If entrepreneurs are not aware of the financial state of their business, they will not be able to create a plan on how to succeed says Edmonton bookkeeping. Not only is it important for entrepreneurs to do their balance sheet, but if entrepreneurs do not know how to review that balance sheet critically and use the information in it to make financial decisions, their business could still be at risk for making bad business decisions. The most common reason why entrepreneurs fail in business because they ran out of money. Reviewing their balance sheet every two weeks as often as their bookkeeper gives it to them, can significantly help entrepreneurs avoid running out of money in their business.
One of the most important things that an entrepreneur should review on their balance sheet is the asset section. Edmonton bookkeeping says that an entrepreneur should understand all of the various sections of the business assets, and why they are important. The assets of the balance sheet should be organized from the easiest to make liquid to the most difficult. That means that cash in bank accounts, Accounts Receivable, hard assets and then intellectual-property. The reason why assets are important because it gives an entrepreneur a clear picture of the financial state of their business.
For example, the cash is important, so that an entrepreneur knows how much money they have to spend in their business. Even though entrepreneurs should never spend their cash, and the reason for that is because it is most difficult to finance operating capital, so an entrepreneur should use cash in their business as operating capital whenever possible. That means obtaining financing whenever possible so that they can maximize the amount of cash they have in their business. If entrepreneurs spend more cash than they have, they can trigger problems in their business such as running out of money and being forced to close. The reason why someone might spend more money than they have, is they look at their bank statement to see the money in their business instead of their balance sheet. Looking at their bank balance does not take into consideration any transactions, whereas the balance sheet will show the money taking into consideration pending transactions.
Also, the asset section of the balance sheet will contain Accounts Receivable says Edmonton bookkeeping. The reason why this is impactful is because the Accounts Receivable is the amount of money that an entrepreneur is owed in the business. They need to be aware of this and be working to ensure they are collecting that money regularly so that can continue to bring money into their business. Also, if entrepreneurs are seeing that it has made a recent jump, they should verify that that recently increased because of the revenue increase. If not, they should find out why growth people have decided not to pay their invoice so that entrepreneurs can collect that money.
When entrepreneurs start their business, they should get into the habit of reviewing their balance sheet as early as possible says Edmonton bookkeeping. The reason is, it can be an important document in helping an entrepreneur make informed business decisions. If they make financial decisions in their business without consulting their balance sheets, or without understanding how to use the information in their balance sheet, they put their business at risk of making poor financial decisions that negatively impact the business, or even avoiding running out of money in their business.
The balance sheet will show the entire financial picture of the business including the Edmonton Bookkeeping assets, but the second section will show up the liabilities. Edmonton’s bookkeeping says that the reason why their liabilities is important for entrepreneurs to see is so that they know how much money their business goals. Along with the regular utility bills, Internet and phone bills that they get, an entrepreneur will also see the bills that they owe for the materials and supplies that they need to produce their products that they sell. The reason why it is so important to look at this is so that entrepreneurs can keep track of their expenses. If they notice by looking at a six-month comparative statement that the expenses are starting to increase, they may want to minimize the expenses in their business to ensure a healthy margin, or, they may even choose to increase the price of their business to reflect this market change. This way, entrepreneurs can have a better chance of avoiding running out of money in business because of dwindling profit margins.
Other ways that entrepreneurs should be aware of the liabilities in their business, is to ensure the credit card statements that are showing up on their balance sheet our business credit cards and not personal credit cards. Edmonton bookkeeping says that entrepreneurs may use their credit card on a business expense, and while that is not advised, it is extremely bad for the credit card to go on the balance sheet. Instead, an entrepreneur can take into consideration the personal credit card payment for business expenses be listed in the shareholder’s loan account. Any co-mingling of business and personal accounts and credit cards needs to be strictly avoided at all times. The biggest reason for this is because not only is it difficult for bookkeepers to manage, and hard for accountants to take into consideration if an entrepreneur gets an audit quest from Canada revenue agency, they could reject some of the entries because it can be hard to separate business and personal accounts once they have commingled.
By learning all of the information that is on the balance sheet, as well as how to read it and how to use that information can help entrepreneurs make better and more informed financial decisions in their business that can significantly impact the success of their business.