When entrepreneurs are hiring Edmonton bookkeeping company for their business, they should understand that they will be getting interim financial statements at least every month from their bookkeeping company. Entrepreneurs should get into the habit of reading these financial statements regularly so that they can use the information to help their business succeed and grow. 50% of all entrepreneurs close their business within five years, and 29% of those entrepreneurs say the reason why their business closed is that they ran out of money. By learning how to read these financial statements can significantly help entrepreneurs avoid that fate.
One of the two most common financial statements that their Edmonton bookkeeping company will give them, there is a balance sheet and an income statement. The first thing that entrepreneurs should do is look at the balance sheet first and understand that before looking at their income statement. The reason for this is because entrepreneurs will be able to see but the financial position of the business is, see the profit and loss and errors that are harder to see on the income statement.
When entrepreneurs are looking at their balance sheet, they should be looking at a six-month comparative statement instead of just the previous month. The reason this is so important is that looking at their balance sheet on a six-month statement can help entrepreneurs see any inconsistencies or anomalies that have occurred in one month over another. It may be difficult for entrepreneurs to see the anomalies if they’re only looking at one month at a time, but once the months are all side-by-side, it is much easier to see if something is going on in one month instead of another. When entrepreneurs see that, the first thing they should think of is can they explain the inconsistencies. One month might have an asset purchase or additional payroll that other months do not have. If they can explain it is when they can make notes on which months tend to have anomalies, and if not, entrepreneurs should talk to their Edmonton bookkeeping company to tell them where the error in their balance sheet occurred.
Entrepreneurs should always be looking at their balance sheet every single month, even if no large asset purchases have been made because it will help entrepreneurs see their financial position and see all of their liquid assets compared to all of their liabilities. The reason this is important to see this report from their Edmonton bookkeeping company is that this report will be able to show entrepreneurs if they have a cash flow problem in their business or if one is threatening to show up in the future. If they see that the cash in their business is low and the Accounts Receivable is also low, that means that they have a little amount of cash, and are not expecting many payments to come in. This may indicate that a business owner may need to engage in some revenue-increasing activities, obtain financing or contribute personally to their business. By understanding this report, entrepreneurs can be proactive in what they need to do in their business to avoid problems, grow their business and succeed.
Entrepreneurs can do after receiving their financial statements from their Edmonton bookkeeping company, is review and understand them. They should be getting to reports in particular one being the Paul sheet and the other one being their income statement. Once an entrepreneur has read and understood their balance sheet, and fixed any errors or explained any anomalies, the next thing that they should do is look at their income statement.
When entrepreneurs are looking at the income statement given to them by their Edmonton bookkeeping company, they should notice a few things about it right away. The entire report should all fits onto one page in the reason for that is because a one-page income statement will be easy to read and understand. To achieve this, the expenses of the business will be put into generalized categories. Entrepreneurs who are doing their bookkeeping may try to split the expenses into several different categories, but all this is going to do is make the expenses more difficult to easily read and understand.
The next thing that entrepreneurs will discover about their income statement, is that the expenses are going to be listed in numerically dissenting order. The reason why their Edmonton bookkeeping company will do this is that it will make the highest expenses appear at the top of the list. This way, an entrepreneur will be very easily able to tell what are the highest expenses in the business, and if the entrepreneur is going to spend any time minimizing expenses, they should spend time on the top half of the list. This is going to give entrepreneurs the largest return on investment in terms of time spent on expense minimization. Examples of what is going to appear at the top of the list will be rent and administrative labor. Examples of expenses that are going to be at the bottom of the list include phone bills and bank fees. If an entrepreneur can spend time minimizing administrative labor, it is going to have the greatest effect on the bottom line as opposed to trying to save a few dollars on bank fees.
Just like the balance sheet, entrepreneurs need to learn how to read the income statement as a six-month comparative statement as well. This will enable entrepreneurs to see the variances, anomalies, and seasonality of their business as well. These trends can help entrepreneurs create plans for the future such as if they notice that one month is consistently low one revenue, they can create their advertising and marketing plans around that month.
Entrepreneurs are better able to read and understand their interim financial statements, they will be well-equipped to avoid financial problems in their business, and be proactive what they need to do in their business to increase their sales and avoid financial difficulties.