Industry Canada says that half of all Canadian entrepreneurs have failed in business before their fifth year, Edmonton bookkeeping says that that can be avoided if entrepreneurs can make better financial decisions in their business. Learning how to review the balance sheet of their business can help business owners understand the finances of their business, as well as help them make more informed financial decisions that can significantly impact their success rate. Entrepreneurs get interim financial statements from their bookkeeper, and that includes a balance sheet as well as an income statement. Entrepreneurs should learn to read their balance sheet first so that they can find errors and gain an understanding of what is going on in their business before looking at their income statement to get a complete picture of their business finances.
The liabilities of the corporation are going to be listed on the balance sheet. Edmonton bookkeeping says that the reason why this is important is that the liabilities include the accounts payable of the business. What this is, is all of the invoices and bills that a business owner owes others. The reason is important to review this regularly, is because if an entrepreneur sees month-to-month that their accounts payable is increasing they should discover why. If it is increasing the same amount that their revenue is increasing, this is a good sign as it indicates that an entrepreneur is making more sales, therefore, they need to purchase more materials to make the products. However, if the revenue is not increasing by the same amount, that could indicate to an entrepreneur that the expenses need to be minimized. By being aware of the liabilities on the balance sheet, and what the information might indicate, can help entrepreneurs make informed financial decisions, like minimizing their expenses to avoid running out of money.
The next thing that an entrepreneur should be aware of on their balance sheets is the assets. Edmonton bookkeeping says that the Accounts Receivable is listed in the assets of the balance sheet. While this is good to keep an eye on, entrepreneurs need to understand that this represents the potential of money and not money that the business currently has. Therefore, an entrepreneur needs to ensure that they are doing what they can to ensure that the Accounts Receivable does come into their business. By employing regular communication with customers that owe them money, can ensure that entrepreneurs are working proactively to ensure all of that money comes into their business. Another reason why entrepreneurs should keep track of their Accounts Receivable is that if they suddenly see that number increasing steadily, they may want to find out why. Is it because they have a lot of clients who are not paying anymore, or is it because the revenue of the business has recently increased as well? If the revenue has increased the same amount, that entrepreneurs can be relieved that they are owed more money because of their writing more invoices.
Reviewing the interim financial statements given to them by their Edmonton bookkeeping company is extremely important for all entrepreneurs to get into the habit of finding out how the finances are doing. If they are unaware of the financial state of their business, how can an entrepreneur expect to succeed in their business? By working hard in their business but not understanding can result in working hard, but not achieving their business goals. By reviewing the balance sheet regularly, business owners can come up with a plan on what to do in the business that makes sense and has them achieving their business goals.
Why entrepreneurs should be aware of all of the different Edmonton Bookkeeping areas that are outlined on the balance sheet. They should have the list of assets at the top of the balance sheet, followed by a list of the liabilities and finally, the equity is at the end of the balance sheet. Entrepreneurs must understand the liabilities of their business as well as their assets. The liabilities of the business include all of the money that an entrepreneur owes in bills and credit cards, but also makes up the liability is the amount they owe their employees in payroll, taxes, and loan amounts. By being aware of the liabilities, and ensuring that they are not growing exponentially out of sync with their revenue can help entrepreneurs understand how their business is doing financially. Their liabilities should not exceed their assets, and if an entrepreneur finds that this is the case, they should make some changes in their business so that they do not end up running out of money. Minimizing expenses, increasing revenue, and engaging in Accounts Receivable activities can help entrepreneurs minimize the liabilities of their corporation.
Entrepreneurs should also be aware that the only credit cards that should be on the balance sheet are the corporate credit cards of the business. Personal credit cards should never be on the balance sheet because ideally they should never be used for business. However, if business owners have co-mingled their business and personal accounts, rather than indicating it on the balance sheet, they should keep track of its in the shareholder loan account instead. Why this is most important, is if an entrepreneur finds that they are getting an audit letter from Canada revenue agency, they will want as few business and personal make things as possible. The reason for this is because it can be far more difficult to keep track of business expenses if it is coming out of personal accounts. Also, it could cause CRA to disagree with some of the business expenses simply because it came from a personal account.
By understanding the balance sheet in business, and learning how to read it and use information in it can significantly help says Edmonton bookkeeping. Entrepreneurs should get into the habit early on in their business as possible to always be making the best financial decisions for their business possible.