Accounting Outsourcing | Helping Business Owners Understand Profit and Loss

If business owners are truly going to understand the profit and loss in their business, accounting Outsourcing says they need to understand how to organize their income statement. If they are commingling their corporate expenses with their business expenses and their corporate Revenue with their business Revenue. This may be putting the accuracy of their income statements in Jeopardy, causing business owners to not completely understand the financial state of their business. They might make the wrong financial decisions, which could put their business at significant risk. Therefore, the business owners should understand how to avoid commingling their income and revenue of their corporation and their business, so that they can make more informed decisions.

Many business owners think that whatever their corporation generates should be included in their business income statement. And while it’s completely accurate for business owners to have their corporate income and expenses on the income statement, it needs to be in a special section, and not commingling with the business revenue or expenses. This way, a business owner will be able to work at the top of their income statement and understand what their business is doing independent of their corporation. And then look at the bottom, and see what their corporation is doing, independent of their business. By keeping these separate on the income statement can help business owners understand what is going on in their business.

Many business owners commingle the two because they don’t know where to put the corporate expenses. Therefore, business owners need to understand that their income statement is organized very specifically. Accounting Outsourcing says there’s going to be Revenue at the top, followed by the direct cost of sales, the gross margin underneath that, followed by the overhead expenses of the business. Then they’re going to get the total of the net income from operations which is the revenue minus direct cost of sales and overhead expenses. underneath this is called other income and expenses. All corporate income and expenses should be listed here, to help avoid commingling corporate and core business income and expenses.

The first thing that business owner should keep in mind is the only Revenue that should be included on there income statement at the top is all of their revenue that they generate through normal business operations. For example, accounting Outsourcing says that if a business owner sells a large asset such as a piece of Machinery, or a vehicle that we no longer need, many business owners include this in the revenue of their Core Business although this is not correct. While it is revenue in the business. It is not the regular way that a business owner generates Revenue, so it should be listed in the other income and expenses.

When business owners understand how their income statement is organized, and where to put corporate expenses, then they can ensure the accuracy of their income statement for all future financial decisions. Whether the decision that they are making is if they can run payroll, or pay bills. Or if the decision is if they can afford to purchase an asset, or hire new staff, it will be a more accurate decision if they are able to have a more accurate income statement in their business.

Accounting Outsourcing | Helping Business Owners Understand Profit and Loss

Many business owners do not understand their business finances says accounting Outsourcing. This can lead to poor decision-making in their business, no matter how big or small the decision is. In fact, business owners need to understand that they should be looking at accurate and up-to-date income statements prior to making any financial decisions in their business. This way, they will be able to ensure they can make more informed decisions more often. Many entrepreneurs do not fully understand business finances when they start their business. However, it’s going to be extremely important that they learn this as quickly as possible, as they grow their business. They can put their business at risk by not understanding or knowing business finances. Therefore business owners should understand not only what they need to learn, but how quickly they need to learn it to make the most informed business decisions that they possibly can.

One of the first things that business owners need to ensure is that they are not commingling their corporate expenses with their business expenses. Many entrepreneurs think that it’s all the same thing, but this is not true. For example, if a business owner’s corporation owns a condominium that they rent out for profit. If they got a special assessment for $20,000, and a business owner puts that in the expenses of their business. It might look like their business is losing money very quickly. However accounting Outsourcing says this is not true, and the business could actually be profiting by $20,000, and a business owner would not know that. Therefore, all corporate expenses, as well as income, needs to be included at the bottom of the income statement in a section called other income and expenses.

Another example of why this is important says accounting Outsourcing is because if a business owner owns that rental property and they have paid for it in full, but they are receiving $2,000 a month for rent, It might end up looking like their business is suddenly profiting almost $25,000 when they are not. A business owner might make the decision to hire more staff, purchase a rather large asset, or move into a larger office space that costs more money. However, a business owner will not be able to sustain that, and they could cause their business to run out of money. Therefore, it’s extremely important that all corporate Revenue as well as expenses get put into the other income and expenses.

When business owners understand where everything belongs to the income statement. They will be able to either do their bookkeeping more accurately. Or if they use an accounting Outsourcing company, they can communicate more accurately with that company to let them know what is a corporate expense so they can have it organized on their income statement more accurately. The sooner business owners can learn this, the sooner they are going to have more accurate income statements in their business. With the degree of regularity that they need to be looking at this statement in order to ensure the accuracy of their financial decisions. Business owners so far in this very early on, so they don’t put their business at risk.