One of the most important things that business owners can do, is make informed financial decisions says Edmonton bookkeeping. In fact, business owners say that running out of money is the reason why they failed in business.
Running out of money was the second most common reason why Canadian entrepreneurs said they failed. Affecting 29% of all entrepreneurs who were out of business within five years.
There are many things that entrepreneurs can do that can help them avoid this fate. And learning how to read their financial statements is one of those things. This can help business owners understand how much money they have in their business.
As well as how much money they owe their suppliers. And by subtracting the amount they owe from the amount that they have. They can make a decision on whether they have enough money to make certain purchases were financial decisions.
A great example of this, is an entrepreneur consulting their financial statements. Prior to running their payroll to pay their staff. By looking at their financial statements, entrepreneur see that they do not have enough money to meet this financial commitment.
But because they looked at their financial statements in enough time. They will engage in some collection calls. That will allow them to bring the money that is owed to them into the business.
So that by the time payroll comes around, they will have been able to generate more money to come into their business. So that they can afford to run payroll.
If an entrepreneur does not consult their financial statements part of making this decision says Edmonton bookkeeping. What could end up happening. It is an entrepreneur running payroll.
And then payroll could cause wide variety of the other payments that they have scheduled to come out of their account to bounce. Which would put them in a difficult situation with their vendors.
And it can even cause them to run out of money in their business. That depending on the amount. Would be difficult to overcome.
A business owner can also use the information to understand their pricing. And if they need to increase the pricing in their business. Or they need to minimize expenses. Or simply increase the marketing that they are doing. To attract more customers and more transactions.
Therefore, it is not just important that an entrepreneur learns how to read these financial statements. That they understand that these financial statements need to be as accurate as possible.
To help ensure that the financial statements are as accurate as possible says Edmonton bookkeeping. Business owners need to enter information into their accounting software in a timely fashion. As well as ensure that it gets posted to the correct account.
An example of this, is when an entrepreneur is entering tax payments. Their accounting software will automatically default to the tax expense account. So business owners need to have enough knowledge to be able to know that where their accounting software defaults to. Is not necessarily where the information needs to be.
Learning how to enter information into their accounting software can help entrepreneurs have better information. And then use that information in order to make better financial decisions.
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When business owners are first setting up their business says Edmonton bookkeeping. They need to learn how to enter information into their accounting software early in their business. So that they can end up with accurate financial statements.
It is very important that entrepreneurs have as accurate a financial statements as possible. So that they can make informed decisions early on in their business.
Since 15% of all entrepreneurs fail within the first year of business. The sooner entrepreneurs are able to make better financial decisions the better.
When it comes to entering tax payments into their accounting software. It can be very confusing which is why Edmonton bookkeeping says entrepreneurs should learn this information quickly.
The first thing that entrepreneurs need to do is understand the difference between a tax payable account. And a tax expense account.
Tax expense account is where their accountant will enter the taxes that they have calculated the business owes for their previous year.
This account should only have one entry into it. Need by the accountant, after their corporate year-end has been calculated.
However, it is the tax payable account that they need to enter their tax payments into. But they need to ensure that they are accounting for the taxes properly.
The reason why it is so important to do correctly says Edmonton bookkeeping. Is because there is going to be a different tax payable account. For every different tax that an entrepreneur pays for.
Not only is it important to keep the separate. But if an entrepreneur excellently combing those any of the taxes. A can end up impacting how much tax they owe. Or it might end up with them owing more in taxes than they thought. Because they excellently attributed the wrong amount to the wrong account.
The first thing that entrepreneurs should keep separate is the fact that they will have a federal and provincial tax payable account.
In most provinces other than Alberta. The federal and provincial taxes are both paid to Canada revenue agency. Who will then calculate the right provincial tax amount in sendoff to the government on behalf of the business owner.
However in Alberta that is not the case. And entrepreneurs must pay their federal and provincial taxes separately.
An entrepreneur will also needs to ensure that they have a separate tax payable account for GST, and all of the various payroll taxes that they have to pay.
Not only is there the income tax, there is the employer portion of CPP and EI. As well as the employee portion of CPP and EI. And keeping them separate and then their own account. Can help ensure that entrepreneurs are keeping track of them properly.
The sooner entrepreneurs can learn how to do this. The more accurate they are going to be able to keep their financial statements. So that they can make the most informed financial decisions in their business.