It is it very important that entrepreneurs understand how to make the best financial decisions possible says Edmonton bookkeeping. This is because many entrepreneurs make critical financial errors early on in their business ownership.
This can cause entrepreneurs to end up failing in business. And while 15% of business owners fail in their first year of owning a business. And 30% fail in the year two.
The second most common reason why these small business owners are failing so quickly. Is because 29% of them are running out of money in their business.
This is why it is critical that business owners learn how to make more informed financial decisions. And learn how to do that early on in their business ownership experience.
One of the biggest reasons why entrepreneurs end up making financial mistakes. Is because they look at their bank account in order to understand if they have the money to make financial decisions.
They might want to run payroll or pay their bills. And they might even want to purchase and assets. That is going to help them generate more business, or be able to produce more products.
However, Edmonton bookkeeping says that when they look at their bank statement, in order to understand if they have the money in their business to make those decisions.
The bank statement shows them exactly how much money they have in their business at that moment in time. But it does not take into consideration any pending transactions.
What a pending transaction is. Is transaction that has been made. That an entrepreneur knows about. But it has not come into or out of their bank account to get.
A great example of this, is when an entrepreneur writes a check. Since the check typically is sent through the mail. And then depends on when the person that receives that check deposits it.
Check can be pending for two or three weeks or even more says Edmonton bookkeeping. Therefore, if an entrepreneur has written several checks. They need to keep that in mind when they are looking at their bank account in order to make a financial decision.
However, a much better tool is a bank reconciliation. Because it will take the current bank statement. And have an entrepreneur subtract all pending transactions. So that the amount that is left at the bottom of the bank reconciliation.
Is the amount of money that a business owner can freely use. Because it is not already spoken for somehow. This is why doing a bank reconciliation is extremely vital.
By looking at the bank account balance. Could end up with an entrepreneur forgetting about the checks that have not cleared. And have an entrepreneur spending more money than they actually have free to use.
That could end up with an entrepreneur bouncing those checks. And causing all sorts of problems for their business that may or may not be recoverable.
By looking at the bank reconciliation. A business owner will know exactly how much money they can use. So that they will not end up making errors financially. Or spending more money than they have.
What is the point of doing Edmonton Bookkeeping?
Learning how to do the business finances is very important says Edmonton bookkeeping. And it can be made even more difficult. By the fact that entrepreneurs have a very steep learning curve when it comes to owning a business.
And in order to help entrepreneurs make more informed financial decisions. Edmonton bookkeeping recommends business owners learn how to do a bank reconciliation.
This will help a business owner understand how much money they actually have to utilize in their business. Because looking at their bank statement alone. Will not show them any transactions that are pending.
There can be a wide variety of pending transactions. From checks, that an entrepreneur will enter into their accounting software. But will take several days or weeks to clear their bank account.
Two credit card and debit card transactions. That may take one or two days to show up on their bank account statement. As well as their point of sale machine, that may take to work days as well to show up in their bank account.
When entrepreneurs are looking at their bank reconciliation. They need to pay attention to the uncleared transactions. Because if they have been outstanding for certain period of time. It may actually be a mistake that needs to be fixed. Rather than a pending transaction.
For example, while checks may take several weeks to clear a business owner’s bank account. If a check is outstanding for longer than six months. It becomes what is called stale dated. Which means it becomes void and is no longer able to be cashed.
Therefore, before a check gets to that point. A business owner should verify that it is not a mistake in their accounting program. And if it is not a mistake. They should contact the business that they send the check to. In order to verify they received it.
If they have received it, they should be encouraged to cash it right away. And if they have not received it. That is a good indication for an entrepreneur to cancel the check and we issue a new one before it becomes stale dated.
Another error in pending transactions. Is if it is a transaction that is electronic in nature. Such as transfer. Because typically, these will show up in the entrepreneurs bank account as cleared. And that is how the entrepreneur will get notification that they have in each transfer coming.
Therefore, if there are any electronic transfers that are pending. This is most likely an error says Edmonton bookkeeping. And by fixing all errors. Business owners can end up with an accurate representation of how much money they have utilize in their business.
A business owner should get into the habit of doing a bank reconciliation every single month. So that they always have an accurate representation. Of how much money they have in their business to utilize. For all of the things that they need to spend money on as an entrepreneur.