Profits, liabilities and tax compliance: The interconnectivity

Turner & Hernshaw believes that every business should strive to earn net profit as soon as possible. It is the secret to tax compliance and meeting obligations. And this is easy to demonstrate.

For instance, if a business earns $100,000, wages lie at $ 50,000 with 30% of this value going to the taxman and other expenses lying at $30,000, it means that the net profit earned is $ 20,000 ($100,000 less $50,000 and $ 30,000).

Assuming all clients pay up sales, it would mean that the bank account shall reflect the full turnover. If other expense of $20,000 are paid off while net wages of $ 35,000 (30% of wages in taxes is $15,000) while taxes payable amounting to $ 15,000 are also paid, the bank balance shall reflect a deposit of $100,000 less payments of  wages $35,000, taxes $15,000 and expenses of $20,000 to reduce the balance to $20,000.

With a healthy profit and solid client credit terms to avoid bad debts due to unpayment, a business entity ensures that they are in a position to pay all obligations and reman with adequate funds fr either dividends or working capital.

In summary, the objective is making Profit.


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