How to track profit-loss in your business projects

How to track Profit-Loss in your business projects

How to track Profit-Loss in your business projects

So many companies come up with innovative products and services, build the best-in-class teams, and devise all kinds of strategies for business upscaling. However, a good portion of these business owners doesn’t pay attention to the cash flow as much as they should. It’s no surprise that about 50% of the businesses fail within the first 4 years.

There are several risks associated with ineffective tracking of profit and loss in your business projects. These are:

  • Frauds: When your profit-loss monitoring system is flawed or ineffective, your employees could be tempted to steal money from the business itself. Believe it or not, it’s fairly common for employees to write cheques to themselves from their company’s account. You could be losing 5% of your annual revenue to frauds like these.
  • Human Error: Reconciliation mistakes can often be costly. You could be making major business decisions on the basis of erroneous data, thus potentially opening a Pandora’s box.
  • Cashflow Leaks: Cashflow leaks is the money you are losing for no reason. These should be identified and plugged immediately.

Now that we have established how ineffective monitoring of your profits and losses can cause monetary damage, it’s time to look at some of the ways you can avoid this from happening:

Financial Statements

There are three types of financial statements that you need to track- balance sheet, income statement, and the cash flow statement. The first one shows the overall financial health of your business, the second one is about the business profitability reflected through the profits and losses, and the third one shows the liquidity.

Business Expenses

There are two types of expenses:

  • One-Time: These include replacing a damaged computer, an overseas business trip, etc.
  • Recurring: These are your office space rent, utility bills, vendor costs, etc.

Every single business expense should be accounted for. The employees must keep the receipts of such expenses with themselves and upload the same on a centralized system through which you can assess the losses. This also helps in keeping in-house frauds under check.

Orders, Shipments, and Returns

If you sell goods, then orders and shipments can greatly affect your business performance. For instance, if orders are getting misplaced more frequently, and you have to resend them, then these additional shipping costs contribute to the overall loss. Similarly, if a customer returns a product back, then it’s money wasted in the form of shipping cost, as well as the loss of the sale itself.

Taxes

Small businesses can only afford to employ the “essential” talent. Thus, they often keep marketers, branding experts, and accountants, etc. out of their core team. However, filing the correct amount of taxes is important. This has become even more critical now under the GST regime as you are expected to pass on the benefits of the new taxation system to your customers in order to avoid any action undertaken by the anti-profiteering authority against you.

There are various tax-deductible expenses that can be subtracted from your company’s taxable income. The more you add, the lower will be the taxes that you have to pay. However, to do that you have to track and record the appropriate expenses so that you can file your IT return properly.

Technology is the Solution

Technology, the Internet, Social Media, etc. have changed the way we do business today. In fact, these are one of the main reasons why a growing number of start-ups are able to achieve unparalleled success with a limited budget.

You don’t need an expert bookkeeper to monitor the profits and losses of your business project. Best-in-class expenses and invoice management software is enough to provide you a snapshot of your business cash flow.

It would greatly help if the platform of your choice is GST-ready and offers linkage of your business bank account directly with the accounting module. This can help minimize human errors and in-house frauds, and increase overall transparency in your business profits-losses.

Effect of taxes change after implementation of GST

How Will the Taxes Change After GST Implementation?

There are no two ways about the fact that GST will change the course of the Indian economy. Not only it will make taxation a lot simpler and easier, it will also help prevent tax evasion. But how exactly will it change the current taxes regime? Let’s find out.

The Goods and Service Tax will follow a dual taxation system in which there will be just two kinds of taxes:

  1. SGST (State GST): Levied by the State Government
  2. CGST (Central GST): Levied by the Central Government

The Central GST will subsume the following taxes:

  1. Service Tax
  2. Central Excise Duty
  3. Additional Excise Duty
  4. Countervailing Duty (CVD)
  5. Additional duty of customs
  6. Education and Secondary/Higher Secondary cess, surcharge

The State GST will subsume the following taxes:

  1. Sales Tax/VAT
  2. Entertainment Tax
  3. Luxury Tax
  4. Lottery, betting, and gambling tax
  5. Purchase Tax
  6. State surcharge and cesses

GST 4-Tier Tax Structure-

Although GST is all about “One Country One Tax”, or in other words- it will ensure that the same tax is applied in every Indian state, it will follow a 4-tier tax structure.

There will be four different rates under GST viz. 5%, 12%, 18%, and 28%. The lower rates will be levied on essential everyday items, while the higher rates will be implemented on luxury items and demerit goods. In fact, the latter will also attract an additional cess, as decided by the GST council.

Zero Tax Rate:

Keeping affordability in mind, it has been decided that about half of the items belonging to the consumer price index basket like food items such as rice, wheat etc. will be levied a zero-rate tax.

5% GST:

The majority of mass consumption items such as tea, mustard oil, spices, etc. will be levied a 5% tax under GST.

12% and 18% GST:

The 12% and 18% slab will be more of a standard rate and cover the majority of items consumed by an average individual. Examples include toothpaste, soaps, electronics, etc.

28% GST:

The 28% tax slab is reserved for the luxury and non-essential items consumed by the people. These items will also attract an additional cess levied by the Central Government. Examples of some items that will be covered under it include luxury cars, tobacco products, gold, etc.

Taxes Under Composition Scheme

Small businesses whose annual turnover is less than Rs50,000 will be eligible for the composition scheme under GST. Under this scheme, they will have to pay smaller taxes- rates 2%, 1% and 5% for small manufacturers, small traders, and small restaurants, respectively. However, on the downside- they won’t be able to claim ITC (Input Tax Credit).

Taxing of Inter-State Transactions of Goods and Services

The Centre will levy and collect a special form of GST called the Integrated Goods and Services Tax (IGST) for inter-state transactions. This will be the sum of CGST and SGST. Thus:

ISGT= CGST+SGST

Taxing of Imported Goods Under GST

The taxes Special Additional Duty (SAD) and Countervailing Duties (CVDs) that are being applied on imported under the current regime will be subsumed under GST. Thus, instead, IGST will be levied on them. This will be beneficial for the importers in India as they will be able to claim their share of the IGST paid on the goods, as opposed to the current regime in which there is no such provision.

It goes without saying that there will be a slew of changes in the current taxation system once GST is implemented. However, by preparing in advance the businesses will be able to adjust with the transition easily.