Entrepreneurs need to understand that it is not only important to get a great Edmonton bookkeeping company to help them stay on top of their business finances, but they also need to understand how to read those interim financial statements that their bookkeeper is going to be sending them regularly. The reason why entrepreneurs will be getting these financial statements at least once a month, is so that they can make better financial decisions in their business. If they do not understand them, these tools that they are receiving will not help them.
The two different interim financial statements that an entrepreneur should become accustomed to receiving, are balance sheets and income statements. These are the two most common, but there Edmonton bookkeeping company may also send them an aging accounts receivable summary and an aging accounts payable summary. These are great for entrepreneurs that have an extremely large list of vendors that they utilize, or if they have an extremely long list of clients. This can help entrepreneurs stay organized and be able to more efficiently and effectively collect money from their clients who owe them money, and ensure that they are efficiently paying their vendors.
When entrepreneurs are looking at their balance sheet and income statement that there Edmonton bookkeeping company has sent, entrepreneurs should always get into the habit of reading and understanding their balance sheet first. The reason for this is because it is the reports that are going to tell entrepreneurs what the financial health of their business is. Not only that, but business owners will be able to look at this information and see if there are any easily spotted errors. If they can fix the errors on their balance sheet, the be able to spot those same errors on their income statement, and that can help them get a more complete picture of the financial health of their business.
When entrepreneurs are reviewing their talents sheets, it is most advisable to look at the reports in a six-month comparative statement. The reason for this is so that entrepreneurs can more easily see if there are any inconsistencies in the various months. If they spot any inconsistencies from one month to the next, an entrepreneur should be asking themselves if they can explain it. Examples of what might explain an inconsistency in a single month could be purchasing an asset, or having a high payroll either for the seasonal staff or if there are three payrolls in one month.
By learning how to read these balance sheets from their Edmonton bookkeeping company, entrepreneurs will be able to catch errors, see the trends that have been in their business and that can be extremely beneficial to entrepreneurs. In addition to that, seeing the aging summaries for Accounts Receivable and accounts payable can help entrepreneurs ensure that they are efficiently collecting money as well as paying money to their vendors. This can help an entrepreneur stay financially organized.
When entrepreneurs hire a great Edmonton bookkeeping company for their business, they should plan on receiving interim financial statements from them. This is important because looking at those interim financial statements can help entrepreneurs understand the health of their finances, as well as if they need to do anything to improve their situation or grow their business as well as avoid issues. Since 50% of all entrepreneurs fail in business within five years, and 29% of those failed entrepreneurs say the reason why their business failed was that they ran out of money, understanding these interim financial statements can go a long way in helping entrepreneurs succeed.
The two most common financial statements that their Edmonton bookkeeping company is going to send to entrepreneurs are the balance sheet and the income statement. The balance sheet is the first one that entrepreneurs should read carefully and understand to tell them what the financial position of the business is. Once an entrepreneur has understood the balance sheet, then they should move on to the income statement. The income statement is going to show an entrepreneur the expenses of the business. The first thing that entrepreneurs will notice is that the income statement will all fit on one page. If the expenses do not fit onto one page, that usually is indicative of expenses being split into two many different categories. Entrepreneurs should avoid trying to separate their expenses into several categories, because more generalized expense categories are, the easier it is for entrepreneurs to be consistent and minimizing those expenses.
The next thing that entrepreneurs will notice about the income statement sent to them by their Edmonton bookkeeping company is that those expenses will be listed in a numerically dissenting order. The highest expenses will be listed at the top of the report, and the smallest expenses will be at the bottom. The reason why the income statement is to organize this way is that entrepreneurs can easily see what is the most significant costs to their business. Just by looking at the top half of their income statement, entrepreneurs will be able to see at a glance what is affecting the bottom line the greatest. Business owners should understand that expenses that are generally higher up on this expense list are the rent of their office space and administrative staff. Things there at the bottom of the list include bank charges and phone bills. Even if an entrepreneur can cut those expenses in half, it is not going to greatly impact the bottom line of their business.
Entrepreneurs get into the habit of reviewing their balance sheet and their income statement in that order, they will be able to use both as powerful tools for making important financial decisions in their business. By being proactive in this manner, business owners can not only avoid financial issues but also know what they have to do to significantly grow their business and succeed.