It is not only important that an entrepreneur has hired an Edmonton bookkeeping company to help them with their business finances, but they also need to be able to read and decipher the information on the interim financial statements that that bookkeeper provides to them every month. Into it, the makers of QuickBooks surveyed entrepreneurs to test them on their basic business financial literacy. Entrepreneurs were asked questions about what the role of the balance sheet was, how to improve cash flow and water accruals. 82% of the small business owners that responded scored less than 70% on the test. Many entrepreneurs lack a basic understanding of their business finances, which puts their business at a disadvantage. However, if entrepreneurs can learn how to read those interim financial statements and make more informed financial decisions, they will be able to not only avoid financial problems in their business but proactively grow their business as well.
To understand how to read the financial statements provided to them by their Edmonton bookkeeping company, entrepreneurs should understand what reports they receive. The be receiving a balance sheet and an income statement at least once a month. Entrepreneurs should get into the habit of reviewing their balance sheet first. Not only is it going to be able to tell entrepreneurs what the financial position of their business is, but it will also help them find any errors that exist in the balance sheet and fix them so that they can have better tools to make their decisions with.
Entrepreneurs should be looking at their balance sheet in a six-month comparative statement. The reason for this is because viewing several months at the same time will be able to show entrepreneurs any inconsistencies or anomalies. If an entrepreneur is not able to explain the reason for those inconsistencies, then they should then look for the error. If they find an error they should also look at their income statement to verify that the error does not exist on both statements.
Business owners should also understand that a balance sheet is going to be able to help them figure out if they are losing any money due to a possible theft. How entrepreneurs can make this determination, is by using the balance sheet to do a bank reconciliation. If entrepreneurs see any uncleared transactions that have lasted for more than one statement, that should cause a business owner to verify those transactions. They may be errors due to dates being entered incorrectly, or transactions being entered twice. But if there are no errors that are discovered, business owners should investigate to see if the reason why those transactions have not cleared is that they do not exist.
By learning how to read the balance sheets of their business from their Edmonton Bookkeeping company, can help entrepreneurs make better financial decisions that can positively impact their business. Since many entrepreneurs in Canada fail in business because they ran out of money, avoiding this by reading their interim financial statements is something that all entrepreneurs should do.
A very simple way that entrepreneurs can increase their chances of succeeding in business is by learning how to read the interim financial statements prepared by their Edmonton bookkeeping company. The two different financial statements that entrepreneurs should become familiar with our balance sheet and the income statement. The reason why it is so important for entrepreneurs to learn how to read the statements is because industry Canada says that 50% of all entrepreneurs fail in business within the first five years, and when asked why, 29% of those business owners said the reason why they failed in business be because their business ran out of money.
Business owners often tend to look at the income statement that is given to them by their Edmonton bookkeeping company to make financial decisions, and while it is a good habit to get into reviewing those financial statements, business owners should not just review one statement, but review both and in the right order to be able to make the most impactful decisions. Business owners can review their balance sheet first because they will get an overview of what their business finances are like, and fix any errors. Once they have done that, they should look at their income statement and get a picture of the financial health of their business it is more immediately.
There Edmonton bookkeeping company will have their income statement organized very specifically so that entrepreneurs can learn how to easily read and understand the information on it. The income statement will have the revenue of the business, the cost of goods sold and the expenses. It should also be organized to fit on one page. The expense categories are simplified so that it allows them to all fit on a single page. If an entrepreneur has split their expenses into too many subcategories, it can get difficult to read, and forced the income statement to be longer than a single page. Entrepreneurs should ensure that they are as general as possible so that it can be easier to tell what all of the expenses of the business are.
The next thing that entrepreneurs will notice, is that there Edmonton bookkeeping company has the expenses of the business organized very specifically. By organizing them from most expensive to least expensive, entrepreneurs will be able to very easily look at the sheet at a glance and tell what has the biggest impact on the business’s bottom line. If an entrepreneur is looking to minimize the expenses in their business, they should spend their time on the top half of the list minimizing those expenses as they will have the biggest return on investment for the time spent.
When entrepreneurs can understand their financial statements, they can use them to make more informed financial decisions in their business and that can help them avoid financial problems, and also proactively grow their business so that they can avoid running out of money like so many entrepreneurs before them.