Business owners face a lot of challenges when they first open up their business says Edmonton bookkeeping. And a lot of those mistakes they make early on our financial ones.
And while a lot of mistakes that are made early on can be recovered from very easily. This is not always the case. In fact, industry Canada has done studies that have shown how many entrepreneurs make mistakes early on that are not recoverable.
The first thing that business owners need to keep in mind. Is that 15% of small business owners in Canada are failing in their first year. While 30% are failing in their second year of opening their business.
Ultimately, half of all small entrepreneurs in Canada will fail within five years. And industry Canada wanted to do a survey in order to find out why the failure rate for entrepreneurs in Canada is so high.
What they discovered, was that there were three main reasons why business owners were not successful. And the second most common reason. Is that business owners were running out of money.
Therefore, learning how to make more informed financial decisions is vital to the success of businesses. Especially because learning how to make responsible financial decisions.
Can help business owners avoid running out of money. By avoiding spending money that they do not have. But also learning business finances. Can help entrepreneurs be proactive as well.
The tool that they need to help them do this says Edmonton bookkeeping is the bank reconciliation. This is a report that will show an entrepreneur how much money they have in their business that they can spend. Once all of their pending transactions have cleared.
Many business owners might make the mistake of thinking that they can look at their bank account balance. In order to make the same financial decisions.
However, how much money they have in their business at that exact moment. Does not reflect how much money they will have left over when several transactions that they have created have cleared.
A great example of this says Edmonton bookkeeping. Is if an entrepreneur looks in their bank account and sees that they have ten thousand dollars.
They might think that they can spend ten thousand dollars. But they might actually have seven thousand dollars worth of payroll that is going to come out in a week. While they have also written a two thousand dollars check that has not cleared yet.
Therefore, by looking at their bank account balance. They could very easily over spend money. And depending on how significantly they have overspent. May cause them to be forced to go out of business.
So to learn how to do a bank reconciliation. Can help business owners make more informed financial decisions. So that not only can they avoid making mistakes. But it can help them be proactive as well.
So that they can see if they do not have enough money. And what they need to do in their business to address that shortfall. Whether its increasing their marketing budget or doing more sales calls.
Or whatever it takes to bring money into their business so that they can meet all of their financial commitments. And avoid running out of money in their business.
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One of the most important things that a business owner can do says Edmonton bookkeeping. Is learn how to do a bank reconciliation properly.
Even if an entrepreneur is learning how to do a bank reconciliation. But they do not know how to fix mistakes. They can still end up making poor financial decisions. That they think is correct.
Because they think they are doing all of the right things in their business. Therefore, even if a business owner has learned how to do a bank reconciliation. They should know how to fix mistakes as well.
The first thing that business owners need to understand when doing a bank reconciliation. Is that when they end up with the list of pending transactions. They need to verify the accuracy of those pending transactions.
If an entrepreneur has entered a duplicate transaction. It can show up on the bank reconciliation as uncleared. When it will never actually clear.
If an entrepreneur has uncleared transactions that are incoming that are mistakes. What will happen, is that it will look like an entrepreneur has more money in their business to spend then they actually do.
If an entrepreneur has uncleared transactions that are out going that are mistakes. What that looks like, is that an entrepreneur has less money in their business to spend than they actually do.
So it is very important that business owners learn how to fix these mistakes. And they can do so says Edmonton bookkeeping. By paying attention to how long these transactions have been uncleared for.
If a transaction has been pending for longer than it should take to clear. That is typically an indication to the business owner that there is a mistake.
For example, electronic fund transfers should be cleared on the date that they were scheduled. And transactions on a debit or credit card should only take a few days to clear.
If an entrepreneur has deposited something into their ATM at their bank. It might take up to seven days to clear. Particularly if they deposited it on the Friday of a long weekend says Edmonton bookkeeping.
But if electronic fund transfers or deposits into an ATM are outstanding for two weeks. That should be a red flag. That something is wrong, and that they should go into their accounting software to look for mistakes.
By being able to look for these mistakes. Business owners can verify that the bank reconciliation is accurate. And the amount that they have showing at the bottom of the report. Is money that they can be free to spend.
By using this information before making any financial decisions in their business. Can help entrepreneurs spend money wisely in their business. And avoid running out of money in business. They could very easily cost them business that they worked so hard for.