One of the most impactful things that an entrepreneur can do in terms of helping them learn the finances of their small business is running how to read their financial statements given to them by their Edmonton bookkeeping company. The reason why this is so important is that it can help entrepreneurs understand the financial position of their business, and what they need to do to not only avoid making financial mistakes but also what they can proactively do to grow their business as well.
One of the first things that they can learn is what the two types of reports they should be receiving every month from their bookkeeper. They should expect to get a balance sheet and an income statement. Many entrepreneurs start with reading the income statement or completely miss reading the balance sheet, but best practices are to first review the balance sheet. The balance sheet is going to be able to tell business owners what the financial position of their business is and be able to see the profit and loss. Another reason entrepreneurs should look at their balance sheet first is that they should more easily be able to see any errors or inconsistencies. By fixing errors first on the balance sheet, can ensure that an entrepreneur is using the most accurate information to make their financial decisions.
When looking at their balance sheet, they will be able to see the assets, liabilities, and equity in their business. If they get their balance sheet in a six-month comparative statement from their Edmonton bookkeeping company, they will more easily be able to see any inconsistencies from month-to-month. When they see those, entrepreneurs should try to figure out if there is any reason that they can think of for those inconsistencies. Perhaps they bought large assets in that month, or maybe they had a high payroll. Because of their seasonal workers. However, if entrepreneurs have no explanation for the inconsistencies, they should then check to see if they are errors.
One thing that entrepreneurs should be reviewing their balance sheet is to see if they are going to have any cash flow problems in the future. Though it will be able to tell this, it is by looking at the asset section of their balance sheet. If their cash is low, and their Accounts Receivable section is low, that should tell an entrepreneur that they are going to be receiving less money in, and since they have low cash as well, that might indicate that they are going to have a problem paying for bills in the future. If an entrepreneur notices this, they can be proactive and engage in some increased marketing activities as well as other revenue-generating activities to bring in more money.
By learning how to read the balance sheet from their Edmonton bookkeeping company, entrepreneurs will learn a lot about their business finances, and be able to make more informed financial decisions that will benefit their business.
Entrepreneurs must understand that the interim financial statements they receive from Edmonton bookkeeping companies are extremely valuable to read and understand regularly. These interim financial statements are the balance sheets and income statements and can help entrepreneurs understand what is going on financially in their business so that they can make informed financial decisions. Once an entrepreneur has learned how to read to the balance sheet, then an entrepreneur needs to understand how the income statement fits together with that information.
Entrepreneurs should be familiar with what the income statement looks like, their Edmonton bookkeeping company should ensure that all of the information fits on a single page to make it easy to read and understand. However, if an entrepreneur notices that it does not all fit, it may be because the expenses are split into two many separate categories. On is often do this to be extremely clear about where they are spending money in their business, but on this report, entrepreneurs mustn’t split their expenses into a bunch of different categories. Not only will this make it easier to categorize, but will also make it easier for them to be consistent and what expense categories they use regularly.
There are also going to notice that on their income statement it is going to have a section for revenue, cost of goods sold as well as expenses. The expenses will be listed in numerically descending order so that the highest expenses are at the top of the list. The reason for this is so that entrepreneurs can easily see expenses that are affecting the bottom line of the business the greatest. If an entrepreneur would like to minimize expenses, they should spend their time minimizing the expenses at the top of the list to give them the greatest return on investment of their time. If the income statement is not organized in numerically descending order, business owners may struggle to figure out where they should spend their time minimizing expenses. Many entrepreneurs believe that they can affect the bottom line by minimizing their utility bills, phone bills or bank fees. While it is good practice to ensure that entrepreneurs are not paying too much in these categories, greatly affecting these expenses is not going to make a large difference to an entrepreneur’s bottom line.
Once business owners read their balance sheet and can see the overall financial position of the business, they can then move to the income statement which can help them minimize the expenses of their business and understand the financial position of the business in that month is. By learning how to read these two financial statements given to them by their Edmonton bookkeeping company together, entrepreneurs can gain better insight into the finances of their business so that they can make more informed financial decisions.