When entrepreneurs learn how to read the interim financial statements given to them by their Edmonton bookkeeping company, they can gain extremely good insight into the finances of their business. Using this information to guide them to make better financial decisions, as well as help entrepreneurs, avoid making poor financial decisions. Industry Canada says that half of all entrepreneurs will be closing their doors before they have been in business five years, and 29% of those entrepreneurs say that the reason why they failed and business was because they ran out of money. Making better financial decisions can significantly help entrepreneurs stay in business due to those reasons.
The first thing entrepreneurs need to know is what types of reports they are going to be receiving from their Edmonton bookkeeping company. The financial statements they should expect to get at least once a month are the balance sheets and income statements for the business. Even though many entrepreneurs can read the income statement, therefore that is what they look at first, and sometimes only, business owners should get into the habit of learning how to read balance sheets so they can read them first.
The first thing that entrepreneurs should do, is looking at those balance sheets at six-month comparative statements. The reason for this is so that they can be able to see any inconsistencies or anomalies much easier. If any month looks extremely different than another month, business owners should see if there is an explanation for that inconsistency. Perhaps an entrepreneur purchased a large asset in that month or had an extremely high payroll month because of the seasonality of their business. If there is no explanation for the inconsistencies, entrepreneurs should check the numbers to ensure their accuracy. If there are errors, entrepreneurs should check to see if those errors also exist on the income statement. By doing this first, entrepreneurs can verify the accuracy of the information in their interim financial statements. The reason why this is important is that any time an entrepreneur sees a financial statement that was not prepared by an accountant, they should assume that errors are possible on these and look for them.
Once entrepreneurs have verified that there are no errors, or the errors have been fixed, the balance sheet is going to be able to tell the business owner what the financial position of the business is overall. It will have a list of all of the assets in the company, all of the liabilities in the company and what the equity is in the company. They should ensure that the assets are larger than their liabilities. If this is not the case, entrepreneurs may want to increase the revenue in their business or increase their marketing. By using this information as a barometer, entrepreneurs can gain a better sense of where they are financially in the business and what they can do to increase it, or help continue along the same path. By reviewing these financial statements from their Edmonton bookkeeping company, entrepreneurs can gain valuable information about their business.
By learning how to read and review the interim financial statements from the Edmonton bookkeeping company, entrepreneurs can gain great insight into the finances of their business, which can help them make informed and guided financial decisions. Into it where the makers of QuickBooks surveyed several small businesses to quiz them on basic business financial literacy. 82% of the respondents scored less than 70% on the test, proving that many entrepreneurs do not have a great business financial knowledge, so by increasing that, entrepreneurs can increase their ability to make better financial decisions.
They will be getting a balance sheet and income statement from their Edmonton bookkeeping company, and once an entrepreneur has reviewed the balance sheet at a six-month comparative statements, and verified there are no errors, as well as check to see the assets versus liabilities in their business to see what the financial position of their business overall is, the next thing that entrepreneurs need to look at, is having a closer look at the assets in their business to see if they may have a future cash flow problem. The way an entrepreneur can determine that is by looking at the cash as well as the Accounts Receivable in the asset section of their balance sheet. If their cash is low as well as their Accounts Receivable, that could indicate that a business owner is going to have a hard time paying employees and vendors in the future. This can signal a business owner that they should work on increasing their revenue, either through marketing or other revenue-generating activities. They also may want to look for alternative financing from financial institutions to give their business a financial boost, or, an entrepreneur may choose to contribute personal finances to the business to help it. However, entrepreneurs need to understand that they should be looking at this so that they can be proactive and not be caught off guard one day by not having enough money to pay bills or staff.
Another thing that entrepreneurs can learn from looking at the balance sheets given to them by their Edmonton bookkeeping company, is a balance sheet can help an entrepreneur figure out if they are losing money due to possible thefts. How an entrepreneur can make this determination, is by using the balance sheet to do a bank reconciliation. If they see uncleared transactions on that bank reconciliation, and especially if they see uncleared transactions for more than a statement, entrepreneurs should start looking for errors. Perhaps a payment was entered twice or was entered with the wrong dates, which would cause it to be uncleared. If that does not explain the uncleared of the transaction, entrepreneurs should verify that it is a payment that exists in is waiting to clear. If a business owner cannot find the payment anywhere, it could be because it was stolen. Business owners can then take precautions to avoid this situation in the future. It might not bring those payments back, but it can help an entrepreneur avoid losing even more money.