Business owners should not underestimate the value and importance of reviewing the interim financial statements that they received from their Edmonton bookkeeping company. The reason why this is important is that business owners can gain valuable insight as to the health of their business finances overall, as well as currently in their business. They need to be able to read the statements to make positive financial decisions that not only can help them avoid financial problems, but also positively impact their business and Rohit with.
The first thing that entrepreneurs can learn when it comes to reading their financial statements, is that there Edmonton bookkeeping company is going to be giving them their statements as balance sheets and income statements. Business owners need to know what is on those reports, and what order to look at them, to get the best information out of them. The first thing that entrepreneurs should do, is looking at their balance sheets, and look at it in a six-month comparative statement. The reason why entrepreneurs should do this is that this is the way that they can check for errors in their business. The six-month comparative statement will allow entrepreneurs to see if there are any anomalies or inconsistencies from one month to the next. If there are any inconsistencies, an entrepreneur should research to find if there is a reason that those inconsistencies exist. Reasons could include having a high payroll month due to needing to hire seasonal staff or make a large asset purchase in their business.
Once an entrepreneur has verified there are no errors, or have fixed the errors on their balance sheets, annexing that they should do is review the assets to see the financial health of their business. By looking at the assets versus the liabilities, as long as an entrepreneur can verify that the assets are in a greater amount than their liabilities, then their finances are positive. However, entrepreneurs should also be looking at their assets to see if they are spelling out a future problem. Edmonton bookkeeping says that if entrepreneurs see that their cash is low but also their Accounts Receivable is low, that could potentially indicate a problem. The reason for that is because if the Accounts Receivable is low that means that an entrepreneur does not have more cash coming into their business. The reason why this is impactful is that that might mean it is difficult for an entrepreneur to pay for their bills if they have no cash and no money scheduled to come in. If an entrepreneur sees that, they should be proactive in their business and engage in some marketing and revenue-generating activities to help increase their sales so that they can increase their Accounts Receivable to increase the cash flow in their business.
By looking at their balance sheet, entrepreneurs can gain great insight as to the financial health of their business, and what they can do to avoid financial problems as well as what they can do to be proactive to increase their business in a meaningful way.
Learning how to read the financial statements from their Edmonton bookkeeping company can help entrepreneurs not only make great financial decisions in their business, from their Edmonton bookkeeping company but avoid running out of money in their business. Industry Canada says that 15% of all entrepreneurs fail within the first year of owning their business, 30% of entrepreneurs fail within their second year of owning a business, and by their fifth year, half of all entrepreneurs will have failed in their business. 29% of these failed entrepreneurs have gone on to say that the reason why their business failed is that they ran out of money in their business. Learning how to make proactive financial decisions not only avoid problems but grow their business can significantly impact an entrepreneur and increase their chances of succeeding in business.
One of the most important things that entrepreneurs will discover by looking at their interim financial statements, is gaining an insight as to the financial health of their business. Entrepreneurs will get a balance sheet and income statement from their Edmonton bookkeeping company. They should get into the habit of reviewing their balance sheet first and mitigating any errors that they find. The reason why they should be looking at their balance sheet to find errors first is that it is much harder to find errors on the income statement as opposed to the balance sheet.
Once an entrepreneur has found the errors and looked at their balance sheet, they also need to review their income statement to get a good overview of their current finances in their business. Entrepreneurs will find that there Edmonton bookkeeping company will have organized their income statement very specifically. It will have the revenue of the business, the cost of goods sold as well as the expenses in the business and it will all fit on one page. The reason why it should fit on one page is that it can be easy to read and understand. To achieve this, expenses should not be split into several expense categories and be more general. An example of this is when entrepreneurs can all of their office expenses into one expense account, instead of breaking their business expenses down into office paper, binding expenses, printing expenses. All of it can just fall under office expenses. By keeping this simple, entrepreneurs are better able to read the expenses of the business to help minimize those costs. They will find that their expenses will be listed and numerically descending order, but the highest expenses at the top of the list. To effectively minimize those expenses, entrepreneurs will need to spend most of their time at the top of the list rather than at the bottom. If they can find a way to minimize their rent or admin costs, that can more greatly affect their bottom line then spend a lot of time trying to figure out how to minimize their bank fees.
By understanding what has on their balance sheet and income statement and how to use that information can help entrepreneurs avoid financial problems, increase their profits, minimize expenses and overall grow their business.