Many entrepreneurs when they first start their business, try to make financial decisions by looking at their bank account says Edmonton bookkeeping. And while entrepreneurs are very small, and there are very few transactions both into and out of their business. This is often possible.
However, as an entrepreneur grows their business. They number of transactions both in and out of their bank account become so numerous. That it can become ineffective or even dangerous for an entrepreneur to make financial decisions. Based on looking at how much money they have in their bank account at that moment.
The reason why this is not a good IDS is Edmonton bookkeeping. Is because the number of pending transactions that an entrepreneur could have going into and out of their bank account. Exhibit very difficult for an entrepreneur to understand how much money they have to actually spend.
And if they have more transactions going out of their account than they realize. Is is owners can end up spending more money than they actually have. Which could cause a lot of problems in their business. Including putting them at risk for going out of business.
In fact, according to industry Canada, half of all Canadian entrepreneurs that open up a business in this country will fail within five years. And the most common reason why these businesses fail. Is because they run out of money in their business.
While there are several reasons why entrepreneurs might succumb to this fate in business. If entrepreneurs are not making financial decisions based on how much money they actually have in their business. Could contribute significantly to them running out of money in their business.
However, many entrepreneurs do not know what they could do instead of looking at their bank account balance. In order to make a financial decision. Such as can they pay bills, run payroll, or make purchases.
Edmonton bookkeeping says bank reconciliations are the answer to that question. Because they will show an entrepreneur how much money they have to use. Once all of the pending transactions have taken place.
Entrepreneurs might be wondering what a pending transaction is. And this is ultimately a transaction that is going into or out of their bank account that has not happened yet.
A great example of this, is when an entrepreneur rights a check. And puts it in the mail to their supplier. The money is spoken for, but it has not received their supplier yet.
Or their supplier has and put it into the bank account. So while the money is spoken for. It will still show up in their bank account.
The bank reconciliation is a report that can help an entrepreneur see what the pending transactions are. So that they can see the final balance of how much money they actually have to use, because it is not already spoken for.
So that they know if they can make those financial decisions. Or if they need to engage in some revenue-generating activities for example.
The sooner entrepreneurs can learn how to do a bank reconciliation says Edmonton bookkeeping. The sooner they are going to be able to make more informed financial decisions. That not only can help them avoid running out of money. But can also help them be proactive in growing their business.
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Many entrepreneurs have never run a business before says Edmonton bookkeeping. And they do not know how to make informed financial decisions.
In fact, 29% of all businesses that fail have said the reason why they were not successful. Is because they simply ran out of money in their business. If entrepreneurs avoid spending money that they do not have. They can actually be more likely to avoid running out of money in their business.
How they can avoid spending money they do not have. Is by learning how to do a bank reconciliation. This will take their bank account balance, and subtract all of the transactions that an entrepreneur has made, that has not declared their bank account yet.
All of the checks that they have written, payroll that they have scheduled, electronic fund transfers that are pending. As well as things like deposits into an ATM, credit card and debit transactions, and getting money from their credit card or debit machine from transactions. Will be taken into consideration.
However entrepreneur should start doing their bank reconciliation says Edmonton bookkeeping. Is it crossing off all of the transactions that have already cleared their bank account.
This will leave a business owner with the list of transactions that have not cleared their bank account yet. However, before a business owner looks at the amount of money that they have left in their bank account after these pending transactions.
They should first verify if these transactions are accurate or not. Because if there are mistakes in their accounting. Then the amount of money left at the end of their bank reconciliation will not be accurate.
The first thing a business owner should do is ask themselves if there is a chance that these are not legitimate transactions?
They can take the length of time that they have been pending into consideration to help answer that question. For example, while checks might take several weeks or even a couple of months to clear.
Electronic transactions should never be pending at all. Because electronic transactions will appear to the business owner when they have actually cleared their bank account.
If an entrepreneur has made a deposit into their bank’s ATM, it might take one or two days to clear. Or it may take up to seven business days. Depending on what bank machine they deposited into. As well as when they deposited it.
For example, if an entrepreneur entered checks into a bank machine the Friday morning of a long weekend. It may take until Friday the next week to clear.
If things have been outstanding for a lot longer than it should take to clear. Edmonton bookkeeping says entrepreneurs should check to see if those things are errors.
By clearing any errors in the pending transactions. Can help an entrepreneur end up with accurate bank reconciliation. That will show business owners how much they have to spend in their business.