Entrepreneurs must learn how to read their interim financial statements from their Edmonton bookkeeping company because the amount of information that is contained in those financial reports is huge. Not only is there a lot of information, but the information can help entrepreneurs avoid financial problems, and be proactive in what to do in their business to increase the revenue and grow their business. If entrepreneurs learn how to effectively read these financial statements, they can avoid the money problems that have caused so many other entrepreneurs’ problems. Industry Canada says that 50% of all entrepreneurs fail in business within the first five years, and 29% of those failed entrepreneurs say the reason why their business failed is that they ran out of money in their business.
The first thing entrepreneurs need to understand is what types of reports they are going to be receiving from their Edmonton bookkeeping company. The two most common and important reports are the balance sheet and the income statement. Most bookkeepers will give these reports to entrepreneurs at least once a month, and great bookkeepers will send them to entrepreneurs every two weeks so that they can review their finances before they run payroll. Other reports that bookkeepers might give to an entrepreneur are the aging Accounts Receivable summary and the aging accounts payable summary. These reports can help entrepreneurs stay organized with what bills they have to pay, and what clients still have to pay them. By being aware of what invoices are still outstanding what they have to collect on can help entrepreneurs stay cash flow positive in their business.
Entrepreneurs should understand that reading the balance sheet first is going to be the most important place to start. Often, entrepreneurs only look at the income statement, which does not give them a clear enough picture of their finances. The balance sheet is going to help entrepreneurs understand the overall financial health of the business, while the income statement is going to help an entrepreneur understand what the finances for the current month are like. They must view both of those separately because the income statement shows will remain very different things if the balance sheet is extremely positive or extremely negative. The looking at the balance sheet first from their Edmonton bookkeeping company, entrepreneurs will gain insight as to the income statement as well as be able to see any anomalies or errors that might impact the income statement.
By learning how to read the balance sheet and income statement, he can help entrepreneurs is significantly figure out how to make financial decisions in their business that is going to positively impact the company. When they do this regularly, business owners can start to impact their financial position in their business overall. By being proactive about their finances can help entrepreneurs not only avoid making poor financial decisions but can help them make positive financial decisions as well.
One of the most important reasons that entrepreneurs should be learning how to read their interim financial statements from their Edmonton bookkeeping company, is because typically, entrepreneurs have limited knowledge of basic business financial literacy which can cause them to make poor financial decisions in their business. Intuit who are the makers of QuickBooks surveyed several entrepreneurs to quiz them on basic business financial literacy questions such as how should they improve cash flow, what are accruals and what is the role of the balance sheet. Out of all of the respondents, 82% scored less than 70% on the task. This goes to show that entrepreneurs need help understanding basic finances. Once they can understand finances more clearly, entrepreneurs can make better financial decisions in their business and not only avoid financial problems, but learn how to grow their business from the information as well. Business owners who can do this can significantly alter their chances of succeeding in business.
There Edmonton bookkeeping company is going to be sending them to balance sheets and income statements every month at a minimum. The balance sheet is going to show entrepreneurs the assets, liabilities, and equity in their business. This is going to show entrepreneurs the overall financial position of their business. In addition to that, entrepreneurs are going to be able to see any anomalies or inconsistencies when they look at the reports in a six-month comparative statement. Seeing several months at that time will help entrepreneurs see if there are any anomalies or inconsistencies in those reports. If they discover any, they should consider if there is an explanation for those inconsistencies such as did they buy a piece of equipment in that month, or if they had an extremely high payroll because that month had much staff brought on because of the seasonality of the business. If there is no explanation for those inconsistencies, then entrepreneurs should look for errors. Being able to fix errors on the balance sheet can help us stay accurate, and also it is more likely that the income statement will have the same errors on it, so entrepreneurs can fix those mistakes as well.
One way that entrepreneurs can use the balance sheet given to them by their Edmonton bookkeeping company to impact their finances, is by looking at the asset section on their balance sheet. By looking at the liquid assets, if an entrepreneur notices that the cash is low but also the Accounts Receivable is low, that could indicate a future cash flow problems. If there is not a lot of money coming into the accounts receivable, business owners will have a hard time paying invoices shortly. This may mean that an entrepreneur should increase their marketing efforts or revenue-generating activities to bring in more money, but it also might mean that they may need to search for financing or contribute personally to their business.