Too Much Profit? Part One

Too Much Profit?

What sort of business doesn't want to show a huge profit at the end of the year?

A business that doesn't want to pay taxes? A business that doesn't want to pay its shareholders? A business that doesn't want to pay out a bonus?

Well, the list goes on...but like everything else, we are missing the KEY reason why a large profit isn't so platable to management or its owners.

A large (or significant) profit does not necessarily mean a healthy business. It could just be the following:

1. More orders in the last month of the year
2. Fixed assets has been fully depreciated
3. A large inventory at the end of the year
4. Exchange gains during year end translation
5. Waiver of amounts due to directors/other creditors

That just means PROFIT IS NOT EQUAL to GOOD POSITIVE CASH FLOWS.

However come tax reporting you are being taxed on your profit cash items or otherwise.

It is therefore important to look at the accounts and see if you are booking in profits that are either non-existent or uncertain.

End of part one