If you’re an entrepreneur looking to start a business in Hyderabad, Telangana of your own or to seek finances for your venture, you may probably be worried about the accounting& book-keeping involved in the process. However, it is not as hard as you might feel. You will be needed to familiarize yourself with certain important concepts, and one item you will need to familiarize yourself with is a profit and loss (or P & L) statement.

Among the variety of financial statements and accounting records, the profit and loss statement is often the most overlooked one despite its vital significance. It is one of the key statements that records and summarizes the position of revenues & expenses incurred by a business in a given period. It shows the overall profitability of your business for the specific period over a period (monthly, quarterly, and yearly), however, should be preferred to be prepared at least every quarter and annually.

Regardless of the size of the business, a P & L statement states the expenses that have emerged during the period and the gains earned by the start-up business. Typically, a P & L statement reports information related to-

  • Revenues for the accounting period (monthly, quarterly, or yearly)
  • Expenses incurred by the business to generate profits
  • Taxes paid and depreciation
  • Earnings per share number

Therefore, a profit & loss statement goes by various names such as-

  • Income statement,
  • Income and expense statement,
  • Statement of financial results
  • Statement of Operations, and
  • Statement of Earnings.

Regardless of the level of operations or profitability of a business, every start-up must keep a track of all its financial progress by reviewing and reflecting on the profit and loss statements prepared and presented to the internal management from time to time, which will allow them to determine whether the business is profitable and growing, or it’s running on losses and needs some corrective actions.

It is important to understand that, only a great idea and an endless drive do not make a start-up successful, especially where start-up entrepreneurs tend to ignore the mundane accounting tasks. These statements should be among the first files to be generated along with a budget and a costs worksheet. While some P&L statements are simpler and easier to understand, others may get extremely complex.

 

All about Profit & Loss account for Startups in Telangana

Situated on the South-Central stretch of the Indian peninsula on the high Deccan Plateau, Telangana is a state in India. The state was carved out on 2 June 2014 from Andhra Pradesh and its capital is Hyderabad. The state is bordered by Chhattisgarh, Karnataka, Maharashtra, and Andhra Pradesh. In 1948 the state’s capital Hyderabad joined the Union of India, followed by an Indian military invasion, and in 1956 Telangana was merged with Telugu-speaking Andhra State to form Andhra Pradesh. Finally, on 2 June 2014, the state was granted statehood under the leadership of K. Chandrasekhar Rao after a prolonged peasant-driven moment.
Telangana has the 7th largest economy and 6th highest GSDP in India. In the State Human Development Index, Telangana stands in 22nd rank. In a few decades, the state has emerged as strong Information Technology (IT) Software industry and services sector. Besides this, Telangana is home to the major administrative centers of research labs like Indian Defence Aerospace, Defence Research and Development Organisation (DRDO), Bharat Dynamics Limited, Defence Research, and Development Laboratory, and Defence Metallurgical Research Laboratory. The state’s official language is Telegu, followed by Urdu as the second official language. As per the 2011 census, the major religion followed in the state is Hinduism, followed by Islam and Christianity.

Economy of Telangana
The economy of Telangana is agriculture driven. The state uses Godavari and Krishna rivers and other rain-fed water sources for irrigation. Rice is the staple crop, and other crops grown in Telangana are sugarcane, tobacco, mango, and cotton. Telangana is counted among India’s top IT exporting states and has 68 special economic zones. Besides agriculture, Telangana is also rich in minerals and has several coal and diamond reserves. Industries are the other sector that provides a boost to the economy of Telangana. Hyderabad is the hub of several manufacturing and service industries. After agriculture and industries, tourism is also an important component of the Telangana economy. The state has various UNESCO World Heritage Sites and various tourist attractions like forts, waterfalls, forests, temples, monuments, and historical places. The department responsible for promoting tourism in Telangana is Telangana State Tourism Development Corporation (TSTDC).

Capital- Hyderabad

The startup ecosystem in Telangana
Telangana has secured rank in the top 10 global ecosystems in affordable talent and the top 15 global ecosystems in Asian ecosystems. The startup ecosystem of India is on the rise, with Telangana at the forefront of the growth. The growth of the Telangana startup ecosystem is driven by strong infrastructure, proactive state government policies, and exceptional talent. The state aspires to build a world-class innovation ecosystem through a mix of passionate and supportive government policy, high-quality talent, and access to capital. Undoubtedly, the state has a strong startup ecosystem; until now, the state has registered over 6,500 startups, including four unicorns and several small-scale businesses. To build a robust startup ecosystem, the Telangana government has launched various policies like Emerging Technologies, Telangana Academy for Skill and Knowledge, T-Hub, Telangana State Innovation Cell, T-Works, and We-Hub.

Top business ideas in Telangana
Livestock farming business
Livestock farming like rearing goats, cows, and hens is a good business idea in Telangana because the state has an agrarian economy. Agriculture and livestock farming go hand in hand, and it can be a good startup idea if you have considerable knowledge of caring for cows, goats, and hens.

Fruits and vegetable export business
Agriculture is a huge part of Telangana’s economy, so setting up a vegetable and fruit export business will help you make a huge profit. The state has an agricultural economy, and the demand for fruits and vegetables remains high in all seasons. You can start exporting fruits and vegetables from Telangana to other states to meet the demand. To successfully establish the export business, you need to be a good negotiator, and you should be able to identify good quality fruits and vegetables. To gain huge profits and make it a long-term business, you can do partnerships and contracts with local farmers.

Tourism business
Telangana has many beautiful waterfalls, temples, forts, monuments, forests, and historical places that attract the attention of many national and international tourists. You can start a tourism-related business-like, a transport business, a restaurant, a tourist agency, etc. To establish a tourism business, you must follow the guidelines of Telangana state Tourism Development Corporation. This business requires limited capital investment.

Poultry farming business
If you have limited resources and investment, you should try poultry farming. The only necessity required for establishing a poultry farm business is good knowledge and care for small chickens. For some days, you need to take care of small chickens, and then you can sell them off to the wholesalers to make a profit. You need to put a lot of energy and be patient during the initial days of the poultry farming business because returns on investment take time. The poultry farm business will help you get dual-earnings from eggs and meat.

 

Balance Sheet vs. Profit And Loss Statement in Hyderabad, Telangana

Points of Difference in Hyderabad, Telangana Balance sheet in Hyderabad, Telangana Income statement in Hyderabad, Telangana
     i. Time A balance sheet provides a clear summary of the financial soundness of a business enterprise at any specific point in time. The income statement provides a summary of the financial performance of the company over a given period.
     ii. Key items Assets & liabilities and shareholder’s equity, debts, etc. are further categorized under a balance sheet to provide and thorough information. An income statement provides information related to gains & losses, expenses, and revenues etc. realized from the purchase or sale of any assets.

 

     iii. Financial analysis It helps a business to

Measure its financial position using various ratios such as current ratio, debt-to-equity ratio, and return on shareholder’s equity.

It uses various ratios such as

gross margins, operating margins, price-to-earnings, and interest coverage to provide a clear picture of the financial performance of the start-up.

     iv. Usage Investors and Lenders use a balance sheet to determine the soundness and availability of assets for collateral. Internal management, shareholders, investors, etc. use it to assess the performance and prospects of a business.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Types of Profit and Loss (P&L) Statements in Hyderabad, Telangana

Types of Profit and Loss (P&L) Statements in Hyderabad, Telangana

There are two methods of preparing a Profit & Loss Statement in Hyderabad, Telangana -cash and the accrual method. Each of whom has been described below-

I. Cash Method– The cash method, which is also known as the cash accounting method, is used in cases where only cash goes in and out of the business and only accounts for cash received or paid. A business using the cash method records transactions as revenue whenever cash is received and as liabilities whenever cash is used to pay any bills or liabilities. This method is simple to use and usually relevant for smaller businesses.

II. Accrual Method– The accrual accounting method is commonly used by start-ups and other businesses where payments made or received are not limited to cash payments only. This means that a start-up using the accrual method accounts for money that it assumes to be received in the future. For instance, a company that has delivered any product to its customer may record the transaction under revenue head but may not have received payment in actuality. Similarly, liabilities are accounted for even when the business has not paid for any expenses yet.

 

How to create a profit and loss statement for your start-up in Hyderabad, Telangana?

The choice of preparing profit & loss statements is entirely dependent on the concerned start-up business and their choice. While some businesses might choose to prepare and review profit and loss statements monthly, others decide to do it quarterly and yearly. Provided below is the step-by-step process of creating a profit and loss statement for your business-

i. Calculation of Revenue in Hyderabad, Telangana

In the first step towards the creation of a profit & loss statement, you will be required to calculate the total revenues received by the business during the year. For which, you can receive current account balances from the general business ledger such as cash and current accounts receivable balances. Be sure to include account receivables whether or not you have collected that revenue or not for that period (month) and similarly if you wish to prepare P&L for a quarter, add up the revenues for those three months.

ii. Calculate the Cost Of Goods Sold(COGS) in Hyderabad, Telangana

The cost of goods sold forms a crucial part of any statement of profits & losses. It includes all the costs required to be incurred for producing any product. For instance, if a start-up offers fancy bags, you need to include the cost of material & supplies required to manufacture them. Similarly, if your start-up offers salon services, you will be required to include the cost of your time or your employee’s time that provided the service.

iii. Deduct COGS expenses from Revenue in Hyderabad, Telangana

Now, once you have calculated revenues and COGS, you will need to deduct all expenditures of COGS to determine the gross profits of your business. Gross profits represent the profits earned by your business from the sale of your products or services. However, if the revenues are lesser than COGS, it means the revenues are insufficient to meet COGS expenses, and the business is running through losses.

Gross Profit/Loss= Revenues- Cost of Goods Sold (COGS)

iv. Calculate operating expenses in Hyderabad, Telangana

The next thing required to be calculated is operating expenses. Such expenses include expenses like rent, travel, payroll, equipment, utilities, postage, etc.

v. Deduct operating expenses from gross profit in Hyderabad, Telangana

Once you find out the value of operating expenses, now you may want to find out the value of total operating profit/loss after deducting operating expenses from the value of gross profit.

Operating Profit/Loss= Gross Profit – Operating Expenses

vi. Add additional incomes in Hyderabad, Telangana, if any

If your start-up has gained any additional includes which have not been included in the value of revenues before, such as interest received on income or dividends received, etc. add them to the operating profit.

By doing so, you will reach the total Earnings before Interest, Taxes, Depreciation, And Amortization, or EBITDA.

EBITDA = Operating Profit + (Interest Income + Dividends Earned)

vii. Calculate interest, taxes, depreciation, and amortization in Hyderabad, Telangana

Next, calculated any applicable payments such as interest to be paid, taxes due, and depreciation and amortization expenses.

viii. Subtract calculated expenses from EBIDTA in Hyderabad, Telangana

In the final step, deduct expenses calculated above (interest, taxes, depreciation, and amortization expenses), where applicable and you will arrive at your net profit.

EBIDTA – (Interest + Taxes + Depreciation) expenses = Net Profit/Loss

 

What are the components of the P & L statement in Hyderabad, Telangana?

What are the components of the P & L statement in Hyderabad, Telangana?

Typically, a P&L statement comprises two main parts, namely-the income earned during the period of the statement and the expenses incurred during the period. These two parts of the statement are broken down into a series of entries as per the relevance of a business, some of them have been explained below-

i. Revenues or Profits in Hyderabad, Telangana

The first component required to be reported through a profit& Loss statement includes- revenues and it includes all items of income for a business. It includes entries like sales, gross receipts, fees, or any other term used to describe the operating revenue of a start-up. Usually, operating revenue is broken out of non-operating expenses like interest incomes or dividends, etc. Again, the accounting method adopted by the start-up may affect the revenues recorded on P &L during the period. Under the cash method of accounting, revenues could be reported only when cash has been received, while under the accrual method of accounting revenue may only be reported at the time of sale itself. However, to ensure accuracy of the P&L, businesses might adjust gross sales on the experience of customer returns or refund requests by establishing an allowance and getting it against revenues.

ii. Cost of goods sold (COGS) in Hyderabad, Telangana

Every start-up must find out the value of COGS and figure out ways to keep them minimum for higher profits. COGS or cost of goods sold is the cost of inventory or materials required to manufacture a product, which is then subtracted from the sales to find out the actual revenue (gross profit) from the sales. For example, a company incurs Rs.20 as the cost of inventory and sells it for Rs. 100 would get Rs.100 in revenue, however after taking the Rs. 20 of COGS into account, he would report Rs.80 in gross profit.

iii. Expenses for a business in Hyderabad, Telangana

All those expenses incurred to operate a business form expenses part of a profit& loss statement. These expenses could include-

  1. Advertisement & promotional costs
  2. Employee salaries and benefits
  3. Interest expenses
  4. Office supplies & stationery
  5. Payments to vendors/contractors/suppliers, etc.
  6. Professional fees for accountants, attorneys, auditors, etc.

Accounting for certain expenses requires an understanding of the terms such as depreciation or amortization of assets of the start-up. For instance, assets such as office equipment must be capitalized as an asset and written off over the useful life of the item. For example, if it the worth Rs.1000 it would be reported over five years.

Each year the profit and loss statement reflects 20 percent on the cost of the computer or Rs.200 as expenses. Non-operating expenses, such as interest and taxes, need to be broken out separately from operating expenses for illustration.

iv. Gross profit in Hyderabad, Telangana

The Gross Profit (GP) of a business is the value obtained after deduction of the cost of goods sold and sales returns (if any) from total sales revenue. It is located on the statement of profit and loss) prepared by a company and used to determine the percentage of the gross profit margin of an entity.  Likewise, if the start-up is engaged in services without inventory, then the value of gross profit and the gross receipts will be equal.

v. Net profit or loss in Hyderabad, Telangana

After the calculation of taxes due and subtracting them from any pre-tax income, the remaining amount will equal either the profits/losses of a start-up for the relevant period. When trying to compare businesses in different industries and tax structures, or where the exact numbers aren’t yet available, the value of net profits/losses will be equal to the earnings before interest, taxes, depreciation, and amortization.

 

Format of P & L in Hyderabad, Telangana

In India, there are two formats for P&L statements in Hyderabad, Telangana-

  • The horizontal format of the P&L Account
  • The vertical format of the P&L Account

The profit & loss statement of the legal entities like a company has to be prepared in accordance with the provisions of Schedule III of the Companies Act, 2013. For the complete format please click –https://www.mca.gov.in/Ministry/pdf/NotificationScheduleIII_12102018.pdf.

 

What are the benefits of preparing a P&L statement in Hyderabad, Telangana?

i. Understanding the financial health of your Organization-The primary purpose of a P&L statement is to offer a clear position of the overall financial position of a start-up. It also helps a company’s management to understand the business’s net income, study expenses, and take corrective actions to reduce losses. For example, an entrepreneur may want to know whether his business has enough profits to cover the cost of a new project or if he needs to borrow funds for the same.

ii. Informed Decision Making-A P&L could help the entrepreneurs and business owners to make critical business decisions such as whether they should make large purchases in the immediate future or put such purchases on hold until the start-up reaches a better financial position. Additionally, it can help them to track the efficiency of start-up and performance in the market against its competitors, and growth of the start-up in both the short- and long-term. Further, to represent the value of the business to investors, creditors and shareholders, tech start-ups demonstrate success through their business model, such as “acquisition of key customers, the introduction of unique products & services, technological innovations, marketing, and distribution associations, new subscriber counts, revenue per subscriber numbers, and geographical distribution of customers.

iii. Raising Finances or Seeking Loans– Similarly, when a start-up wishes to raise funds and seek investors for the purpose or where a business owner intends to sell his business, any interested party would want to know the profitability or growth prospects for a business, for which they may seek P&Ls for several years.

Similarly, when a business makes an application for a loan to any bank or financial institution, they will evaluate your net income and operating income against the expenses, debts, and taxes to ensure the viability and worth of offering financial assistance. If the net business earnings are on an upscale mode, there are chances of you getting higher funds from banks or better deals from investors.

iv. Planning & ForecastingAnother benefit of using a Profit & Loss statement is for planning and forecasting By applying your business plan to generate a predictive P&L report, add the expected revenue and expenses to compute the net earnings. If your findings are lower than expected, you can make changes in the business strategies. Similarly, the P&L so created could be used to strike a comparison with the forecasted and actual P&L.

v. Fulfill Compliances & File Taxes-If you regularly record and update your P&L statements along with the other financial statements, you will get all the information required to sort out the information to sort out your business taxes. Further, each year every company is required to file a copy of financial statements to the ROC which includes profit & loss statements within 30 days from the date of holding AGM. Therefore, recording, preparing, and updating P&L statements helps a start-up to manage accounts-related as well as tax compliances easily.

 

Compliances related to P & L statement in Hyderabad, Telangana

As provided above, it shall be compulsory for every business to file a copy of financial statements (along with profit & loss statement for the year) in e-form AOC-4 for every financial year with the Registrar of Companies within 30 days of its Annual General Meeting.

However, where the company fails to file a copy of AOC-4 within the due date, the company shall be liable to a penalty of at least ten thousand rupees and in case of continuing failure, a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees.

Further, every key officer of the company (i.e. managing director, Chief Financial Officer of the company) or in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the Directors of the company, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees.

Now, every company has also been put under an additional obligation to submit a copy of profit & loss accounts in standard e-form 23ACA. Along with such a form, the company will be required to submit a copy of the audited P & L statement. Further, such form has to be digitally signed by a practicing CA or CMA, or CS, certifying that the information entered in 23ACA is correct and a copy of audited P&L has been provided along with the form.

Therefore, a statement of profits & losses is one of the key financial statements that indicate the performance of an entity for a given period in a nutshell and shows the number of costs borne by the entity to earn the stated revenue over that period. It is the most sought-after statement that the higher management reflects to formulate strategies and evaluate past business performances. Further, a P&L statement supports various analyses such as ratio analysis, financial analysis, costing decisions, pricing decisions, budget controls, etc., which are then prepared out of these statements. When viewed in conjunction with other statements such as balance sheet and cash flow statement, it gives insights into the profitability of any entity.

However, to achieve proper control over the finances of your start-up in Hyderabad, Telangana, it is necessary to maintain and your P&L periodically and help your business to run on its path to profitability & success.