Many entrepreneurs lack basic business financial literacy, which is why they must be able to learn how to review their interim financial statements given to them by their Edmonton bookkeeping company. By increasing their business financial literacy can help entrepreneurs make better decisions in their business and be proactive not only in avoiding financial problems but also in being proactive in growing their business. By learning how to read and understand the interim financial statements of their business, can significantly impact entrepreneurs’ ability to succeed in business.
The first thing that they should know when receiving these interim financial statements, is that they should come in the form of a balance sheet and income statement. Not only should they be receiving these reports, but knowing how often they need to see them. At a minimum, entrepreneurs should expect to get these interim financial statements once a month. However, great Edmonton bookkeeping companies such as always bookkeeping ensure that all of their business owners get these interim financial statements every two weeks. The reason for this is because most entrepreneurs pay their staff every two weeks. By ensuring that these entrepreneurs get their balance sheet and income statement before they run payroll can help entrepreneurs ensure that they have money in their business to disperse those payments. Getting into the habit of reviewing these financial statements before making any financial decisions can help increase the chances of those decisions being good ones.
The next thing that an entrepreneur should keep in mind when reviewing their interim financial statements is that looking at the balance sheet first is important. The reason is that it is possible to find potential errors but reviewing the balance sheets, where it is less likely to find those same errors by looking at the income statement. How an entrepreneur would do this, is by asking their Edmonton bookkeeping company to send their balance sheet in a six-month comparative statement. The reason for this is when an entrepreneur can view several months at a time, they will be more able to see any inconsistencies or anomalies from the numbers one month to the next. If they find inconsistencies, they should see if check the month to see if they can explain why those inconsistencies exist. They might have had an extremely busy month due to some increased marketing efforts, had an extremely high payroll. Due to the seasonality of their business, or had a huge asset purchase that made the numbers look different in that month over other months. If there is no explanation for the inconsistencies that entrepreneurs are see on their balance sheet, they should then look to see if any of the amounts are incorrect. Once they catch the error on their balance sheet, they should look at their income statement to see if that number affects the accuracy of that statement.
By verifying the accuracy of their interim financial statements can be extremely helpful for entrepreneurs to make better financial decisions in their business and by getting their interim financial statements from Edmonton bookkeeping company regularly, entrepreneurs can build an extremely positive habit for their business.
Helping entrepreneurs understand how to accurately understand their interim financial statements from their Edmonton bookkeeping company can make a significant impact on their financial decisions in their business. Industry Canada says that 50% of all entrepreneurs fail in business within the first five years, and 29% of those failed entrepreneurs say that the reason why they failed is that they ran out of money in their business. Learning how to read their financial statements can significantly increase their chances of succeeding in business.
Once they have reviewed their balance sheet to minimize errors, they should then understand what their balance sheet is saying. It will have a section for all of the assets in their business, listed in order of liquidity. They will also have a section showing all of the liabilities of their business as well as the equity in their business. They should be reviewing the assets versus liabilities to ensure that the assets are growing month-to-month and that they are larger than the liabilities. And if they are not currently larger, that they are moving in that direction. This can ensure business owners are growing their business and becoming successful. If they find that their assets are declining, or smaller than their liabilities they can be proactive in deciding what they need to do in their business to change that. Revamping their marketing efforts, or increasing the activities that will generate revenue for them are ways that entrepreneurs can impact this.
Another way that entrepreneurs can review their balance sheet to avoid problems, is that if they notice that their cash is low in the asset section of their balance sheet, but their Accounts Receivable is also low, that can indicate a potential future cash flow problem. This could indicate that an entrepreneur should make immediate plans to increase their revenue, or they might even need to obtain financing or even contribute personally into their business to avoid cash flow problem. Entrepreneurs that do not find this out ahead of time, are often blindsided when they run out of money in their business, and it forces them to close their business.
The next thing on the entrepreneur should do is review their income statement. There Edmonton bookkeeping company will have organized it to fit on one page to make it easy to read and understand. The expenses will also be listed in numerically descending order’s that the highest expenses are at the top of the list, showing an entrepreneur what areas they should focus on if they are looking to minimize expenses in their business in a significant way. Rent and administrative salaries are examples of what is going to be at the top of the list. If they can impact those expenses, they are going to greatly affect their business. The bottom of the list will show the smallest expenses, and while entrepreneurs should always avoid paying more than necessary, they should not spend a lot of time in minimizing these expenses, because it is not going to greatly impact their bottom line significantly.