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E-Myth – “Why most small businesses don’t work & what to do about it”

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Accounting Outsourcing | Business Owners Need to Understand Income Statements


If its owners don’t understand their income statements, accounting Outsourcing says they may not be able to make informed financial decisions in their business. The inability to do this would lead to two significant financial problems that can include putting their business at risk of going out of business. In fact, industry Canada did a survey and found that half of all Canadian entrepreneurs failed in business. The second most common reason that business owners failed was that they ran out of money. If business owners are not able to read and understand their financial statements and use them to make informed business decisions, they put their business at risk of running out of money and going out of business.

How this might happen, is if a business owner does not know to avoid commingling their corporate expenses and revenue with their business income and expenses says accounting Outsourcing. For example, if a business owner has an investment in their corporation, and it ends up profiting by $20,000 in a single year, if they put that Revenue in the revenue of their business, it will make the business look far more profitable than it actually is. If a business owner looks at their income statement in order to determine the viability of their business, they might see that spay has enough money to be able to hire new staff, purchase a new asset, or even buy a new building, to help them grow.

However, the problem comes in because of business will not be able to sustain this amount of expenses, such as new staff, as sense or a new building, because their business is not actually doing as well as it looks. Their corporation is doing well, but their business might not be ready to sustain those kinds of expenses. Therefore, a business owner who combs Ingles their corporate Revenue with their business Revenue might make their business look very profitable, and end up making decisions that will cause their business to run out of money because they can’t actually sustain those expenses.

Another example of how commingling Corporate expenses and income with core business expenses in income can lead to disaster is this. If a business owner has a rental property that is owned by the corporation, and they get a special assessment of $20,000 for example. If they put that in the core business expenses, it might make the business look like it is bleeding money when it actually isn’t. This may cause a business owner to avoid purchasing an asset they need to grow their business. And it may cause them to not only not hire staff that is desperately needed. But it might cause them to lay off necessary staff. End of the result will be that a business owner might not only stall the growth of their business but cause their business to fail entirely because it cannot grow.

This is why it is of most importance for business owners to avoid commingling corporate income and expenses with their Core Business income and expenses say accounting Outsourcing.

Accounting Outsourcing | Business Owners Need to Understand Income Statements

Many entrepreneurs struggle with understanding their business finances says accounting Outsourcing. In fact, the company that makes QuickBooks did a survey to find out how much about business finances small business owners and entrepreneurs in Canada actually understood. The respondents were asked questions such as what is a balance sheet, how to increase the cash flow in a business, and what is an accrual. The vast majority of the people who responded, 82% to be exact scored less than 70% on this test. This shows that an extremely large majority of business owners have a large knowledge Gap when it comes to understanding their business finances. In order to help business owners make Better Business decisions, he needs to learn more about their business finances.

However, it can be very overwhelming for business owners to understand but the first thing that they should learn about business finances would be. Accounting Outsourcing recommends that learning how to read the interim financial statements is an extremely good place to start. The reason why is because business owners should be looking at their interim financial statements prior to any financial decision they make in their business no matter how big or small it is. Before a business owner runs payroll, pays their bills, purchases anything, or buys an asset, hires or lays off staff, they can make this decision better by looking at the interim financial statements.

Not only does a business owner need to learn how to read these interim financial statements, but it also need to understand how it’s organized, so that they can ensure its accuracy. However, if a business owner does not have the time to learn how to do their bookkeeping properly. or if they don’t have the time to do their Bookkeeping on a regular basis, they are better handing it off to an accounting Outsourcing company instead of doing it themselves.

The accuracy of the interim financial statements is of paramount importance, as is having updated financial statements. If a business owner looks at the most updated financial statements prior to making financial decisions, it needs to be the most updated financial statements. Since a business owner is going to be running payroll twice a month at least, this is how often a business owner needs to have updated financial statements. By giving it to an accounting Outsourcing company, they are ensuring that they can have the most accurate and the most up-to-date financial statements every single time they need to make a business decision.

By learning how to read their interim financial statements, and then by getting the most accurate and up-to-date statements will help a business owner make the best business decisions possible. Bye always Consulting the interim financial statements, business owners will be able to confidently spend money that they know they have and know when they need to increase their revenue in order to pay those bills. They can also minimize expenses, and know when they need to engage in more revenue-generating activities to make their business succeed.