If we talk about a successful business, then it ensures that GST Registration is mandatory for a business’s profitability and the share of profits in the business. Business owners should have a track over profit margins as it ensures long -term profitability and sustainable growth of a business. Regardless of business size, one needs to track record of Profits vs Profitability, which are important in making strategic policies for the smooth functioning of the business.
Both profit and profitability give you an insight and clear picture of different aspects of your business. To understand it better, one needs to understand the difference between profit vs profitability. Profits refer to the amount that is left when you subtract your expenses from your revenue. Moreover, Profitability measures your business profits (valuation of all incomes and expenses), which helps you to determine the success or failure of the business. One can choose different profitability ratios to determine whether one’s business is earning a profit which can sustain growth in the long run.
IMPORTANCE OF MEASURING PROFITS vs PROFITABILITY
It is important to measure the profits through a scale of profitability due to the following reasons –
- To make effective sales in the business, which can be measured by calculating the profit margin in the business, especially in the case of small and large-scale business too.
- To ensure profitability with the sustainable growth of the business.
- To manage the effective valuation of sales with a strategic cost-cutting with various management accounting indicators.
- It helps in determining the correct pricing strategies with various cash flow statements and maintaining correct accounting services (such as bookkeeping, GST accounting)and various other accounting processes).
Most small business who do not have many resources to spend, they hire bookkeeper part-time or outsource their bookkeeping maintenance of records, as they provide an exact picture of Profits vs Profitability of the business. In case of large scale business too, focus is too much on the growth of the business and workload, makes them not look for keeping and maintaining their records with proper management accounting processes, which is a key indicator to ascertain profit margins or to know whether the business is running profits or losses by depicting true financial position.
As a business owner, one needs to know how your business is performing or where the money is giving you profits or losses, so that one can make a point to take strategic decisions, hence to maintain records of all expenses and incomes is vital for growing a business, rather than hiring a well-dedicated team towards this task of management accounting services and bookkeeping, hence, outsourcing the work of bookkeeping services to the bookkeeper who is strategically make the records so that one can take effective decisions regarding sale revenue or cut cost with maximum returns of scale.
While studying Profits vs Profitability, one needs to manage the accounting records with transparency in the system, moreover, making records was simple, by calculating for each indirect taxes, but since GST is in the picture, one needs to make GST entries for each transaction, while preparing a new ledger with effective GST accounting records, which helps in valuation of income tax.
Under GST accounting, all the taxes such as service tax, excise, VAT should be subsumed in one account to simplify the process of GST filing, hence Profits vs. Profitability depicts a true financial picture of the business by showing a tendency of growth.