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The information contained on a balance sheet is extremely significant to entrepreneurs says Edmonton bookkeeping. The reason for this is because an entrepreneur is not aware of the financial state of the business they have a difficult time making informed financial decisions. By learning how to read a balance sheet, and make financial decisions based on the information in that statement, can significantly impact entrepreneur chances of succeeding. Since 50% of all entrepreneurs fail within the first five years of business, and 29% of those failed entrepreneurs say the reason why their business failed is that they ran out of money in their business, this can significantly impact entrepreneurs’ chances of succeeding.

The first thing that entrepreneurs should look for when they are reviewing their balance sheet is that the first section will include the assets including the cash in their business.

Entrepreneurs need to look at the cash that they have in their business because if they instead are looking at their bank balance to know how much money they have to spend in their business, they could be making mistakes. Edmonton bookkeeping says that while the bank balance will show an entrepreneur how much money they have in their bus bank account at that moment, what it does not take into consideration are any pending transactions. If they have disbursed payments that have not released yet, or if they have written checks that have not been cashed, can end up causing entrepreneurs to think that they have more cash in the bank then they can use. However, if entrepreneurs get into the habit of reviewing their balance sheet to see how much money they have, that cash statement will show how much money they have to use in their business. Their bank account might say they have ten thousand dollars but their balance sheet might show that they only have two thousand. This can significantly impact entrepreneurs’ decisions on what do purchases or payments they can make.

Other ways that entrepreneurs can look at the assets to impact their business decisions, is looking at Accounts Receivable. This is a list of all of the money that an entrepreneur is owed. They should be aware that the higher this is, the more money they are owed and they should not have this amount hi for a significant period unless they are continually increasing their revenue. Edmonton bookkeeping says that business owners should verify that this amount is high based on revenue, and not based on not being able to collect the money.

By being aware of all of the reasons why their assets are where they are, can help entrepreneurs learn how to spend their money in a way that will have them financially struggling, or running out of money, and can help them avoid being unable to collect on the invoices that are due in their business. Which can help them turn that Accounts Receivable into cash in their bank?

The reason why entrepreneurs should get into the habit of reading of the balance sheet of their business says Edmonton bookkeeping, is because it can give them an overview of the assets and the actual financial state of their business. They cannot get that information any other way, including looking in their bank account. Understanding the state of their finances can significantly help entrepreneurs make informed financial decisions in their business which can help them not only avoid financial disasters but help them grow their business as well.

On a balance sheet, an entrepreneur will see that the top will have a list of all of the assets of the corporation, and the middle will show all of the liabilities. Liabilities include invoices and bills, credit card statements, loans that they owe, payroll and taxes as well. Edmonton bookkeeping says the reason why entrepreneurs should be aware of this section, is because they should be ensuring that they do not owe any more money then they need to.

Edmonton bookkeeping says an example of what they should be watching for, is in the accounts payable section. If an entrepreneur notices that the accounts payable section is starting to increase significantly, they should look for reasons why. If that is increasing in conjunction with the revenue of their business, that can be perceived as a good thing. The reason is that as the revenue increases, so must the expenses of producing the products. If the invoices are increasing at the same rate as revenue, entrepreneurs can reason that it is because the expenses are matching the revenue. However, if the expenses are increasing and the revenue is not, this should be an indication to an entrepreneur that they should minimize those expenses wherever possible to increase the profit margin of the business. It is extremely important that an entrepreneur stays on top of this, and is ensuring that there reviewing it before it gets out of hand. If entrepreneurs are not watching for this in their business, they may run out of money in their business and not even understand why. Reviewing the liabilities is an extremely important part of reviewing their balance sheet.

When entrepreneurs are learning how to run their business, they should get into the habit of reviewing their balance sheets regularly. Ideally, there Edmonton bookkeeping company will give them a balance sheet once a month or once every two weeks, and entrepreneurs should make it part of their routine to review the balance sheets at that time. This can help them not only stay in the know about the financial state of their business, but also help them learn how to make the most informed financial decisions not only so that they can avoid making poor choices financially, but so they can proactively grow their business and succeed. Doing this can significantly impact the success rate of entrepreneurs.