Good morning and welcome to another episode of always up to date. I’m Denise and this is YALI and we are calling owners of always Edmonton Bookkeeping. Uh, today we are going to talk about tips on how to read your financial statements. Um, so if you, um, have watched us before, you know that we like to start, uh, the video with a quote and a statistic and just a small story. Uh, so today our quote is from Michael Gerber, who is the author of the E myth. Uh, his quotes is the entrepreneurial mode has less to do with what’s done in a business and more how to, sorry, and more to do with how it’s done. The commodity isn’t what’s important the way it’s delivered is, and, uh, this statistic that we have today is, um, from Intuit who are the makers of QuickBooks. They did a survey on a small business on small business owners and quiz them on some basic business financial literacy questions. Um, like the, the role of the balance sheet, uh, accruals, how to improve cashflow. Uh, 82% of the respondents scored less than 70% on the test. Uh, so y’all already, you have a little story or experience that, that we’ve had in our, in our experience. Yeah. So, um,
this is very common, especially when you’re starting out. Um, you would hire, uh, even if you’re doing your bookkeeper yourself of what keeping yourself, um, you would do all the recording, all the Edmonton Bookkeeping, but then you get to the end of the report and you just don’t know how to, um, end to prep this reports. So, um, some of us don’t have, um, enough, um.
Oh yeah, no, not knowledge, but not just resources online. Um, how you would gather this information or how would you analyze this information or any help really rate. Um, and most of the times the business owners are really good at their business, but the, the accounting, uh, side of it or the business side of it, we mostly need help with. So, um, our goal today is just to give you some advice and, uh, hopefully some tips on how you can easily, um, analyze or read your financial statements.
Great. So y’all way, I have just a few questions for you that maybe you can answer. Um, so first of all, what type of reports should I receive from my bookkeeper? So I’m mostly of the bookkeepers now should be able to give you a balance sheet and income statement at least. the common accounting software generate this, um, very easily now and they don’t have to do it manually and organize it themselves. So you should, they should be able to give you guys a balance sheet eight or an income statement. Now if you have a long list of clients or a long list of um, uh, suppliers, you might be able to ask your bookkeeper to organize you in aging accounts receivable, some re or any aging, a accounts payable summary that would give you a better description of who owes you and at won’t, uh, how long has it been outstanding or who you own and how long has it been outstanding. Um, and then another one that could be given to you as a cashflow statement. Very rare. Um, most of this stuff you can probably gather from your balance sheet in your income statement, especially for small businesses that are just starting out with Edmonton Bookkeeping.
Great. Um, so what reports should I look at first? Does it matter? Um, I believe it’s very important to look at your balance sheet first and, um, the, the contents of the balance sheet. We have another video that, um, would, uh, tell you all about what’s, uh, should be in it. But really if you look at your balance sheet first, that would tell you your financial position on the business. So the listing of the asset purchase of course, and then I’ll tell you how your finances are, how your, um, are able to, uh, maintain the assets. So are you financing it or, uh, taking it out from your equity, from your own household or own contribution, uh, as opposed to your, um, company making the profit to be able to sustain these assets. So it is very important to look at that at first because you want to, uh, first of all, look and see if you’re, um, on a good financial position.
I know as a business owner you always want to see the profit and loss first. Um, just because it tells you how much or how long you did in your business. It’s, it’s kind of like a validation. But looking at the balance sheet first and being able to find the, any anomaly, um, on the balance sheet will give you a better, um, a better chance of having, uh, a more accurate income statement cause, um, the chance that your balance sheet is wrong, we’ll give you a bigger chance that your income statement will be wrong as well. So, um, it is very important to look at your balance sheet first and then go to the income statement. Yeah. So I know we do our reports in a comparative monthly format. Um, why do you do that? Is that advisable to do that? Are you, is there a reason for that with Edmonton Bookkeeping?
Yeah, for sure. Um, we like to do it comparative, uh, monthly financial statements just cause it tells you kind of what happens in a month. And um, it kind of eliminates the factor of seasonality. So if you just looked at it in a total basis, yes, I could get some, uh, I could get some information from this. But, um, by doing it in a comparative places, you would be able to tell, um, any inconsistency or consistencies is your business. And are you able to, um, to explain this and consistencies first of all, right. So those are the stuff that you want to point out when you’re doing comparative. Um, I know Alesis and it is very advisable specially for, um, the balance sheet because if you look at the balance sheet, you just see how much the equipment is. But if you look at the comparative monthly balance sheet, you’d be able to tell at what point did you buy an equipment? At what point did you have a low, um, cash month? Like, is this something that I should be looking at in the future or is this something that I should be, um, taking in consideration when I’m making decision? Um, and again, seasonality. If, um, if you see you have a low cash in March, maybe you have, uh, three payrolls in March and you have to prepare for that the next time because you might, we’re not a cashflow. Yeah. And sometimes like I’ve seen a lot of clients that, um, you’re looking at your, your,
um, income statement and wondering why your payroll is so high all of a sudden. And so if you’re looking at, and we normally do six months, um, compared to six months and so you can see cause two times out of the year or two months out of the year, you’re going to have three payrolls instead of two. So in those months you can see that yeah, your payroll is a little bit higher, but if you look at the other months and see that they’re all consistent, then you know that that month is one of the ones that is the three months. So, yeah. Yeah, it is. You’re right. It is good. Um, so should I look at the balance sheet even though I haven’t made any big purchases with Edmonton Bookkeeping?
Yeah, absolutely. Uh, again, your balance sheet tells you your financial position. So you should be able to look at it, um, on a consist, uh, on a more frequent basis. Um, even if you didn’t make your, um, your, uh, any big purchase, cause again, enlisted, it lists all your liquid assets and what’s what funds are available for you currently right now. And looking at that, it also gives you your current liability. So anything that you have to pay within the, um, within the first, uh, first year or even the first month, right? So each, it should be able to tell you, um, what you should be looking at as far as, um, uh, allocating your resources, especially cash it, again, most of the businesses run out, um, or exit the economy just because of their, another cousin catch. Not necessarily that they’re bad at it just because they have a really bad cashflow management.