Understand Profits Before Paying "Taxes" (PART 1)



“Profit” is a financial gain from a business operation. It is also the best-known measure of success and stability in the business since no business can survive long-term without making any profit, consequently, you have to unavoidably shut down your business.

“Profit and Tax” are inseparable as the tax is calculated from the profit that the business makes. However, before you know the profit, the company has to first set up an income and expense tracking document then calculate to get net profit which is actually the income left over after all expenses.

Benefits of setting up income and expense tracking documents

  1. You will know a financial situation of your business including its expenses and income. In case the business is in the black (income is higher than expenses), this means it tends to be successful and run smoothly. However, if it is in the red (expenses are higher than income), this is a starting point of liabilities as well as problems.

  2. If the income and expense tracking document is set up correctly and systematically, the company owner or director will know an operating result: whether it is in the black or red, what are causes of the expenses, and how to reduce such expenses.

  3. Numbers in the income and expense tracking document can be used to analyze and assess strengths and weaknesses of your business so that you know areas that need improvement.

When the owners know the financial liquidity of their companies, they can change or set a direction of the business operation for a better performance. Moreover, setting up the income and expense tracking document correctly and systematically will help the company to achieve success. It is also a beginning for a better and easier tax planning. Therefore, setting up the income and expense tracking document is not too hard to do compared to the benefits you will get.

Credit: https://flowaccount.com

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