there are many reasons why an entrepreneur should become very familiar with the interim financial statements prepared by their Edmonton bookkeeping company. Not only do many small business owners not have complete knowledge of basic business financials, but also 50% of all entrepreneurs fail within the first five years of opening a business. Helping entrepreneurs understand the interim financial statements that they receive, can help them make better financial decisions that can help them stay in business longer. This is extremely important, and entrepreneurs should work to ensure that they are as informed about their interim statements as possible.
The first thing that business owner should know is that they should be getting two different types of reports as interim financial statements from their Edmonton bookkeeping company. These reports will be the balance sheet and income statement. They also should understand that they should be getting these reports every month at a minimum from their bookkeeping company. The reason is, the more often entrepreneurs have these reports, the better financial decisions they can make. Therefore, if entrepreneurs have them before making any financial decisions in their business, that can increase their ability to make better decisions. Since entrepreneurs run payroll at least twice a month, receiving these statements before they run payroll is a great practice. Some think companies like always bookkeeping ensure that their entrepreneurs have this information so that they can make the best business decisions possible and avoid running out of money.
The next thing that entrepreneurs should understand when it comes to understanding their interim financial statements, is that they should be reviewing their balance sheet first. The reason why entrepreneurs should be reviewing their balance sheet first is because this can be there entrepreneurs find mistakes. Even though their Edmonton bookkeeping company does a great job, any financial statements that are not prepared by an accountant should be reviewed to minimize errors. By asking for their balance sheet in a six-month comparative statements, entrepreneurs will be more likely to find any inconsistencies or errors month-to-month. Also, be able to see upwards trends or downward trends and get an idea of if their business is starting to succeed or if it is slowing down and what they can do to either keep it going in the right direction or change the direction.
When an entrepreneur is trying to minimize errors in their balance sheet in their reviewing the reports in a six-month comparative statement, if they find any inconsistencies from month-to-month, they should try to explain why those inconsistencies are there. For example, an entrepreneur might have made an asset purchase in that month which is why that month looks extremely different. However, if there is no reason for the inconsistencies, that could indicate an error, and a business owner can work with their Edmonton bookkeeping company to fix. If there is an error on the balance sheet, they should review the income statement to see if the error exists there as well to fix it.
I great activity that entrepreneurs should get into the habit of doing consistently is reviewing their interim financial statements that they receive every month from that Edmonton bookkeeping company. The information they can get from these reports can help entrepreneurs make informed financial decisions that can significantly increase their chances of succeeding.
Once they receive their balance sheet and income statement and have minimal to the errors on both of those reports, the next thing an entrepreneur should do is review their balance sheet and understand what it is saying. The right to see a list of all of their assets in the business in order of liquidity, a list of all of their liabilities and the equity in the business. A business owner should be ensuring that the assets are growing, that the assets are larger than the liabilities in their business. If not, entrepreneurs can make plans to increase their revenue through marketing or revenue-generating activities. Entrepreneurs can also check the assets to see if the Accounts Receivable is quite low. While entrepreneurs are going to want to see their Accounts Receivable being paid regularly, and extremely low Accounts Receivable section may indicate that an entrepreneur is facing a future cash flow problem. That means that they should be proactive and do what they can to increase their marketing efforts in their revenue-generating activities to increase the amount of money coming into their business. Edmonton bookkeeping says that a business owner may also make plans to arrange for financing or contribute their finances to the business to avoid cash flow problems. Since 29% of all failed entrepreneurs say the reason why their business failed was that they ran out of cash, learning how to read their balance sheet and minimize cash flow problems can significantly increase a business owner’s chances of succeeding in business.
The next thing that an entrepreneur should be looking at is the income statement. They will notice that there Edmonton bookkeeping company will have prepared this statement very specifically. Not only will it all fit on a single page to make it easier to read and understand, but an entrepreneur also notices that the expenses are listed in numerically descending order. There Edmonton bookkeeping company will do this on purpose so that it can make it very easy for an entrepreneur to see what the highest expenses are. If the expenses are listed in alphabetical order, it will be much more difficult for an entrepreneur to review that information and see what they should spend their time in minimizing.
The expenses that entrepreneurs can expect to find at the top of the list include the rent of their office space, as well as the salary of their administrative staff. By spending the most time minimizing the topline expenses, entrepreneurs can have the greatest effect on their bottom line. The expenses that are at the bottom of the list include bank fees. Even if an entrepreneur can get those expenses down to zero, it is not going to have a very large effect on their business.