Reviewing the financial information of their business to be considered an extremely important task says Edmonton bookkeeping. Learning how to do this well can help entrepreneurs create a plan for how they are going to succeed in their business. The three most common reasons for businesses to fail are running out of money in their business, not being able to find the right market for their business, and not finding the right team. All of those things can be avoided with the right plan, and if entrepreneurs are reviewing their balance sheet regularly, they can ensure that their business is growing according to the plan that they created with their accountant. However, this means that entrepreneurs not only have to make time to review their interim financial statements including their balance sheet, but they also need to know how to use the information in that balance sheet to make impactful decisions in their business.
One of the most important things that entrepreneurs should learn about their balance sheet is the asset section. This shows the current assets including the cash. Many entrepreneurs do not understand why they need to look at the cash in their balance sheet when they can easily open up their bank statements and see how much money is in their bank account. Edmonton bookkeeping says that the reason this is so important is because their bank account will not show them how much money that they have to use taking into consideration all of the pending transactions that might be waiting to clear. However, the cash in the balance sheet will show an entrepreneur how much money they have with all of the pending transactions taken into consideration. If an entrepreneur looks at their bank account to make a financial decision if they can write a check or make a purchase, it may cause them to spend more money than they have and balance those checks.
In addition to the cash, an entrepreneur will notice that the Edmonton Bookkeeping Accounts Receivable is listed in the asset section of their balance sheet. The reason why it is listed here is because it is the amount of money that an entrepreneur is owed. However, business owners need to be very careful when considering this amount because it does not amount that they have received yet. They have to ensure that their collecting that money from the people that have purchased their products, and it can be some work to collect money from clients who have decided they do not want to pay or they cannot pay. Once an entrepreneur has successfully collected money for those invoices, it will leave the Accounts Receivable balance and move on to the cash amount on the balance sheet.
By understanding all of the various sections on the balance sheet, and why they cannot look at the cash that has in their bank account to make financial decisions, can help entrepreneurs not only avoid running out of money in their business or putting a financial strain on it, can also help them increase the money that they have by helping them collect on the money that they are owed.
One of the big mistakes that entrepreneurs often make when they are looking at their interim financial statements from their Edmonton bookkeeping company, is that they more easily understand their income statement instead of their balance sheets, and use that to try and make financial decisions in their business. Unfortunately, the income statement does not show an entrepreneur an overview of the finances of their business, and if business owners are using that information to make decisions, it could put their business at risk. Even though and income statement is easier to review, learning how to review a balance sheet can be in even more impactful tool for entrepreneurs to use.
When looking at their balance sheet, business owners will see the top has the assets of their corporation, and the middle section is all of the liabilities of their business. The last section has equity and entrepreneurs need to be paying attention to the equity but especially about the liabilities and assets. Edmonton bookkeeping says that the equity refers to the shares of the Corporation as well as the dividends paid, and can show an entrepreneur how much money they have taken out of their business. It is important to be aware of this so that entrepreneurs are not making more money than they are making and revenue. Business owners should ensure that all of the dividends that they take out of their corporation is over and above all of the money that they need to pay to cover their expenses. They can review their balance sheets to find this amount.
When entrepreneurs are looking at their liabilities on their balance sheets, Edmonton bookkeeping says that they should also keep in mind the accounts payable section is all of the money that an entrepreneur owes. They should be watching to ensure that this does not start to increase exponentially over and above the revenue of the business. While a jump in the accounts payable section can mean that entrepreneurs have had to purchase more supplies for their products because they have been generating more sales for their business, if it has not gone up the same amount that their revenue has gone up, that might be an indication for entrepreneurs to look at minimizing the expenses in their business to increase profit margin. They can also be a clue for entrepreneurs to look at their price points as well.
Entrepreneurs must look at their balance sheet critically, to understand what the numbers are telling them and how they can use that information to grow their business and avoid making financial missteps that could put their business at risk.