Many business owners may not understand why it is important for them to learn how to do bookkeeping when they are planning on hiring and Edmonton bookkeeping company. The reason they should still learn how to do some basic bookkeeping. Is so that they can gain a deeper level of understanding about their business finances. As well as understand what their bookkeeper is doing.
If a business owner does not have any previous business ownership experience. Or if they do not have any business financing experience. They may struggle to understand even the most basic concepts. And that can impact their ability to make financial decisions in their business.
Even if the decisions are very simple, like if they can afford to pay their staff. Or if they have enough money to pay bills. The more they understand about their business finances. The better equipped they are at not just making simple business decisions. But helping them make large ones. Such as avoiding running out of money. But also increasing their revenue.
Another important reason that entrepreneurs should learn about basic bookkeeping. Is so that they know what their bookkeeper is doing. For example, when their Edmonton bookkeeping company since them their interim financial statements. If a business owner is knowledgeable about those interim financial statements. They may see irregularities.
If they ask their bookkeeper to explain the irregularities. They might be able to easily explain that more fix the mistakes. But if a bookkeeper cannot explain the differences. They might not know enough about the entrepreneurs business or their industry. And they might not even know enough about bookkeeping to do the proper job.
And if an entrepreneur is not knowledgeable enough to ask those questions. They may use those interim financial statements to make a business decision. That may cause them harm to their business. Because the interim financial statements are wrong.
Therefore, it is extremely important for an entrepreneur to learn some basic business bookkeeping. So that they can be armed with knowledge when they look at all of their financial information.
They can start the process by purchasing accounting software. And starts inputting some data into the program. The recommendation is for them to purchase the same software as their bookkeeper. So that when they send files back-and-forth. No data is lost by having to switch formats.
Once a business owner gets the hang of entering in information into the accounting software. They will start to understand things such as their inventory, and why it is important to keep one. Cost of goods sold and cost-plus. The margins of their business, and proper pricing. To make those margins.
They will understand things like how to control their costs, how to do some simple financial forecasting. An understanding if their business is profitable. And if not, what they can do to make it more so.
These things are all very powerful for entrepreneurs to learn says Edmonton bookkeeping. And the more they understand, the better their financial decisions are going to be. The sooner entrepreneur learns these things, the sooner they will be able to positively impact their business and succeed.
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It is very important for an entrepreneur to understand their business finances says Edmonton bookkeeping. The sooner they learn this information. The sooner they can avoid making the wrong decisions in their business.
Business owners should keep in mind that 50% of all Canadian entrepreneurs end up failing in their business. And the second most common reason why is because they run out of money.
Therefore, when business owners gain a better grasp of their business finances. They will be able to make better decisions. That can help them avoid running out of money in their business.
One of the most important things they can do to help them achieve this says Edmonton bookkeeping. His learning how to read their interim financial statements.
A business owner should be looking at these financial statements prior to making any financial decision in their business. No matter how big or small that decision is. The reason why, is because it will show them the financial state of their business. And whether or not they can afford to make that decision or not.
The two interim financial statements they need to learn how to read as quickly as they can our their balance sheets, and income statements.
The balance sheet shows all of the assets, liabilities, and equity of the business. That will show an entrepreneur the overall health of their business. Based on if they have more assets than liabilities in their business.
The income statement also called the profit and loss statement. Shows the profitability of the business within a specific frame of time. It will tell an entrepreneur if their business is profitable within that frame of time. Based on how much their net income is, or how much their net loss is.
Business owners should keep in mind that they are most likely going to see these statements in a six-month comparative statement. Which means they are going to see six months of financial information at a time.
This is to allow the business owner to compare the results of several months at the same time. To give them an idea of how the business is performing over time. Our they increasing the revenue over time. Decreasing revenue over time. As the revenue stays the same.
These six-month comparative statements will also help an entrepreneur see if there is an anomaly. Such as one month that has an extremely high spike in profitability. Or extremely low profitability in a month.
An anomaly can point to a mistake that the business owner or bookkeeping company has made. Or it can be explained by something unique or unusual happening in their business within that month. Such as a weeklong convention that brought a phenomenal amount of business to the entrepreneur very unexpectedly that month.
By understanding their interim financial statements. Can help an entrepreneur know if they can spend money in their business says Edmonton bookkeeping. And if not, what they need to do in order to be able to spend that money or make those payments.