1 Simple Way that entrepreneurs can positively impact their business finances, is by learning how to read the interim financial statements from their Edmonton bookkeeping company. The reason why this is so impactful is because when entrepreneurs can make informed financial decisions, they can avoid running into financial problems in their business. Industry Canada says that half of all entrepreneurs fail in business within five years, and out of those failed business owners, 29% of them said that the reason why they failed is that they ran out of money in their business. A lot of entrepreneurs, unfortunately, struggle when it comes to financial decisions in their business, however learning how to improve those decisions can have a lasting impact on entrepreneurs.
The first thing that entrepreneurs should know are what types of financial statements they should be receiving from their Edmonton bookkeeping company. The financial statements include the balance sheet and income statement. These are the two most important ones that entrepreneurs should be looking at regularly. However, entrepreneurs should also understand that depending on what their business is, they may request from their Edmonton bookkeeping company, or they might suggest to the entrepreneur that they also look at their aging Accounts Receivable summary as well as their aging accounts payable summary. What these two aging summaries will show entrepreneurs is how many invoices they still need to pay, and how many invoices are still outstanding. This can be very impactful for entrepreneurs who have a long list of vendors or a long list of clients.
After that, entrepreneurs should understand that they should review their balance sheets before their income statement. The reason for this is because their balance sheet will show entrepreneurs but the overall finances of their business will be. There income statement, on the other hand, shows a more immediate picture. The horror business owners look at their immediate finances, they should understand what their finances are.
When reviewing the balance sheets from their Edmonton bookkeeping company, entrepreneurs are advised to review the reports in a six-month comparative statement. By looking at several months at a time, entrepreneurs will be more able to see any inconsistencies from month to month. If there is no explanation for these inconsistencies, business owners should look for mistakes. If there are mistakes, they should also compare that to the income statement to verify that there are no similar errors there as well. If entrepreneurs are looking for errors in the income statement first, they will be far less likely to find them.
By learning how to review these financial statements, entrepreneurs can increase their chances of making positive financial decisions that can help their business grow in the right direction. If entrepreneurs try to operate their business without looking at any financial statements, they may end up working extremely hard, but not know the direction they need to move their business, and end up not going anywhere.
When small business owners start their business, they are usually very good at what their business does, but that does not necessarily make them great at operating their business, so using the interim financial statements given to them by their Edmonton bookkeeping company, and understanding them can help entrepreneurs make better financial decisions. These balance sheets and income statements that they receive every month can help entrepreneurs understand what financial decisions they need to make in their business to positively influence their company.
When entrepreneurs get their balance sheet and income statement from their Edmonton bookkeeping company, they should ensure that they are looking at their balance sheet every single month with no exceptions. This is going to help entrepreneurs understand what the financial position of their business is and see a list of all of their assets and all of their liabilities. By understanding how these two relate to each other can help entrepreneurs understand the financial position of their business. If their assets are more than their liabilities, then their business is in a positive place. However, if entrepreneurs see that their assets are down and their liabilities are up, they might need to make some decisions in their business.
An example of this is if an entrepreneur receives their balance sheet from their Edmonton bookkeeping company and they review the assets and see that their cash is down, you may want to continue looking at their assets to see what their Accounts Receivable is looking like. If that is also low, entrepreneurs should understand that it means they may be facing a future cash flow problem. By not having receivables scheduled to come into the business, this may indicate then an entrepreneur could be facing a cash flow issue soon. By taking action immediately, by increasing their revenue-generating activities, or obtaining financing can help entrepreneurs avoid financial issues.
Another way that entrepreneurs can use the balance sheet to positively impact their business, is to do bank reconciliations. Doing this before they make any payments, can help entrepreneurs understand if they have the money to make those payments. If they see uncleared bank transactions in those bank reconciliations statements, that should because the business owner to question why and look to see if there has been an error. Errors can include entering the transaction and twice, or putting the wrong date in. If those errors turn up nothing, business owners should look physically for those payments because it could be an indication of theft.
By understanding not only how to read their balance sheet, but by understanding how to use that information to make financial decisions can positively impact entrepreneurs. They will be able to make financial decisions that can help grow their business, and avoid financial problems in their business. Since 29% of all failed entrepreneurs say the reason why their business failed was that they ran out of money, this can significantly help entrepreneurs succeed in their business.