learning how to read the financial statements prepared by their Edmonton bookkeeping company is extremely important. The reason for this is because the information contained in the financial statements can help entrepreneurs not only avoid financial problems but also can help them proactively grow their business and increase revenue. If entrepreneurs are not using the interim financial statements, or do not know how to read them, they are putting their business at a disadvantage. Since 50% of all entrepreneurs end up failing in business by their fifth year, if entrepreneurs can improve the quality of their financial decisions, they can significantly improve their chances of succeeding in business.
There are two different types of reports that are the most common for entrepreneurs to receive from their Edmonton bookkeeping company. These two reports are the financial statement and balance sheet. Both statements are extremely important, entrepreneurs should understand that the first one that they look at and read always needs to be the balance sheet. The reason for this is not only is the balance sheet much easier for entrepreneurs to be able to inconsistencies and errors on, but also because it is going to give an entrepreneur an overview of the overall financial health of the business. While the income statement is only going to show entrepreneurs the current financial statement of the current period.
The information that is going to be listed on their balance sheet is the current assets. order of liquidity, the liabilities of the business and the assets. This is going to paint an overview of the finances of the business. The income statement, on the other hand, is going to show entrepreneurs the expenses of the business. If there are any errors on the balance sheet, the same errors will exist on the income statement, but it will be harder for entrepreneurs to see those errors by looking at the income statement alone. When entrepreneurs get their interim financial statements from their Edmonton bookkeeping company, they should look first at the balance sheet.
Other information that will be able to discern from looking at their balance sheet will be if they can see if they’re about to have a cash flow problem in the future. Since all of the liquid assets will show up on the balance sheet, entrepreneurs should take note if that balance sheet shows that the cash is decreasing. The next thing that they should look at is the Accounts Receivable section on their balance sheets and if the Accounts Receivable section is also very low, that can show entrepreneurs that not only do they not have a lot of cash, but they do not have a lot of cash coming into their business or scheduled to come into their business. This can indicate that if entrepreneurs are not careful they could run into cash flow problems. By seeing this, entrepreneurs should be proactive in doing what they can to fix the cash flow problem by increasing their marketing so that they can increase their revenue, that they may want to think about obtaining financing, to address the cash crunch, or they may choose to pull money personally to put into the business.
Business owners should get accustomed to receiving two different interim financial statements from their Edmonton bookkeeping company at least once a month. Great bookkeepers will send the statements out every two weeks, or before an entrepreneur is scheduled to disburse payments or run payroll. That entrepreneurs look at these financial statements before their business because it will be able to help them see what the financial health of their business is.
The two financial statements that they should be receiving regularly are the balance sheets and income statements. Entrepreneurs may also receive from their Edmonton bookkeeping company and aging Accounts Receivable summary and aging accounts payable summary, to help themselves stay organized and understanding how many invoices that they are collecting from and invoices they must pay.
Although entrepreneurs often understand the income statement best, it is important that they review their balance sheet first in order to understand what the overview financial position of their business is and to help catch any errors. Once an entrepreneur has done that, then reviewing their income statement is important. Because together, the balance sheet and the income statement make up a powerful tool for entrepreneurs to use to make great financial decisions in their business.
For entrepreneurs that do not understand what their income statement looks like when prepared by their Edmonton bookkeeping company, is that it is going to all fit on one page so that it can be easily read and easily understood. If it does not end up fitting on one page, entrepreneurs should look at the expenses to see if they have been split into two many categories. While many business owners try to split their expenses into several categories to be very clear on what expenses there you are incurring, this can create more expense categories and be difficult to read. An example of this would be if an entrepreneur is splitting their office supplies up into different categories. For example, the paper might be listed in the office printing category, pens might be under office writing categories, Staples might be listed under office binding category, instead, Edmonton bookkeeping recommends that entrepreneurs put all of that type of stuff under office supplies instead of splitting the category out into several different areas.
When entrepreneurs look at this statement, they will be able to easily see various categories of expenses in their business, and the fact that it is a numerically dissenting order means it is very easy to see the expenses that are at the top of the list, are the largest expenses that they can minimize. By spending the most time minimizing the largest expenses, business owners can more greatly affect the bottom line of the business. If entrepreneurs use this information to help keep on top of the expenses in their business, while looking at their balance sheet to understand the finances of their business, entrepreneurs can gain a complete understanding of the business finances and use that information to be proactive to avoid financial problems and grow their business.