Understanding the interim financial statements of their business is important when they receive those statements once a month from their Edmonton bookkeeping company. These financial statements are an important and powerful tool that entrepreneurs can use to make great business decisions. However, entrepreneurs need to understand the statements first. Intuit’s, who are the makers of QuickBooks did a survey of small business owners to find out how financially literate they were about their business finances. They were quizzed on basic questions such as what is the role of the balance sheet, what are accruals and how entrepreneurs can increase their cash flow. 82% of the respondents scored less than 70% on the test. If entrepreneurs can increase their business financial literacy and learn how to use these financial statements, they can positively impact their business.
As you financial statements that entrepreneurs should get used to seeing every month are the balance sheet and income statements. These two reports are an extremely important tool that can be used together to make great decisions. One of the biggest mistakes that entrepreneurs make when looking at their interim financial statements from their Edmonton bookkeeping company, is that they look at the income statement first, or that is all they look at and hope that they can make great decisions based on that information. Unfortunately, looking at the income statement alone is not going to help an entrepreneur as significantly as it would if they were looking at the balance sheet also.
The information that is on the balance sheet is the assets, liabilities, and equity of the business and will paint a picture to the business owners of the financial position of the business is. Be able to easily see any anomalies or inconsistencies from one month to the next. If entrepreneurs can explain those inconsistencies, then they should make a note of what happened in that month to produce those results. Such as purchasing a large asset. However, if entrepreneurs are not able to explain why there were any anomalies, they should then look for errors. By being able to easily find errors in their balance sheet, entrepreneurs can ensure that their income statement is accurate as well. The reason for this is what causes an error on a balance sheet will also cause the air on the income statement.
One of the most significant ways entrepreneurs can use the balance sheet in their business is by reviewing it to see if they are going to have a cash flow problem. Entrepreneurs can look at the cash and liquid assets on their balance sheet prepared by their Edmonton bookkeeping company, and also look at the future cash flow in the Accounts Receivable section. If both are low, an entrepreneur can take that to mean that while they have low cash now, they are also not scheduled to receive in many payments. An entrepreneur can then use that information to increase their revenue as well as they might potentially need to arrange to finance or even personally contribute finances to the business to avoid the cash flow problem.
If entrepreneurs are hiring a great Edmonton bookkeeping company to work on their business finances, but are not understanding or reading those interim financial statements, they may be doing their business a disservice. Learning how to read their balance sheet and income statement can help entrepreneurs make informed financial decisions in their business that can help them not only avoid financial problems but grow their business.
business owners who do look at their interim financial statements tend to only look at the income statement because they find it easier to read. However, entrepreneurs should get into the habit of reading their balance sheet first because they can gain an overall picture of their financial health, as well as catch errors. Only after an entrepreneur has reviewed and understood their balance sheet should they look at their income statement.
The first thing that entrepreneurs should notice about the income statement prepared by their Edmonton bookkeeping company is that the entire statement should fit on a single page. The reason why the income statement is to organize this way is so that it can easily be read and understood. An entrepreneur will need to use the information to easily make important financial decisions. One way that this report will be able to fit on a single page, is if the expense categories are not broken down into a bunch of different categories. Business owners should do what they can to ensure that the expense categories are more generalized so that the report can be simplified for easy viewing.
The next thing that entrepreneurs should notice about the income statement is that there Edmonton bookkeeping company will have organized the expenses in numerically descending order. The most important reason for this is so that entrepreneurs can see very easily the top of the list and the expenses that are greatly affecting the bottom line of the business. If an entrepreneur wishes to minimize their expenses in their business, they should spend most of their time on the top half of that list. The items that are at the bottom of the list will include things like bank fees and even if an entrepreneur can get them dropped to zero, that is not going to greatly affect their bottom line as effectively as minimizing the highest expenses in the business.
By learning how to review their interim financial statements, and in what order, entrepreneurs will be able to use those reports from their Edmonton bookkeeping company as a tool in their business that only to avoid cash flow problems, but to proactively grow their business in a meaningful way. Once entrepreneurs get into the habit of doing this regularly, the will be able to regularly make great financial decisions in their business so that they can ensure the financial health of their business.