Entrepreneurs should understand that they will be receiving interim financial statements from their book Edmonton bookkeeping company keeper at least once a month. The reason this is important is that if entrepreneurs do not understand the information that they are sending, they are not able to use these reports to help make improved financial decisions in their business. 50% of all entrepreneurs fail in business before their fifth year, and 29% of those entrepreneurs fail because they ran out of money. By being able to read the interim financial statements and make better financial decisions because of its, can help entrepreneurs avoid running out of money in their business, and increasing their business finances.
The two interim financial statements that a business owner should be most familiar with our the balance sheet and the income statement. Edmonton bookkeeping company will send the entrepreneur both of them, and entrepreneurs often look at and make decisions on their income statement without even looking at their balance sheet. Entrepreneurs should know that this is not the most effective way of looking at this information. Instead, entrepreneurs should get into the habit of reviewing their balance sheet for their income statement. This is not to say that the balance sheet is more important than the income statement, but understanding that the balance sheet shows the financial overview of the business on a long term whereas the income statement will show the financial health of that business in that current month can help entrepreneurs understand that it is important to look at the overall financial health of the business before looking at the more immediate financial health of the business.
The financial statements that entrepreneurs receive will help business owners see any anomalies or any errors. They will be looking at a list of assets, a list of liabilities and then the equity in their business. By looking at a six-month comparative statement, entrepreneurs should easily be able to see if there are any inconsistencies in one month over others. When they see that an entrepreneur should ask themselves what is the cause of this inconsistency? By taking into consideration the things that happened in that month or the anomaly occurred can help entrepreneurs figure out if it is in mistake or if it is just an unusual circumstance. For example, a month for a large asset was purchased can show up as an anomaly, or if they had an extremely high payroll month because they had three payroll periods in that month, or they had to hire a bunch of seasonal staff. By understanding this information can help entrepreneurs fix errors, and see the financial health of their business.
Once entrepreneurs have looked at their balance sheets from their Edmonton bookkeeping company, will be able to see the liquid assets in their business compared to the liabilities and gain an understanding if there is more assets than liabilities then that is positive for their business. If there is more liabilities than assets, entrepreneurs might decide that they should engage in some revenue-generating activities so that they can increase their assets and pay down their liabilities.
In oversights that entrepreneurs can make is by looking at the income statement instead of the balance sheet will looking at the interim financial statements prepared by their Edmonton bookkeeping company. While the balance sheet is not more important than the income statement, it should be reviewed first. Once an entrepreneur is satisfied with the overall financial health of the business, that is when they can look at the income statement. The income statement will show the revenue of the business as well as the cost of goods sold and then the expenses of the business.
When entrepreneurs are looking at how they are Edmonton bookkeeping company has organized their income statement, they should see at the top of the revenue of the business, next the cost of goods sold, and finally the expenses. It should be organized to fit on one page in order for entrepreneurs to be able to easily read and understand the report. If it does not fit onto one page, the reason is that the Edmonton bookkeeper may have split the expenses into too many subcategories. The reason why that is a problem, is because the more categories, the harder it is for entrepreneurs to understand the overall expenses of the business. By putting them into more generalized categories entrepreneurs can gain a better understanding of the expenses of the business. For example, if they split the expenses of the office into several categories say paper, pens, staples, instead of leaving it all in office expenses, it will become too confusing to figure out how much money is being spent in certain areas. Generalized expense categories can help entrepreneurs see the bigger picture.
The also notice that there Edmonton bookkeeping company is organizing the expenses in numerically descending order so that the most expensive items end up at the top of the list. Business owners will see that the items that exist at the top of the list are more likely to be administration salary, and rent. By spending time minimizing the expenses at the top of the list is going to allow a business owner to affect the bottom line quicker and with less effort than if they were trying to minimize the items of the bottom of the list. Those expenses tend to be things like phone bills and bank fees. Even if an entrepreneur gets their phone bills in their bank fees for free, it is not going to mean the difference between an entrepreneur succeeding in business or not.
Once an entrepreneur understands what has on their income statement, how to use that information in order to minimize expenses, they will be able to more effectively and consistently minimize the expenses in their business that can help them increase their profit and increase the cash flow of their business. By understanding this, can help entrepreneurs run a business more efficiently and effectively.