If entrepreneurs do not learn how to read a balance sheet of their business, they will not be able to gain a complete understanding of the financial state of their business says Edmonton bookkeeping. The balance sheet of the corporation is an extremely invaluable tool for learning how the business is doing financially. If entrepreneurs want to know what they need to do in their business to be successful, learning how to read their balance sheet is an important first step. This will be able to help entrepreneurs see if their business is profitable, and by using this information together with their income statement can help entrepreneurs gain important insight into their business so that they can set the direction for the future.
The first thing that entrepreneurs need to learn is what information is actually on their balance sheet. Edmonton bookkeeping says that there essentially three different areas of the balance sheet that will paint the financial picture of the business. There are the assets of the corporation, the liabilities of the corporation and the equity in it. The assets will be listed on the balance sheet first, and how they are organized is extremely important. The assets will be listed in the order that is easiest to make them liquid. This means that cash will be at the top of the list, in all of the bank accounts of the business. Ideally, Edmonton bookkeeping says that business owners should only have one bank account which is a checking account used for business expenses. A business owner might choose to have a savings account in their corporation as well, but any more bank accounts than that can be confusing to keep track of and can increase exponentially the bank fees that an entrepreneur will have to pay.
In addition to the cash in the assets of the corporation, the other assets in a business will be all of the money that an entrepreneur is owed in their Accounts Receivable section. Everything that an entrepreneur has build-out for, any of their products and services will be included here. Anything that an entrepreneur has invoiced and is waiting for payment on. It is extremely important that entrepreneurs pay attention to this section because while a large Accounts Receivable can mean that an entrepreneur is producing a lot of products, it also might mean that entrepreneurs not successful in collecting the money that they are owed. It is extremely important that an entrepreneur keeps a close eye on this, to ensure that the amount that they are owed is in new invoices and that they are successful in collecting payment from customers regularly.
By being able to understand information on their balance sheet, and how to use that information is extremely important, because this can help entrepreneurs understand what they need to do in their business. This can help them figure out if they need to increase their revenue, decrease their bills, and if they can take money out of their corporation or not.
Edmonton bookkeeping says that there are three common reasons for business failure in Canada, 29% of all entrepreneurs who failed said that the reason why their business failed was that they ran out of money in their business. Entrepreneurs who learn how to read their balance sheet early on their business can use that information to be proactive in their company, learning if they need to increase their revenue, cut expenses, have someone collect money for them. Without understanding the finances of their business, it can be extremely hard for an entrepreneur to make decisions on how they are going to grow their business. Learning how to read and understand the balance sheet is the best place for entrepreneurs to start.
The balance sheet will show the assets of the corporation as well as the liabilities. Business owners need to pay special attention to the liabilities because these are all of the bills and money that a corporation owes. An entrepreneur will want to ensure that this is not increasing exponentially from month-to-month. Higher liabilities may be an indication that entrepreneurs are growing because the more they grow the more bills though have., But it could also be an indication of expenses that are out of control, or that entrepreneurs are not paying the expenses that they have. Regardless of the reason, business owners should look at this first, to gain an understanding and then look for a cause if it looks troubling.
Edmonton bookkeeping says that the liabilities that an entrepreneur should expect to see on their balance sheets are all of the bills of the corporation. This includes the credit cards and the balances that they owe on those cards, all of the bills that they are owed for services and products rendered. For example the utility bills of the business, cell phone, and Internet, materials of the business that is needed to produce the products. In addition to those bills, other items that should be included in the liabilities of the corporation is payroll, the loans that a business owner has and must pay for, as well as all of the taxes that the business owner owes to the government. This is source deductions for payroll, GST, federal and provincial tax.
By being able to understand all of the liabilities, and what it is telling a business owner when they see the Edmonton Bookkeeping liabilities are growing or shrinking. Not only is it important for entrepreneurs to look at their balance sheet, but they should look at a comparative statement over the last few months so that they can see if their liabilities are growing shrinking or staying the same. This can be a helpful indicator for entrepreneurs to use in order to decide if they need to cut expenses, or if this is an indication of their business growth. Business owners will not be able to get a complete understanding of the finances in their business without completely reading and understanding their balance sheet