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If business owners do not know how to read income statements, accounting Outsourcing says they may not do this. The problem with that is this is how business owners will be able to make more informed business decisions, that Can help them grow their business, or avoid making a disastrous decision. In fact, business owners need to understand that 50% of all small businesses fail. And the reason why 29% of those businesses fail, is because they run out of money. If business owners do not consult their financial statements prior to making financial decisions, it might end up making the wrong business decision, and putting their business at risk.
Not only do 50% of all small businesses in Canada fail. But 15% of businesses in Canada fail within their first years as accounting Outsourcing. Making it extremely important that business owners learn how to read their financial statements accurately as quickly as possible. The sooner business owners are able to do this, the sooner they’re going to be able to make financial decisions in their business that can help them grow. Instead of putting their business at risk of failure.
One of the most important reasons why business owners need to be able to read their financial statements is so that they can avoid commingling at their corporate expenses and revenue with their business expenses and revenue. I’ll many business owners see nothing wrong with pumping up the revenue of their business with Revenue that they’ve generated in their corporation this is actually not correct. Accounting Outsourcing says the reason why, is because if business owners look at the revenue of their business, that is inflated with corporate Revenue. They might make financial decisions such as hiring new staff, purchasing assets, or moving into a larger office space and not be able to sustain that expense.
Therefore, business owners need to be able to look at the top half of their income statement and understand that that is what their business is doing. And then look at the bottom half of the statement and see what their corporation is doing says accounting Outsourcing. They can always make the decision to purchase an asset using corporate money. But being able to separate these two out will help a business owner understand where that money is coming from, and if it is a sustainable revenue or not.
When business owners want to ensure that they are making the best decisions possible, they need to learn how to read their income statements and ensure that they are either doing their bookkeeping regularly and accurately. And if they can’t, they can Outsource it to an accounting Outsourcing company, to ensure that they always have the most up-to-date financial statements in order to make informed decisions in their business. The sooner business owners can learn this, the sooner they can overcome being one of the 15% of business owners in Canada that fail in the first year of business.
Many entrepreneurs struggle with understanding basic business financial literacy says accounting Outsourcing. This is so much a problem, that the company that makes QuickBooks decided to do a survey in order to figure out how financially literate small business owners and entrepreneurs were in Canada. The people who responded to the survey had to answer questions about accruals and balance sheets as well as explaining how to increase cash flow in their business. What Intuit discovered, was that a large majority of the business owners that responded, 82% scored less than 70% on this test. This shows how many business owners actually lack a significant amount of knowledge about business finances.
In order to help business owners understand what they need to know about their business finances. Accounting Outsourcing says they simply need to understand how their income statement is organized so that they can use that statement to make more informed financial decisions. the revenue of the core business is at the top, followed by all of the direct costs of sales, including supplies, materials, ins labor whether they are staff or independent contractors. Below that, accounting Outsourcing says they will find the gross margin, which is the revenue minus the direct cost of sales.
Below the gross margin will be the overhead expenses of the business, which are all of the expenses that a business owner will incur before they start selling any products or services. The rent of their office space, the administrative staff if they have any, office supplies, utility bills, phone and internet, and even Bank charges are going to be listed here. business owners need to be extremely careful not to include corporate expenses here because this section is reserved specifically for the overhead costs of the business.
When a business owner subtracts the direct cost of sales and overhead expenses from the revenue, they will end up with What’s called the net income from operations, which is the next section on the income statement. This is an extremely important place for business owners to look when they’re making informed financial decisions in their business. If they’re deciding if they have enough money to pay staff, bills, or purchase anything, looking at this figure will help them understand if they have the money to do that. Also, looking at the expenses and the revenue can help business owners understand if they need to increase their revenue or cut their expenses.
Their net income from operations says accounting Outsourcing is where business owners will find a category listed as other income and expenses. This category specifically is for business owners to include the income and expenses of their corporation. Whether they have a rental property that is generating revenue and expenses, or if they have Investments That might be generating a profit and loss can be listed here. As well, any atypical expenses or income generated by the business can be listed here, since they’re not regular revenue and expenses of the business it shouldn’t be up top.
