If business owners end up making financial decisions without looking at their interim financial statements says Edmonton bookkeeping. They risk making poor decisions. That could put their business at risk.
In fact, running out of money is one of the most common reasons why entrepreneurs fail. Affecting 29% of all Canadian entrepreneurs who fail in business.
Business owners could be more prepared to avoid this problem. If they start making financial decisions. First based on looking at their financial statements. And then, by correcting any errors they see on these statements. To ensure their accurate.
One of the first things that business owners should do. Is ensure that they are entering all of the invoices they receive. When they receive them.
Business owners sometimes think that it is saving time. By entering the invoices into their accounting software. As they are paying those invoices.
However, when they do this they will not have an accurate report. Of all of the money that they owe their suppliers.
Also, if business owners do not end up entering expenses until they pay them. They will not be able to look back in their accounting software. Understand what expenses occurred in what time frame.
When entrepreneurs are minimizing expenses, adjusting pricing to ensure that they are making a profit. And when they are planning growth in their business.
They need to be able to look back on their financial quarters. To understand what expenses occurred in what time frame. So that they can understand historically the expenses of their business.
Once entrepreneurs are in the habit of entering invoices and expenses when those expenses occur. The next thing that business owners need to do. Is enter the payments as they pay them.
Business owners should never see in their accounts payable aging summary. That they have amounts over ninety days due. In order to maintain a positive relationship with their suppliers. They need to ensure that they are paying these invoices on time.
But also, if entrepreneurs end up with ninety days overdue on their accounts payable aging summary. If they know that they are paying their expenses on time.
And booking them into their accounting software. Edmonton bookkeeping says they will always be aware that seeing a ninety days overdue invoice. Is an indication of a mistake, rather than an invoice that was not paid.
Typically, one of the most common reasons why an invoice showing ninety days overdue is a mistake. Is because an entrepreneur may have entered the invoice twice by accident.
When this happens, it is usually because they have received a paper copy as well as an electronic copy of the invoice from their supplier. And they have ended up putting both into their accounting software.
And when they make the payment. They enter that against one of the invoices they entered. Leaving the other one to show as outstanding on the accounts payable aging summary.
By ensuring that business owners are paying their suppliers on time. They can review their accounts payable aging summary for this mistake. So that they can ensure that this summary is accurate before they use it to make financial decisions.
Learning how to read and correct their accounts payable aging summary. Can significantly help entrepreneurs have accurate financial information says Edmonton bookkeeping. So that they can make their financial decisions confidently.
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There is a steep learning curve that entrepreneurs have a open their business for the first time says Edmonton bookkeeping. And they need to start looking at their financial statements to make business decisions.
However, not only is it difficult for entrepreneurs to understand the statements. But they also need to look for mistakes. So that they can ensure the accuracy of the statements.
When they are looking at their accounts payable aging summary. This is the report that shows them how much they owe each supplier. And how much they owe all of the suppliers that they have in their business.
When comparing the statement against their balance sheet and their income statement. Can help entrepreneurs understand not only how much money they have in their business. But how much money they owe in their business.
So that they can decide when they have enough money to pay these suppliers. And based on how much money they owe, if they can make other decisions. Such as running payroll, or purchasing assets that they may want to purchase to help them grow their business.
One of the most important things that new entrepreneurs need to do. To ensure the overall accuracy of their accounts payable aging summary. Is to avoid putting any corporate expenses in this report says Edmonton bookkeeping.
All corporate expenses such as a corporate taxes, federal and provincial taxes, GST and payroll tax for example. Should all be in their own separate accounts. And never reflected in the accounts payable aging summary.
This way, when entrepreneurs pull their AP report. They will be able to understand that her all business expenses. And that they can pull a separate report, the sea corporate expenses as well as taxes.
Learning how to keep these separate is one of the first things that they should learn how to do. And the second thing they should learn how to do, is learn how to review the statement for mistakes.
For example, an entrepreneur should review the report to ensure any negative numbers are easily explained. A negative number does not necessarily indicate an error.
But a negative number means that a deposit was paid, or an entrepreneur prepaid an invoice. The invoice has not been received yet.
This should make it very easy for business owner to verify if they see a negative number on their report. And if they have not prepaid an invoice. This typically is an error that occurred when an entrepreneur misses entering in invoice. But they have entered the payment.
If an entrepreneur has not prayed a deposit on something. They should look for the invoice they may have missed. And when they enter it, will fix the mistake quickly.
By keeping their accounts payable aging summary as accurate as possible. Edmonton bookkeeping says business owners will be able to make more informed financial decisions. And that can help them be more financially responsible in their business. And avoid spending more money than they have.