If entrepreneurs are looking for a way that they can easily impact the finances of their business, it would be learning how to read the interim financial statements prepared by their Edmonton bookkeeping company. The reason for this is because when entrepreneurs can read and understand both the balance sheet and income statement that they receive every month from their bookkeeper, they will be able to use that information to make impactful business decisions that can not only help them avoid financial problems but proactively grow their business.
In order to learn how to read the financial statements, entrepreneurs need to understand what financial statements there are, and what needs to be understood first. Business owners will receive a balance sheet and income statement from their Edmonton bookkeeping company, and it is important that the read and understand the balance sheet first. The balance sheet gives an overview of the overall financial health of the business, while the income statement will show the more immediate financial health of the business. An entrepreneur needs to understand the overall financial health before they delve into specifics. The reason for this is if an entrepreneur sees that the overall financial health is very positive, they will be able to forgive a lower-income statement, or, if an entrepreneur understands that the overall financial health of their business is poor, a really positive income statement might help them understand that they are recent marketing activities are something that they should continue doing.
Also, entrepreneurs should know that it is advisable to review their balance sheets first, and in a six-month comparative statements so that they can more easily see any inconsistencies. Inconsistencies may indicate unusual circumstances that occurred in that month such as an asset purchase, or they may indicate an error. If there is nothing that can explain those inconsistencies, entrepreneurs should look for the error. What they will find is an error on their balance sheet will most likely show up in their income statement as an error as well. While these errors will show up on the balance sheet they will not show up on the income statement if that is the first place that a business owner is looking. Therefore it is extremely important that entrepreneurs understand they need to look at their balance sheet first to minimize errors before they look at anything else.
Other things that their balance sheet can tell entrepreneurs when they receive them from their Edmonton bookkeeping company, is that a balance sheet can help entrepreneurs understand if there losing money due to theft. The way entrepreneurs can determine this, is if they see a number of uncleared transactions, that have occurred for more than one month, they should look to see if those uncleared transactions are because of an error, or if because maybe that money has been stolen and that is why it is not showing up in the bank account. When entrepreneurs seen uncleared transaction that should cause a business owner to immediately review it for errors, and if no errors occur, to review the finances of the business to avoid losing more money to theft.
Learning how to read the financial statements of the business provided by their Edmonton bookkeeping company can positively impact entrepreneurs and their business finances. The information contained in the interim financial statements can help entrepreneurs not only understand the finances and if they are increasing or decreasing, but an entrepreneur can learn to be proactive that information to help them make business decisions that can improve their finances.
An example of this, is if an entrepreneur looks at their balance sheet they will be able to see if there is going to be a cash flow problem in their business. Instead of discovering far too late, when an entrepreneur has not enough money to pay bills, it could have been avoided simply by looking at the balance sheets given to them by their Edmonton bookkeeping company. For example, the balance sheet shows entrepreneurs the assets, liabilities and equity of the business. By looking at the cash assets, compared to the Accounts Receivable, if an entrepreneur sees that both are low, that generally indicates that there is going to be a cash flow problem. Not only is the current cash low, but the business owner is not going to be expecting money in from the looks of things in the Accounts Receivable. That means in another month, a business owner might not have the money to make payroll or pay for their bills. An entrepreneur may choose to increase their marketing activities, they may seek out financing from a financial institution, or they may decide to put money personally into their business to mitigate the cash flow problems. By being proactive, entrepreneurs will be able to avoid situations that cause other businesses to fail. Industry Canada says that 50% of all Canadian entrepreneurs fail within the first five years of owning a business, and 29% of those failed entrepreneurs say the reason why their business failed was because they ran out of money. By looking at their balance sheet on a regular basis can actually help entrepreneurs avoid this fate
Another important proactive tip if entrepreneurs want to use their interim financial statements in order to avoid financial problems, is by reviewing the income statement provided by their Edmonton bookkeeping company. The information on a income statement is the revenue, the cost of goods sold and the expenses. The expenses will be listed in numerically dissenting order, which will make it extremely easy for an entrepreneur to be able to tell which expenses will have the most impact on their business if they minimize them. Rather than trying to minimize expenses that are going to impact the bottom line that much, entrepreneurs will be able to make best use of their time minimizing expenses that are going to have the greatest effect on their business. By doing this, entrepreneurs can increase the profits of their business through expense minimization, and help their business succeed.