of AR in 0 to 30 days, more than 20 percent beyond 90 days needs urgent action, track AP aging similarly.
• Watch write off rate, stable businesses at 0.5 to 1 percent, monitor bank charges, FX losses, duplicates, penalties, and late fees.

Growth and Concentration Analysis

• Compare revenue growth year over year and month over month, assess customer and vendor concentration when top 5 exceed 50 percent, track new versus repeat revenue.

Make it visual, a KPI snapshot with Green, Amber, Red indicators helps leadership act quickly.

Red Flags, Patterns That Need Immediate Attention

Red flags are financial warning signs that, if ignored, compound into audit adjustments, cash crises, or penalties.

• High unreconciled bank items beyond 15 days, exceeding 10 percent of monthly transactions.
• Persistent GSTR-2B mismatches or blocked credits lasting over two months.
• DRO rising for three consecutive months or exceeding 60 to 75 days in B2B services.
• DPO outside agreed terms, either falling too low or rising beyond 90 days.
• Backdated entries near filing dates, excessive round number journal entries.
• Frequent GST interest or TDS penalties indicating systemic failure.
• Duplicate vendor payments, unapproved debit notes, stale advances.
• Rapidly increasing bank charges or FX losses without business justification.
• Director or related party loans without agreements, interest provisioning at SBI PLR or higher.

Create a Red, Medium, Low severity list, assign owners and due dates, escalate high severity items daily.

Improvement Roadmap, 7/30/60/90 Day Plan

7 Day Quick Wins

• Clear the top 50 unreconciled bank items, lock prior periods, tag unknown transactions, and fix obvious GST and TDS mismatches.

30 Day Process Standardization

• Standardize vendor and customer masters, automate bank ingestion, implement weekly AR collection calls beyond 45 days, define materiality and write off policies with approvals.

60 Day Data Cleanliness

• Close old suspense, keep it below 1 percent of balance sheet total, cleanse ledgers, and document credit note and discount policies, run a compliance calendar with advance alerts.

90 Day Strategic Initiatives

• Institute monthly KPI reviews, develop concentration strategies, build rolling 12 week cash forecasts, and implement quarterly controls testing.

Outcome, a living dashboard, a prioritized plan, and the confidence that numbers are real and compliance is bulletproof.

Compliance and Reconciliations Integration, The Real Time Status Board

Combine compliance status, reconciliations health, KPI diagnostics, red flags, and roadmap progress into one refreshable status board. Update monthly in steady state, weekly in growth or stress phases, share with stakeholders for accountability.

• Compliance, filings and deadlines.
• Reconciliations, unmatched item counts by category.
• KPIs, trends and benchmarks.
• Red flags, severity and owners.
• Roadmap, completion percentages and blockers.

Recommended Tools for Finance Health Checks

When evaluating accounting automation tools, prioritize ingestion speed, reconciliation automation, and dashboarding.

1. AI Accountant, purpose built for Indian SMBs and CAs, automated bank statement ingestion, one click Tally or Zoho sync, GST reconciliation, and real time KPI dashboards, certified for data security.
2. QuickBooks, comprehensive reporting with multi user access.
3. Xero, cloud platform with excellent bank reconciliation and integrations.
4. FreshBooks, user friendly for service businesses.
5. Zoho Books, India focused GST features and affordable pricing.

Look for compliance calendars with GST and TDS reminders, filing status tracking, anomaly detection for duplicates and round numbers, and ISO 27001 or SOC 2 certifications.

Templates and Checklists

• Compliance checklist, 20 to 25 items across GST, TDS and TCS, payroll, income tax and ROC, licenses, mark Yes, No, In Progress.
• Reconciliation checklist, 8 to 10 areas, bank, GST, TDS, AR and AP, intercompany, suspense.
• KPI template, 12 to 15 metrics with sector benchmarks and trends.
• Red flag register, severity ratings, owners, resolution paths.
• Status board structure, entity details, review period, owners, schedule, exceptions, and escalations.
• Findings log, issue ID, description, source, impact, remediation, owner, target date, and status.

Case Study, Finance Health Check for an Indian Services SMB

XYZ Tech Services, a custom software firm at 5.2 crore revenue and 25 employees, needed a health check before a 2 crore working capital facility. The CA found mostly green compliance with one amber flag for late advance tax, 45 unmatched bank items, 12 lakh input credit blocked due to vendor delays, and 80 lakh in AR beyond 90 days concentrated in one customer.

KPI diagnostics showed DRO at 72 days against an industry median of 45 to 60 days, net margin at 8.5 percent, cash runway at 4.2 months. Red flags included rising DRO, concentration risk, duplicate vendor payments of 2.5 lakh, and spiking bank charges.

The roadmap cleared bank items in 7 days, standardized masters and collections in 30 days, completed GST reconciliation in 60 days, and instituted monthly KPI reviews and cash forecasting by 90 days. Results, bank reconciliation below 5 pending items, DRO down to 58 days, runway up to 5.1 months, and a clean narrative that secured the 2 crore facility at 8.5 percent interest.

Conclusion

A finance health check India converts chaos into clarity when run systematically. Gather compliance records, reconcile bank and tax, calculate KPIs, and act on red flags. Assign owners with deadlines, track progress against a 7, 30, 60, 90 day plan, and use automation where volume overwhelms manual workflows.

For CAs, it scales trust and readiness across clients, for SMBs, it prepares you for growth and audits, for finance teams, it replaces fire fighting with disciplined execution. Make the health check your recurring advantage, run it regularly, act promptly, and watch financial confidence grow.

FAQ

Finance health check India checklist for GST, TDS, payroll, what is the exact scope and artifacts a CA should request?

Request twelve months of bank statements, GSTR-1 and GSTR-3B filings, GSTR-2B for purchases, Form 26AS and TRACES downloads, trial balance and ledgers from Tally or Zoho, AR and AP aging, payroll registers including PF challans and Form 12BA, ROC filings like AOC-4 and MGT-7, and licenses or sector permits. An AI workflow using AI Accountant streamlines ingestion and reconciliation, while a status board tracks owners, due dates, and exceptions.

Best reconciliation workflow in Tally or Zoho to close bank, GSTR-2B, and vendor ledgers inside 7 days, what steps should a CA follow?

Day 1, lock prior periods, import bank statements, auto match receipts and payments, tag unknowns. Day 2 to 3, reconcile purchases to GSTR-2B and vendor GSTR-1, fix GSTIN errors and duplicates. Day 4 to 5, complete vendor statement confirmations. Day 6, clear aged items beyond 15 days or materiality thresholds. Day 7, publish exception summary and owner actions. Tools like AI Accountant automate matching and surface anomalies quickly.

How do I compute months of runway for an Indian SMB, formula and example for board reporting?

Runway equals cash in bank divided by average monthly operating outflow. Example, cash of 1.5 crore, monthly outflow 30 lakh, runway is 5 months. If outflow trends upward, recalculate weekly. For transparency, attach your workbook and a link to months of runway guidance, or use the KPI dashboard in AI Accountant for automated updates.

What DRO, DPO, and CCC benchmarks should a CA use for Indian services and distribution, and how do I present them to a banker?

Services, DRO at 45 to 60 days, DPO at 30 to 60 days, CCC ideally low or trending lower. Distribution or retail, margins are tighter, so aim for fast inventory turns to keep CCC contained. Present a 12 month trend, industry benchmarks, and a remediation plan for outliers. AI Accountant can generate banker friendly dashboards with DRO, DPO, margin trends, and exception notes.

Fastest way to clear GSTR-2B mismatches, vendor follow up template, and Rule 36 credit impact?

Classify mismatches by cause, missing vendor filings, wrong GSTIN, duplicate invoice, credit note mapping, amendment lag. Send a standardized request to vendors with invoice details, GSTIN, and due date for correction, escalate to management for high value delays. Track blocked credits under Rule 36(4), quantify cash impact, and prioritize vendors by credit value. Use AI Accountant to auto reconcile books against GSTR-2B and generate follow up lists.

How should a CA document red flags with financial impact, owner, and due date to make a client audit ready?

Maintain a red flag register with severity, description, rupee impact, owner, and closure date, link to supporting evidence, and add a note on control or process fixes. Review the register weekly until closure. A status board in AI Accountant can show high severity items, owners, and aging automatically, which auditors appreciate.

What is a practical 7, 30, 60, 90 day cleanup plan for a finance health check, quick wins versus structural fixes?

7 days, clear top bank exceptions, fix obvious GST or TDS errors, lock periods. 30 days, standardize masters, automate bank ingestion, start weekly AR calls. 60 days, cleanse suspense accounts and inactive ledgers, codify credit note policies, implement a compliance calendar. 90 days, monthly KPI and cash reviews, concentration strategies, rolling cash forecasts, quarterly controls testing. AI Accountant can track the plan with completion percentages.

Can AI Accountant integrate with Tally Prime and Zoho Books, what data sync is possible for a CA practice?

Yes, typical sync includes trial balance, ledgers, party masters, invoices, and bank statements, plus GST return data mapping for reconciliations. CAs use AI Accountant to ingest, reconcile, and publish KPI dashboards without duplicating entry across systems, which saves review time.

What dates belong on a compliance calendar for Indian SMBs, GST, TDS, advance tax, and ROC filings?

GST, GSTR-1 by the 11th, GSTR-3B by the 20th, state specific variations may apply. TDS, challans by the 7th of the following month, quarterly returns per statutory schedule. Advance tax, June 15th, September 15th, December 15th, March 15th. ROC, AOC-4 within 30 days of AGM, MGT-7 annually, director KYC annually. Automate reminders and owners with AI Accountant or your practice management suite.

How should intercompany or related party loans be handled, agreements, interest provisioning, and SBI PLR compliance?

Execute written loan agreements with board approval, set interest at or above SBI PLR, accrue monthly, and reconcile balances routinely. Disclose related party transactions per law. Use exception alerts to flag missing accruals or terms deviations, an AI tool like AI Accountant can monitor balances and interest postings.

What materiality thresholds are reasonable for suspense accounts in SMBs, 5,000 versus 10,000 rupees, and how quickly should items be cleared?

Choose a threshold aligned to business scale, 5,000 or 10,000 rupees is common. Define entry criteria, owner responsibility, and a 30 to 60 day clearing policy. Items beyond threshold or age must be escalated. A suspense monitor in AI Accountant can auto flag aged or high value entries.

How do I prepare a banker ready pack for working capital appraisal, what metrics and documents should be included?

Include audited or reviewed financials, twelve month bank statements, AR and AP aging, GST and TDS compliance scorecards, cash flow statement, and KPI dashboard with DRO, DPO, margins, and runway. Add a red flag register with closures and a 90 day roadmap. A concise pack generated through AI Accountant demonstrates control, compliance, and cash visibility, which improves credit confidence.