The client was running a chain of Gyms across Kerala. There was enough business, but there was shortage of cash flows towards the end months of every financial year.
On analysis of the case we found that the annual subscription for an year was accounted as income for the month in which the receipt was received. It was not accrued on a month to month basis. The client planned the expenses and withdrawals accordingly. Towards the last months of every financial year, there was no enough collections and the expenses remain constant.
We advised the client to record the revenue on accrual basis and prepaid revenue was accounted. Through this excecise the client got a very clear picture on the monthly profits and cash budgets and cash flows were prepared every month to ensure that there was enough cash availbility within the system.
A Private Limited company engaged in the construction of resedential units with large business was strugling to maintain consistent profitability.
On Analysis, we found that the 100% of the customers where B2C Customers who were either unwilling to pay GST or had heavy negotiation due to 18% GST on resedential units. As such inorder to obtain the business profit margins were compromised or sold at a very minimal profits.
As per the provisions of GST, if a company is solely engaged in the business of constructing resedential units, there was option to charge 0% on labour charges and normal rate of GST on the materials consumed. We restructured the entity and ensured that 0% GST was paid on labour services instead of 18%. Since labour consitute 40% of the cost in a construction, this tweak in the tax planning helped the client to increase profits substantially.
