It is extremely important that entrepreneurs not only get financial statements regularly from their Edmonton bookkeeping company but also learn how to read them so that they can review them regularly as well. These interim financial statements can help entrepreneurs understand the financial health of their business, and how to make business decisions so that they can avoid issues, and be proactive in growing their business.
There are two most common interim financial statements that their bookkeeping company will be able to show them regularly. The balance sheet and the income statement. Entrepreneurs should be reading and understanding the balance sheet first before looking at the income statement. The reason is, the balance sheet will show the financial health of the business, as well as errors that could occur. Once an entrepreneur understands the financial health of their business and has fixed mistakes, the income statement can be a powerful tool used alongside the balance sheets.
When entrepreneurs are looking at the balance sheet given tone bar their Edmonton bookkeeping company, they will see the assets, liabilities, and equity of the company. This will tell entrepreneurs the financial position of their business and they will be able to see if they look at a six-month comparative statement of their balance sheet any anomalies that exist. Business owners need to look at these anomalies and figure out if they are mistakes or unique circumstances. If an entrepreneur can explain the inconsistencies, they can make a note of why things are different in that month. Perhaps they purchased a large asset or had three payrolls and one month. If an entrepreneur is unable to explain the inconsistencies, then they should look at whether it is a mistake.
After an entrepreneur has verified that the balance sheet is accurate and there are no errors on that, they should then take a look to see how healthy their cash flow position is. There Edmonton bookkeeping company will send in their balance sheet that shows all of the cash and liquid assets, as well as the Accounts Receivable. If an entrepreneur notices that both are low, that is indicating a future cash flow problem. An entrepreneur should be proactive in this instance to increase the revenue to address the cash out the problem, or they may need to arrange to finance or contribute personally to the business to avoid problems that cash flow problems bring.
Of the ways that entrepreneurs can use their balance sheet to find problems in their business, is if they notice that there are uncleared transactions for longer than one statement. This could indicate that the reason why these amounts have not cleared the bank is that they do not exist. Entrepreneurs should review these uncleared amounts to see if there is a mistake with them, and if not it could indicate a larger problem that entrepreneurs can fix.
By reviewing their financial statements from their Edmonton bookkeeping company regularly, entrepreneurs can see the financial health of their business, and also use the information to fix errors and grow their business.
When an entrepreneur receives their financial statements from their Edmonton bookkeeping company, they should always get into the habit of looking at their balance sheet first and fixing errors before they move onto their income statement. These are two very powerful tools that entrepreneurs can use in their business to understand what is going on financially, and if there are any ways that they can make changes to their finances is there a marketing plan to address any issues.
When entrepreneurs are looking at their income statements after they have looked at their balance sheet, they should notice several things. The first thing is that there Edmonton bookkeeping company should have arranged all the information to fit on one page. The reason for this is that is going to be very easy to read as well as understand if it is on one page. If an entrepreneur’s doing the books themselves, they may see that they are income statement does not all fit on a single page and that might indicate that their expenses are split into two many different categories. By simplifying the categories, entrepreneurs can more easily see where their expenses their business is coming from which can help them minimize those expenses if necessary.
The next thing that entrepreneurs will notice is that their income statement is arranged in numerically descending order. This means that the highest expenses are at the top of the list. The reason why this is important to note is that if an entrepreneur is looking to minimize expenses in their business, all they need to do is look at the top half of the list to see if there are anyways that an entrepreneur can quickly minimize expenses. By spending time at the top of the list, that will give an entrepreneur the biggest return on investment. By minimizing expenses on one or two of those items, it can most drastically improve the entrepreneur’s bottom line.
The next thing that entrepreneurs should understand when they get their income statement from their Edmonton bookkeeping company, is that if they look at this report in a comparative six-month statement, it will also help entrepreneurs see the variances, anomalies, and seasonality of their business. If they notice that they tend to have low revenue in a certain month they can make marketing plans around once that are typically lower than others.
By learning how to read and understand their income statement, can help entrepreneurs plan their business around what is going on financially, help them to see what the financial trends are so that they can be proactive in avoiding problems and proactive in growing their business. By learning these things, entrepreneurs can increase their chances of succeeding in their business more effectively than if they were not looking at their financial statements in the first place.