A stitch in time really does save nine
October 27, 2016
It’s the old adage – a stitch in time saves nine. Similarly, I might simply tell you... consult a CA as soon as your ideas begin to take the shape of reality rather than waiting till you need some high end tax/financial advice. But would you listen to me?
Let’s be honest, you have enough hassles and expenses without needing to worry about making one more expense which does not even generate any return on investment. You’d rather consult a CA as and when you have a query and close the matter. After all, it’s a small start-up; just 3-4 friends have come together based on a new idea, planning a new venture. It may or may not be successful; you aren’t exactly making profits right now, maybe someday you’ll set up a Company (or a LLP, or should we just form a partnership.... decisions decisions!). Not worth getting into right now you say..right?
I beg to differ. For example, did you know:
1. You can’t just randomly bring in capital from relatives into your company. There are rules and regulations prescribed by the Income-tax Act, the Companies Act, etc.
2. If you provide services and your receipts are higher than Rs. 10 lacs in the year, you need to charge/collect service tax from your clients and pay it to the Government.
3. Almost every person engaged in any trade, profession or employment is liable to pay profession tax, in most of the states of India.
4. If you incur losses in the initial few years, you can use these losses to reduce your taxable income in the future years. But of course there’s a catch here. You need to file your tax returns in time each year to avail your losses.
5. Need a loan from some Financial Institution? Yes, you again need your tax returns filed. You will almost always require a project report as well. But hey, let your CA handle it for you.
6. At some later stage, you will require funding for up-scaling your project (let’s be honest – that is always one of the goals!), you may plan to issue shares to your team members, or maybe even sell off your venture some day. At this point, the most important thing is your business valuation. Now you may consult a CA for the first time at this point and get yourself valued. But would that new CA really know as much about your business as much as a CA who has been with you from the beginning?
In fact, there are various upsides to getting your books/ business ideas reviewed by a professional:
• There are many tax incentives / deductions available for various businesses which you may not be aware of, but your CA surely will be.
• Your CA can act as an external CFO and provide you professional opinions/insights from an outsider’s perspective.
• Keeping a trained eye on your income and major expenses, and regular check up on the profitability of your various activities may lead to better decision making and differentiate you from your competitors.
It would be fair to say that the professional fees paid to your CA may eventually turn out to be a wise investment in the long run.
Stories by Varun Jajoo