Entrepreneurs have a lot to learn about business finances when they first open their business according to Edmonton bookkeeping. And if business owners do not learn how to make informed financial decisions. They could cause harm to their business.
In fact, according to industry Canada, the failure rate for entrepreneurs in Canada is extremely high. With 15% of all people who open small businesses in Canada failing within the first year of entrepreneurship. And 30% of all entrepreneurs feeling within year two of their business.
And half of all Canadian entrepreneurs will ultimately fail within five years. Which caused industry Canada to want to find out the reasons why entrepreneurs were not successful in their business endeavours.
What they found, was that there are three main reasons why entrepreneurs were not successful. And the second most common reason, reason why 29% of failed entrepreneurs said they were unsuccessful. Is that they simply ran out of money in their business.
While there might be many different contributing factors to why entrepreneurs run out of money. Spending money that they do not have can be at the top of that list.
If entrepreneurs do not understand their business finances. Or understand how much money they have in their business to spend. And then they spend more than that. They could run out of money in their business.
But also, Edmonton bookkeeping says it is very important front doors to be able to look at how much money they have. And if they do not have enough to meet their financial obligations. They can be proactive, and engage in some revenue-generating activities.
With her that means they are going to spend more money on their online marketing. Or if they are going to go on more sales calls when they do not have enough money to meet their financial obligations. Perhaps all they need to do is do some collection calls, to bring the money that they are owed into their business.
They can also use this information to ensure that their pricing is accurate. And to ensure that they do not have out-of-control expenses. That could cause them to continue to not have enough money to meet their financial obligations in business.
With all these reasons, business owners need to understand that understanding how much money they have in their business. Is one of the more important things that they can do in owning their own business.
Therefore, Edmonton bookkeeping says entrepreneurs need to learn how to do a bank reconciliation. Which is a report that will show them how much money they have left in their business. Once all of the pending transactions have cleared.
Business owners might think that they can simply look at their bank account in order to figure out how much money they have to use. But if they have made payments that have not cleared their count yet such as written checks.
This will end up with them spending more money than they have, and potentially running out of money. Therefore, learning how to do a bank reconciliation is vital for businesses.
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It is very important for entrepreneurs to understand not only why bank reconciliations are important says Edmonton bookkeeping. But how to do a bank reconciliation properly.
The first thing that an entrepreneur should do, is get a current bank statement. As well as their previous statement balance of their bank reconciliation.
The next thing that they should do, is ensure that the starting bank balance matches the ending bank reconciliation balance. This will ensure that there are no mistakes currently causing either total to be incorrect.
Once they have verified that these two balances are the same. Edmonton bookkeeping says the next step. Would be for entrepreneurs to look at what transactions have actually cleared their bank account to date.
This includes checks that they have written, electronic fund transfers that have cleared, ATM deposits, just to name a few. What an entrepreneur has remaining. Is all of the pending transactions that are left.
However, a business owner should not automatically assume that these pending transactions are valid. They should ensure these are correct. In order to remove any mistakes, and end up with the more accurate total of how much money they can use in their business.
For example, duplicate entered transactions are often but because pending transactions to remain on the bank reconciliation. Therefore, an entrepreneur should consider the amount of time each transaction has been pending for. In order to determine if these are likely errors.
Different transactions will take a different amount of time to clear a bank account. With checks being the most significant length of time to clear. Simply because they are written, and then typically mailed to the vendor. Who then may take several days or even weeks to deposit the check.
Because of that, it can take weeks or even months for a check to clear bank account. However, Edmonton bookkeeping says checks become stale dated within six months.
And so if an entrepreneur has a check that has been outstanding for longer than six months. It will need to be cancelled in order to be reissued. Making checks outstanding for longer than six months and error that can be cleared up.
Another indication that a pending transaction is a mistake says Edmonton bookkeeping. Is if transactions that are pending are electronic in nature. The reason why these are typically mistakes. No matter what length of time they are pending for. Is because electronic fund transfers are immediate, and are never pending. Because the reason why an entrepreneur is aware of them. Is because they have already cleared their bank account.
Therefore, if it is an electronic transaction such as and eat transfer. Business owners should understand that that is also a likely mistake that needs to be fixed.
Duplicate entries, or entering the incorrect amount of the pending transaction. Can all cause these mistakes to occur on the bank reconciliation. And by fixing them, can leave an entrepreneur with an accurate amount of how much money is left that they can use in their business.
By learning how to do this, entrepreneurs can not only avoid running out of money in their business. But also use that information proactively. To know when they need to generate more revenue, or cut expenses.