Free consult & free copy of book

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

Contact Us

Stars

Most 5 star CPA Google reviews in Canada

Read Reviews

Chartered Professional Accountants E Myth

1 Fixed Monthly Fee - Planning | Accounting | Taxes | Consulting

Helping Canadian businesses beat the odds!

Accounting Outsourcing | Entrepreneurs Should Understand Their Expenses

 

When business owners don’t understand the expenses in their business, they might end up making the wrong business decisions is accounting Outsourcing. One common way that business owners misunderstand the expenses and their business is if they are commingling the expenses of their corporation with the expenses of their Core Business. While many business owners understand that it’s important to put the expenses of their corporation on their income statement. It needs to be included in the right section so that business owners can avoid having the expenses of their Core Business look diminished because of the expenses of their corporation.

The section where business owners should be putting their corporate expenses is in a section at the very bottom of their income statement called other income and expenses. If business owners are putting their corporate expenses in the expenses of their business, they could be putting financial decisions in Jeopardy says accounting Outsourcing. An example of this is if a business owner requires financing in order to purchase a new building, do some leasehold improvements on their existing space, or purchasing assets that they need in order to help their business grow.

Since a business owner must give their financial statements to a bank or financial institution when they are applying for financing, if they have corporate expenses mixed in with their business expenses, it might make the business look like it is not profitable when it, in fact, is very profitable. Financier or a bank might look at that and deny financing because it looks like the business will not be able to support the payments back to the bank. Therefore, business owners should avoid commingling their corporate expenses in with their business expenses. The section at the bottom of their income statement called other income and expenses should be for all income and expenses of the corporation. or non-typical income and expenses of their business.

A great example of Revenue of the business that should not be included in the revenue on the income statement is if an entrepreneur sells a company vehicle or an asset. Since I was in summer is not generating the revenue typically by selling assets, they should not include this Revenue in their company Revenue, but rather in the other income and expenses category. The reason why is so that business owners don’t rely on that Revenue in order to make business decisions such as hiring staff or moving to a larger and more expensive location.

Business owners will be able to make far better financial decisions and their business if they learn where to put their corporate income and expenses on their income statement, whether they are doing it, or getting an accounting Outsourcing company to help them with it. not as able to learn this, the more informed all of their financial decisions in their business will be. therefore it should be one of the first things that a business owner is learning. Even if they are not doing it their own accounting, they need to be able to tell their accountant if it’s a corporate expense so the income statement can always be accurate.

Accounting Outsourcing | Entrepreneurs Should Understand Their Expenses

Many business owners actually struggle to understand their business finances accounting Outsourcing says. This is according to a survey done by Intuit, who are the makers of QuickBooks desktop and QuickBooks Online. They surveyed small business owners and entrepreneurs in Canada in order to determine how much about their business finances that entrepreneurs actually understood. Those who responded to the survey were asked questions about balance sheets and accruals as well as ask questions such as how to increase the cash flow in a business. Out of all of the respondents, 82% scored less than 70% on the test. This shows how much of a knowledge Gap there actually is with entrepreneurs, which can lead to business owners making poor financial decisions in their business. Therefore, there are lots for business owners to learn to help them make the best business decisions they possibly can.

In fact, business owners need to be looking at their interim financial statements prior to making any financial decisions in their business. Whether these decisions are small decisions like if they can afford to pay a bill, or if they are much larger decisions such as can they afford to purchase a building, hired new staff, or purchase an asset that they need to grow. By looking at their interim financial statements, business owners can understand the financial position of their business, and if they can make those decisions, or if they need to come up with a plan to help to save or generate money in order to accomplish their goals.

In order to help an entrepreneur understand their interim financial statements, accounting Outsourcing says business owners should understand how their income statement is organized. When they understand how it’s organized, they will be able to read it better in order to understand how to make more informed business decisions. The revenue of their Core Business should be listed at the very top of this statement. As long as it is revenue that is legitimately generated inner core business through normal business means it belongs here.

Underneath the revenue, a business owner will find a section called the direct cost of sales, which means all of the costs associated with generating the product or service that the business sells. This includes supplies and materials as well as labour. It doesn’t matter if the labor is staph, or if the labor is independent contractors that an entrepreneur hires, a business owner will be able to put all of the costs here. It’s very important says accounting Outsourcing that business owners do not put their administrative staff wages in this category, because administrative staff do not help the products or Services get made or sold, so they don’t belong in this category.

Underneath that is the overhead expenses and this is where the administrative staff wages are, including rent or Mortgage, office supplies, utility bills including phone and internet, and Bank charges. These are all of the expenses that a business owner will incur even before they start selling any products or services in their business. Below the overhead expenses will be the net income from operations, which is the most important part of the income statements because it shows an entrepreneur the revenue that they have in their business once all of the expenses are taken off.