While many entrepreneurs have probably heard that it is important to review a balance sheet, Edmonton bookkeeping says that not a lot is in the habit of doing it. Part of the reason is entrepreneurs are not sure the end information that is contained on a balance sheet, and even if they understand it, they are not sure what they are supposed to do with the information. Learning how to read a balance sheet is an important skill for entrepreneurs to learn to help them make the most informed financial decisions possible. Once they do that, entrepreneurs will find that they can significantly impact their business as positively as possible.
The first step to learning how to review balance sheets is understanding the information on it. Edmonton bookkeeping says that business owners should see that the balance sheet has a list of the assets of the corporation and the top portion, the liabilities of the corporation in the middle section, and the equity at the bottom of it. These things are all important for business owners to review to get a clear idea of what is going on in their business.
Some commonly asked questions about the balance sheet are what are asset accounts in the asset section of the balance sheet? Edmonton bookkeeping says that this section is used to detail all of the physical assets that the corporation owns and uses to do business with. If the corporation owns the building that they operate out of, the building can be counted here. Vehicles that are used for business purposes, equipment including computers, and even furniture or fixtures can be counted is an asset. One way that business owners can figure out if it counts as an asset in the corporation or not can be as long as it has a useful life of one year or more, and it is over one thousand dollars in value. Some entrepreneurs choose to put in smaller assets to this section, and while it is not technically wrong, it can take a lot of time for entrepreneurs to not only list those assets but figure out the depreciation value of it on an ongoing basis. By listing the assets that there were thousand dollars or more, is allowing entrepreneurs to focus on the most important ones.
Another question that a lot of entrepreneurs have when it comes to their balance sheet, is it can their credit card be listed as a liability on their balance sheet? Edmonton bookkeeping says this should not be the case because ideally, business owners should never use their credit cards for business ever. However from time to time, it may happen, and if that is the case the best way to note it is in the shareholder’s loan account.
By understanding all of the various aspects of the balance sheet, entrepreneurs can start to understand not only what information is on the balance sheet, but how to use it.
One of the most common reasons for entrepreneurs to fail in Canada says Edmonton bookkeeping is running out of money in their business. 29% of all failed entrepreneurs give this reason is why they failed. Entrepreneurs can avoid this if they learn how to read a balance sheet. However, one of the reasons why entrepreneurs do not get into these habits is because not only do they not understand a balance sheet, if they do understand that they are not sure how to use it to make important financial decisions. Instead, they end up reviewing their income statement, which viewed alone does not give entrepreneurs a clear idea of the ongoing financial health of their business.
There are several things that entrepreneurs should keep in mind when they are reviewing their balance sheet so that they can use the information to make decisions in their business. When looking at the balance sheet, the top portion of the page will show a list of the entrepreneur’s assets in their corporation. Assets include Cash, Accounts Receivable and physical hard assets. Edmonton bookkeeping says cash is the first asset to be listed, and it is an important one for entrepreneurs to pay attention to. They might notice that the cash that is listed in their balance sheet is not the same as the money that has in their bank account. There is an extremely important reason why. The reason for this is because when entrepreneurs are looking at their bank balance, that is going to show the exact amount of money that is currently in their bank account at that given moment, but it does not take into consideration the amount of money that is pending in various transactions such as cash disbursements, or checks waiting to be cashed. If an entrepreneur uses the bank balance to determine how much money they have in their business to use, they may use more money than they have, because it is being spoken for in other areas. This could cause checks to balance, and other payments to not go through.
Other areas of the balance sheet that entrepreneurs should be aware of are the Accounts Receivable in the asset section. This is all of the money that an entrepreneur is over and wealth listed in the asset section, it is not money that an entrepreneur has received yet. By staying aware of the balance in Accounts Receivable, can help an entrepreneur collect that money. By engaging in collection calls, or at least reminder phone calls and emails, an entrepreneur can ensure that they are aware of the amount of money that they are owed so that they can ensure they are receiving it in a timely fashion.
Those are some of the ways that entrepreneurs cannot only understand the information that is on a balance sheet, but use the information in it to help them proactively in their business to not only avoid running out of money but helping them make better financial decisions in their business.