One of the biggest problems entrepreneurs face today is not having a great grasp on understanding their business finances and when they receive their interim financial statements from their Edmonton bookkeeping company they do not know how to use them to make informed financial decisions in their business. Industry Canada says that there is an extremely high failure rate for entrepreneurs in Canada. 15% of entrepreneurs fail within the first year of business, 30% of entrepreneurs fail in their second year, and by the time entrepreneurs have reached five years, half of all entrepreneurs will have gone out of business. When asked why their business failed, 29% of these failed entrepreneurs said that it was because their business ran out of money. Helping entrepreneurs make better and informed financial decisions can drastically increase their chances of success and decrease these statistics.
The first thing that entrepreneurs need to know when they get their financial statements from their Edmonton bookkeeping company, is that they should be receiving balance sheets and income statements. They also should ensure that they are getting these reports at a minimum of once a month. If they are not receiving the reports this often, they should talk to their Edmonton bookkeeping company, or move to one that is going to be more proactive. If entrepreneurs look at these interim financial statements before they make any financial decision, it can increase the success of that financial decision. Extremely great Edmonton bookkeeping companies like always bookkeeping send out these reports every two weeks to their businesses. The reason they do this is because most entrepreneurs pay their staff every two weeks. If they’re looking at these interim financial statements before they run payroll, they can increase the chances of ensuring payroll can get paid. If an entrepreneur discovers that they do not have the money to meet payroll, they can go out and do some accounts receivable, or generate some revenue so that they can meet payroll.
Once an entrepreneur has received these interim financial statements, the order they look at these reports is important. The reason is that the balance sheets can help entrepreneurs find errors, where is that is not possible on the income statement. Verifying the accuracy of the reports should be the first order of business. How an entrepreneur is going to review these balance sheets to minimize errors, is by requesting that they get the reports in a six-month comparative statement which is also called a horizontal. This is going to allow business owners to see several months at once, and be able to tell looking at the numbers all the same time if there are any inconsistencies month-to-month. If there are, an entrepreneur should see if there is any reason for those inconsistencies in that month. Such as making a large asset purchase, or having a high payroll due to the seasonality of their business. If there is no reason why there should be an inconsistency, that could be caused by an error, and therefore entrepreneurs should fix the error, and then ensure that the air does not exist on the income statement.
the importance of understanding the interim financial statements from their Edmonton bookkeeping company cannot be understated. If entrepreneurs can increase their basic business financial literacy, they can make better financial decisions in their business, which not only helps them avoid financial problems, they can also help them proactively increase and grow their business so that they can become successful entrepreneurs. As into it, the makers of QuickBooks found out, surveying entrepreneurs to find out what their basic business financial literacy is, asked them questions such as what is the role of balance sheets, how do you read an income statement and how can an entrepreneur increase cash flow. He discovered that 82% of all of the respondents scored less than 70% on the test, showing that most entrepreneurs lack business financial literacy. Helping them improve can improve the success rate of businesses.
Once an entrepreneur has received their financial statements from their Edmonton bookkeeping company, and they have reviewed the balance sheet to fix any errors. Once they have verified that there are no errors, they should be able to look at their income statement to see what the financial health of the business in that month was. There Edmonton bookkeeping company will organize its income statement to show the revenue, cost of goods sold as well as expenses. Entrepreneurs should notice that all of this information fits on a single page. This is done on purpose and the reason is so that it can be very easily read and understood. To achieve this, entrepreneurs should ensure that they are not over classifying their expense categories. If it is split into two many different areas, it might not end up sitting on one page and might make it much more difficult to read and understand the income statement.
The next thing that an entrepreneur will notice about their income statement is that the commences will be listed in numerically descending order with the highest expenses at the top of the list. This is also done on purpose so that entrepreneurs who are looking to minimize expenses in their business can easily tell where to minimize those expenses. By focusing on the top of the list, business owners can affect their bottom line the greatest by focusing on the top. Expenses that fall to the bottom will have the least effect on the overall bottom line of the business. If the expenses are listed in alphabetical order, it may be more difficult for an entrepreneur to understand what expenses should be the ones that they focus on to minimize.
By understanding the interim financial statements prepared by their Edmonton bookkeeping company, entrepreneurs can make better financial decisions, that can not only help them avoid financial disaster but help them be proactive and grow their business significantly. That can help entrepreneurs beat the odds and be one of the 50% of entrepreneurs that are still in business by year five.