There are so many different things that entrepreneurs need to learn as soon as they open the doors to their business says Edmonton bookkeeping. That learning how to do basic bookkeeping might not be on the top of that list.
Especially when entrepreneurs are learning how to market their business, develop their products and services, and deliver great customer service. However, learning basic bookkeeping can help entrepreneurs gain a deeper understanding of their business finances.
The reason why that is important. Is because many entrepreneurs have never had a business financial experience. And what they do not know about it, could cause them to make less informed financial decisions. And negatively impact their business.
In fact, industry Canada that a survey and found that half of all Canadian entrepreneurs ended up failing in their business endeavors. When they asked these businesses who failed why they were not successful. 29% of them said that they ran out of money, and that is why their business failed.
While there may be a multitude of reasons why a business owner might run out of money in their business. Many of those reasons can be avoided. By understanding their business finances. And making more informed decisions.
A great example of this says Edmonton bookkeeping. Is if an entrepreneur is able to understand the cost of goods, margins, and pricing. Then they would be able to understand better if they were covering all of their costs. Both overhead as well as direct costs.
If they were not pricing their products or services properly. And they were not covering their costs. They could review their financial information. and when they saw that they were not profiting on their current pricing structure. They could change their pricing, and even minimize some of their costs. So that they could start turning a profit in their business.
Another great example of this says Edmonton bookkeeping. Is if an entrepreneur sees through their financial statements. That their pricing is good with the appropriate amount of margins. But they are still not turning a profit. It could be because they need more customers in their business.
And if that is the case, an entrepreneur will be able to put more time and effort into marketing their business. So that they can attract more customers into their business. And start increasing revenue and being profitable.
Even decisions like if they have enough money to pay bills or run payroll. Can be made by looking at the interim financial statements. If an entrepreneur does not have enough money in their business. They try making those payments anyway. He could cause payments to bounce. Simply spend more money than they have. That could put their business at risk.
Therefore, it is extremely important for business owners to learn about their business finances. So that they can make more informed business decisions. That not only keep them from making bad decisions. But help them make even better choices in their business. They can help them strategize on how to grow and succeed.
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Because they do not have a basic understanding. They may be making decisions that are putting their business at risk. And they would not even know it.
Some of the most basic decisions and entrepreneurs will make. It Will be if they can pay bills or run payroll. And even that decision might put their business at risk. If they are not using the appropriate financial statements to make those decisions. Or if they are not consulting any statements at all.
In fact, some business owners think that it is helpful to look at their bank balance in order to see if they have enough money to make certain payments in their business.
This is actually not a good idea says Edmonton bookkeeping for a very important reason. While the bank statement shows exactly how much money and entrepreneur has in their business at that exact moment. What the bank balance does not take into consideration. Our payments are scheduled to come out of the bank account.
For example, an entrepreneur might have ten thousand dollars in their bank account. But have written five thousand dollars worth of checks that they have mailed out. They have not been cashed yet. And they have two thousand dollars on electronic fund transfers.
They might look at their bank balance, and see that they have ten thousand dollars and think that they can spend it all. They might use that information to run their four thousand dollar payroll.
However, because they do not have four thousand dollars of money to spend. Even though they have ten thousand dollars in the bank. That is now looking at a bank statement can mislead an entrepreneur into spending more money than they actually have.
It is much more accurate for an entrepreneur to look at their interim financial statements given to them by their Edmonton bookkeeping company in order to make the same decisions.
The statements will show an entrepreneur the overall health of their business. As well as their profitability within a specific frame of time in their business. Together, these two reports will help an entrepreneur understand if they have the money in their business to make whatever financial decision they need.
By getting into the habit of consulting these statements. Not only can help entrepreneurs understand what they need to do to avoid putting themselves into a compromising financial situation says Edmonton bookkeeping.
But they can also start using these financial statements to help them strategize and plan on how to improve their financial position and increase their profitability.
Especially as the income statement is going to show the profitability within a specific frame of time. Showing an entrepreneur if they are trending down, or trending up. And if they are trending up, what they are doing that is helping them increase their numbers. And if they are trending down, what they can do about that to put that trend to stop and turn it around.
By being proactive in their business. Entrepreneurs not only can avoid financial disaster. But in fact grow their business and increase their profitability. So that they can be successful and stay in business a long time.