Entrepreneurs must learn how to read the interim financial statements given to them by their Edmonton bookkeeping company. If entrepreneurs are not using the interim financial statements to make business decisions, they are putting their business at risk, by running their business without a roadmap. Not only is it important for entrepreneurs to be looking at these interim financial statements on a regular basis, but that they also understand not only how to read them, but how to use them in their business to make more informed decisions in their business.
One way that entrepreneurs can learn how to read their interim financial statements, is to understand the two most important financial statements their Edmonton bookkeeping company will send to them on a monthly basis. Some bookkeepers will even send the statements every two weeks because it is good practice for an entrepreneur to look at these financial statements to understand if they can disburse payments or run payroll. Since an entrepreneur typically runs payroll every two weeks in their business, this can be very powerful to arrange with their bookkeeping company to get these interim financial statements every two weeks so that they can understand if they can afford to run payroll or not.
The first interim financial statement that entrepreneurs need to read from their Edmonton bookkeeping company is their balance sheet. The reason why the balance sheet is the important one to look at first, not only is it the one that is easiest to catch errors on but also because it is going to tell entrepreneurs what the financial position of the business is. They are going to be able to see the profit and loss of the business which is more important than seeing the most current revenue of the business. The balance sheet is going to help entrepreneurs understand the overall financial health of the business, while the income statement is going to show entrepreneurs the current financial position of the business. What this means, is that the business overall might be doing well, but the income statement might show an entrepreneur that they have had a challenging month. Or, the overall financial health of the business might be declining, but the income statement might show that that is starting to improve.
After an entrepreneur reviews the balance sheet first and ensures that there are no errors on it, they can use that information in order to see if they are potentially losing money due to someone stealing money in their business, or if they are about to have a cash flow problem. These things are all extremely important and are only able to be seen by looking at the balance sheet of the business first. When entrepreneurs get into the habit of reviewing these interim financial reports from their Edmonton bookkeeping company, they will be in a much better position to be able to make informed financial decisions that can positively improve the finances of their business.
A huge mistake that entrepreneurs often make especially when they are starting in business, is by not reviewing the interim financial statements given to them by their Edmonton bookkeeping company. Intuit’s, who are the makers of QuickBooks did a survey of entrepreneurs in order to discover how financially literate they were in their business finances. The questions included what the role of the balance sheet is, what are accruals and how to improve cash flow in their businesses. Out of all of the people who responded, 82% scored less than 70% on the test. This shows that a lot of entrepreneurs do not have a great understanding of the finances of their business. If entrepreneurs can improve this, they can then make better financial decisions that can not only improve their business but help them avoid some of the most typical reasons why entrepreneurs in Canada fail.
The two interim financial statements that entrepreneurs are going to be seeing from their Edmonton bookkeeping company are the balance sheets and income statements. The income statements are often the most easily understood, but they need to be reviewed after an entrepreneur has looked at the balance sheet and gain to complete understanding of it and corrected any errors. Errors that existed on the balance sheet will most likely exist on the income statement, however business owners will be able to find those errors as easily on the income statement first, which is why this is owners should look at the balance sheet first.
The next thing entrepreneurs should do is take a look at the income statement and understand how it is organized. There is going to be the revenue at the top including the cost of goods sold and then the expenses of the business. The expenses of the business are going to be ordered in a numerically dissenting fashion so that the most expensive expenses exist at the top of the page. The reason for this is so that entrepreneurs can more easily see the items that affect the bottom line the greatest.
By understanding that there Edmonton bookkeeping company has put the most expensive items at the top of their expense list, entrepreneurs should use this information to understand all they have to do in order to minimize expenses is spend time on the top half of the page instead of the bottom half. Just expensive items that will exist on their list include rent and administrative staff. If they can decrease their rent by any means either by signing cheaper rent somewhere else when their leases up, or purchasing a building, entrepreneurs can greatly affect the finances of their business. Also, if entrepreneurs can minimize admin staff salaries, they will be able to drastically increase the finances in their business. Perhaps they can put one of their admin staff during downtimes onto revenue-generating activities, to offset that cost and minimize the cost to their bottom line. There are all sorts of ways that entrepreneurs can minimize expenses, but understanding how they can do it, and how to do it in an effective and efficient manner can help entrepreneurs increase the profits of their business by minimizing the expenses.