It is extremely important that entrepreneurs learn how to read their interim financial statements says Edmonton bookkeeping. Intuit, who are the makers of the accounting software QuickBooks surveyed small business owners and quiz them on business financial literacy. 82% of all of the entrepreneurs who responded to the quiz, scored less than 70%. Many entrepreneurs who are very good and the business that there providing, are not great at actually operating that business. Because of that, helping entrepreneurs gain financial literacy is very important. One way that entrepreneurs can do that, is learning how to read their income statements so that they can make more informed financial decisions in their business. The income statement is one half of the interim financial statement that an entrepreneur should always get into the habit of consulting any time they are about to make a financial decision in their business, whether it is purchasing an asset or running payroll.
Understanding all of the information on their income statement is an important first step in understanding all of the information in it. Edmonton bookkeeping says that there will be a revenue section where all of the income accounts of the business are indicated. There is the cost of goods sold, which there will be a separate cost of goods account for every income account an entrepreneur has. And finally, the bottom of the income statement will show the expenses of the business.
Many entrepreneurs do not understand the difference between the cost of goods and expenses. Ultimately, the cost of goods is all of the costs associated with producing the product or service that the entrepreneur sells. The expense, on the other hand, are all the expenses that are separate from the cost of goods and are what an entrepreneur is going to have to pay to keep their business open whether they sell products or services or not. These are typically rent, utilities, advertising, and office supplies just to name a few.
Entrepreneurs need to understand that there are several different expense categories to help entrepreneurs stay organized. Some of the most misunderstood expense categories say Edmonton bookkeeping are the meals and entertainment, payroll expenses, professional fees, and other expenses. Business owners need to understand that categorizing all of their different expenses can help them significantly if they ever intend to minimize those expenses to increase the profits of their business. There should not be so many different expense categories that it is confusing, but they clear an entrepreneur can mean the better the information is going to be to them.
Edmonton bookkeeping says that helping entrepreneurs fully understand their income statement can help them make better and more informed financial decisions in their business. By doing this, entrepreneurs cannot only avoid some of the most typical financial problems entrepreneurs have in business, and proactively grow their business as well. This is extremely important, and entrepreneurs should endeavor to increase their understanding of both their income statement and their balance sheet.
Helping entrepreneurs read their interim financial statements is vitally important to them being able to make informed financial decisions says Edmonton bookkeeping. Before an entrepreneur makes any financial decisions in their business, whether it is purchasing assets, running payroll, paying vendors, they should be reviewing their interim financial statements to see if they have enough money in their business to disburse that payment. If they are running payroll, and they discover that they do not have the money to pay it, and gives an entrepreneur the chance to either do some collections calls to bring that money in, or it can allow them to increase the revenue of their business so that they can afford to make that payment. Another example of this is if an entrepreneur wants to purchase an asset in their business, if they do not have enough money in their business to do that, then that can trigger an entrepreneur to create a plan of when they will be able to make that asset purchase. That kind of proactivity can significantly help entrepreneurs make the best financial decisions for their business.
When entrepreneurs are looking at their income statement, they should understand the revenue, cost of goods sold as well as expenses. The expenses are all of the various costs that are not related directly to manufacturing their product or service, and the reason why it is important to categorize them says Edmonton bookkeeping, is so that they can see what their spending the most money on, and make plans to minimize expenses if they need.
When looking at their meals and entertainment, some entrepreneurs believe that this is where they can put all of the meals that they eat in a restaurant. However, this category is mostly designed to keep track of advertising purposes such as wining and dining existing or potential clients. Edmonton bookkeeping says that there can be some exceptions to this if an entrepreneur has worked extremely late and over time, they can claim a couple of meals a week is overtime meals, and if an entrepreneur is traveling is recurrent of their business, they do not have the option of going home to eight, therefore, they can count all of the meals that they eat in a restaurant as meals and entertainment.
Our professional fees, which unless an entrepreneur as a doctor, lawyer, accountant, dentist, the engineer does not get used. Those professional fees are any time a business owner who is one of those professionals needs to pay if the two belong to their professional organization to continue practicing as that profession.
By understanding their income statements, Edmonton bookkeeping says that entrepreneurs can ensure that they are gaining a deeper level of understanding of their income statements, which will help them make more informed financial decisions in their business. To increase their success.