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

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Accounting Outsourcing | Reading Interim Financial Statements

 

If business owners have a difficult time reading their income statements, accounting Outsourcing says they might make mistakes that lead to their income statements being wrong or misleading. For example, if business owners are putting other income or other expenses into the wrong section of their income statement, they will put their business at risk of not having accurate numbers about the profits and expenses of the Core Business. This is especially important if an entrepreneur is using an accounting Outsourcing company to do their accounting or bookkeeping. Because they won’t have a history with the company to know if things should actually go in the other income and expenses of the corporation or not.

There might be legitimate expenses and income of the corporation that isn’t necessarily tied to the Core Business says accounting Outsourcing. Some examples of other income that business owners might have would be the sale of assets owned by the corporation, rent obtained from a rental property owned by the corporation, as well as the business owners’ salary. These things should be in the other income and other expenses section of the income statements so that it will be much easier to see the revenue and expenses of the actual Core Business.

If a business owner does not separate other expenses and income, not only will they not be able to understand the prophets are the expenses of their core business. But this can make it very difficult to obtain financing. For example says I Counting Crows are saying, if a business owner puts their own the salaries in with the regular expenses of the Core Business, it might look like the business will not be able to pay back any financing. Therefore, if business owners keep it in other expenses, they will be able to back it out and show the financiers what the profitability and expenses of the business truly are. Business owners need to give a couple of years of income statements in order to obtain financing, so the sooner they can remove their salary from the expenses of the Core Business, the better.

Business owners should also be extremely aware that selling assets, such as equipment, vehicles or even selling the building that the business had operated out of should be listed in other income as well says accounting Outsourcing. Even though these things are legitimately related to the Core Business, they are not regular or common occurrences. To put it a different way, this is not how business owners typically generate income for their business. Therefore it should be in the other income section.

The sooner business owners can start representing other income and expenses correctly on their income statement, the longer they will have an accurate record of the profitability and expenses of their core business. Accounting Outsourcing says this is important to have, so a business owner needs to keep track of it accurately themselves, or have extremely good communication with their accounting or bookkeeping company.

Accounting Outsourcing | Reading Interim Financial Statements

When business owners are putting all of the expenses and income of their Core Business into their income statements says accounting Outsourcing. They need to be very careful not to put the income and expenses of the corporation commingled with the income and expenses of the Core Business. If they are not taking care of the accounting themselves, and either getting a bookkeeping company or an accounting Outsourcing company to do it for them, they need to communicate extremely well. The reason why, is because they met not be able to read their income statements and understand the expenses or profitability of their business because of the commingled expenses and profits.

There may be very legitimate expenses or income of the corporation that is not related to the Core Business says accounting Outsourcing. This includes things like Investments, the business owners’ salary, and the sale of large assets. It’s especially important that business owners do not include their own salary as an expense of the business says accounting Outsourcing. This is because business owners’ salary is not an expense of the business, and if business owners choose to get paid a salary, it’s likely due to a tax reason. if a business owner is obtaining financing or selling the business, it is not important what the business owner is going to get paid, and so it shouldn’t be in the core business.

This is especially true if a business owner is trying to sell their business. It’s going to be very important that the purchaser sees the financial information without the business owner’s salary attached. The reason why says accounting Outsourcing is because the new owner is going to want to see how much it’s going to cost them to keep the employees employed in the business after the business owner leaves. Therefore, if a business owner has their salary already removed, people who are looking to buy the business will be able to see clearly how much it’s going to cost to run the business when the business owner leaves.

It’s also important that if the corporation owns a rental property whether it’s residential or business, that all information relating to that is not kept in the core business information on the income statement says accounting Outsourcing. Things like property taxes, utilities, and special assessments need to be in the other expenses category of the income statement. While the revenue generated by renting out the property needs to be in other income. Many business owners might wonder why these should be on the income statement of the business at all. And the reason why says accounting Outsourcing is because it is a legitimate expense and legitimate income of the corporation, but not of the business. It is entirely appropriate to have the information on the income statement, it just needs to be separated Notes From The Core Business.

The business owner who does this soonest is going to have a long history of accurate financial statements in their business. This will help them obtain financing, sell their business when it’s time, and understand the profitability of their business so that they can make plans on how to grow their company.