One of the most important financial activities that an entrepreneur can do in their business, is to understand how to effectively review the interim financial statements given to them by their Edmonton bookkeeping company. It is not just important that entrepreneurs are getting help with getting their finances done regularly, but being able to use that information in their business can help guide entrepreneurs towards great financial decisions. Since 50% of all entrepreneurs fail in business within the first five years, and 29% of those failed entrepreneurs say that the reason why their business failed was that they ran out of money, learning how to read these reports can significantly impact that statistic for business owners.
The two different reports that entrepreneurs should get accustomed to receiving from their Edmonton bookkeeping company are the income statements and balance sheets. They should be receiving these acts minimum once a month, and best practices say that entrepreneurs should be getting these reports before making any financial decisions in their business. For example, some bookkeeping companies send out these statements before an entrepreneur runs payroll. Will be able to see the financial health of their business and if they can afford to run payroll in their business, and if not they will have the time to increase the revenue in their business so that they can make that payment.
The next thing that entrepreneurs should keep in mind is that the balance sheet is going to tell entrepreneurs with the overall financial health of their business is. The reason why entrepreneurs should look at this report first is so that their better able to discover any errors that might exist. They should ask their Edmonton bookkeeping company to give them the reports in a six-month comparative statement so that they can more easily scan the months for any inconsistencies or anomalies. If any are found, entrepreneurs should see if there is any reason to explain those inconsistencies. Such as having an extra high cost of payroll due to seasonal workers, or making a large asset purchase and one month.
Once an entrepreneur has verified that there are no errors, then they can use that information to help them make bank reconciliations. By doing a bank reconciliation before they make any purchases, can help entrepreneurs understand how much money exists in their business at that moment. If entrepreneurs are looking at their bank balance instead of their balance sheet or bank reconciliation, they could put their business at risk by thinking there is too much money than they have in their business. Uncleared transactions show up in a bank statement as more money than an entrepreneur has to spend. Should get into the habit of reviewing their balance sheet to understand how much cash they have to spend rather than their bank statement.
By learning how to read these reports, and use that information to make informed financial decisions can help entrepreneurs not only avoid running out of money in their business but make proactive business decisions that can help them grow their business.
into it, the makers of QuickBooks wanted to test the basic business financial literacy of small business owners. The quizzes them on basic financial questions such as how to improve cash flow in a business, what is the role of a balance sheet and what our accruals. Out of all of the respondents, 82% scored less than 70% on the test. One of the most significant problems that entrepreneurs face today is that they are very good at their business, that does not necessarily mean that they are good at running their business. There are many things that entrepreneurs need to learn so that they can make informed financial Edmonton Bookkeeping decisions in their business.
One of the biggest mistakes that entrepreneurs make when they receive their interim financial statements from their Edmonton bookkeeping company is reviewing their income statement first and as an only way of making financial decisions in their business. While entrepreneurs need to do, it should not be the first thing that entrepreneurs look at, and it definitely should not be the only thing that they are looking at to make financial decisions. The income statement is going to help an entrepreneur understand what the current finances of their business are like, where is the balance sheet is going to help an entrepreneur understand what the overall finances of their business are like. Once an entrepreneur understands what the overall financial health of their business is, and reviewed their balance sheet to find and fix errors, that is when entrepreneurs can and should look into their income statement.
Business owners will find that their Edmonton bookkeeping company will organize their income statement is that it all fits on one page so that it can be more easily read and understood. To achieve this, the expenses are not broken out into several expense categories, because that would not only make it hard to fit all of the expenses on one page but it also makes it much more difficult to read. They also notice that the expenses are listed in numerically dissenting order, with the largest expenses at the top and the smallest expenses are at the bottom of the page. This is done on purpose, and so that entrepreneurs can glance at the top of the page to see the expenses that affect the bottom line of the business the most. If entrepreneurs would like to minimize the expenses in their business the most efficiently, they should spend their time on the top half of the list. Also, entrepreneurs should understand that if they spend time looking at the expenses at the bottom of the list, they can reduce those costs to next to nothing and it is still not going to impact their business in a great way. For example, bank fees will appear at the bottom of the list, and even if entrepreneurs can get rid of all of their bank fees it is not going to mean a lot in terms of affecting the bottom line of the business.