It is important that when entrepreneurs receive financial statements from their Edmonton bookkeeping company, that they learn how to read them efficiently and effectively. Not only can these financial statements help entrepreneurs see how their business is doing financially, but they can also help entrepreneurs make plans to increase the revenue, or avoid financial difficulties. There are several things that entrepreneurs need to learn about when reading these financial statements.
The first thing that entrepreneurs should know is they are going to is getting a balance sheet and income statement from their Edmonton bookkeeping company. Before and on even looks at the income statement, they should look at their balance sheets. The reason is that by reviewing the balance sheet first, it can help entrepreneurs see if there are any errors or anomalies in the statement. Entrepreneurs looking at the balance sheet on a six-month comparative statement because seeing six months at a time will help entrepreneurs to see any inconsistencies from month-to-month. When they see an inconsistency, the entrepreneur should ask if they can explain the inconsistencies. They might have had three payrolls in a certain month or have purchased a piece of equipment that can end up showing that certain months look different than others.
Another thing that entrepreneurs can tell by looking at the balance sheet is if they are going to have a cash flow problem in their business. The way entrepreneurs can determine this is by looking at the cash that shows up on their balance sheet and the Accounts Receivable section. If both are low, that may indicate that an entrepreneur is going to run into a future cash flow problem. When entrepreneurs see this, they should make plans to fix this problem as quickly as possible through increasing revenue, finding financing for the business, or personally contributing financially.
Another thing that entrepreneurs can determine looking at the balance sheets given to them by their Edmonton bookkeeping company, is if an entrepreneur is losing money due to potential thefts. The way they can tell this is by looking at the uncleared transactions to see if several months have uncleared transactions that are still waiting to be deposited into the bank. Uncleared transactions that last longer than a month are often errors, but entrepreneurs should also rule out thefts first.
These are all the things that entrepreneurs should be looking at their balance sheet even before they start reviewing their income statements. While it is important that entrepreneurs also look at their income statement, it is possible to find errors and inconsistencies by reviewing the balance sheet first. Once they see those errors, they can fix it on their income statement and have a more accurate report to review.
By learning how to effectively read their financial statements, entrepreneurs will be in a better position to proactively make changes in their business to help their business grow or avoid problems in their business.
Entrepreneurs often are aware of how important it is to hire a great Edmonton bookkeeping company for their business, however, if they are not able to understand the reports that the bookkeeper sends them, what their bookkeeper does for them will be less effective. Intuit’s, who are the makers of QuickBooks did a survey of entrepreneurs to quiz them on basic business financial literacy. 82% of the people who responded to the survey scored less than 70% on the test. Entrepreneurs should learn some more basic business financial literacy so that they can use financial statements to help make better business decisions.
Entrepreneurs should understand the two most common reports that there Edmonton bookkeeping company is going to provide them regularly. The balance sheet and income statements are two reports that entrepreneurs should understand very well to make better financial decisions in their business. Also, other reports that their bookkeeper may send them upon request are the aging Accounts Receivable report, which is extremely helpful if an entrepreneur has an extremely long list of clients. This report can help entrepreneurs collect money from the clients on outstanding invoices, and see which ones are the most in need of collection. Business owners will also be able to get an aging accounts payable summary which will help entrepreneurs stay on top of all of their invoices coming in from vendors. Out of these reports, from their Edmonton bookkeeping company, entrepreneurs should always look at the balance sheet first. The reason for this is because the balance sheet is going to be able to tell entrepreneurs what the financial position of their business is. It allows them to see the profit and loss of the business as well as any anomalies or inconsistencies. If business owners can catch errors on their balance sheet first, it can fix them on the income statement for more overall accurate financials.
Once an entrepreneur understands a balance sheet, they should look at their income statement. The first thing they should notice is that it should all fit on one page so that it can be very easy to read and understand. Edmonton bookkeeping companies will try to simplify the categories of all the expenses so that the income statement can be simple to read and understand. Also, simplified expense categories can make it much easier to be consistent month-to-month on the expense categories. The next thing that entrepreneurs will discover looking at their income statement is that they should be listed in numerically descending order so that the highest expenses are listed at the very top. The reason why this is important is because for entrepreneurs to be with the figure out where they should spend most of their time in expense minimization, all they will need to do is look at the top of the list.
When entrepreneurs learn how to read their financial statements from Edmonton bookkeeping company, they will be better able to understand their finances and know what they need to do in their business to grow their revenue or avoid issues.