Accounting Outsourcing | Understanding Corporate Expenses Versus Business Expenses

Business owners should understand the difference between business expenses in their company and corporate expenses this is accounting Outsourcing. If they don’t understand very clearly the differences between the two, then what is going to end up happening, is that business owners are going to commingle the two and their income statement. The reason why that’s bad is that if it is additional expenses, it could make their business look like it is not profiting as much as it should, and if an entrepreneur ends up putting their corporate income in the income statement, it will look like the business is far more profitable than it actually is. Both of those scenarios could end up with the business owner making wrong decisions about their business, which could potentially put their business at risk of failure.

How commingling income and expenses can affect a business negatively is this since accounting Outsourcing. If a business owner has rental properties owned by the corporation, if they include the rent checks that they get in with the revenue with their business, they might end up with several thousand dollars in additional revenue and their business, when that’s not how it the business generated the revenue. a business owner might believe that their business is so profitable, that they expand their business, move into a larger office space that’s more expensive, or believe that they can afford to hire more staff. These things, of course, are not sustainable because the business isn’t actually that profitable. They will make this decision and then fail in business because they don’t have the money to sustain those changes.

Another example of how commingling the income and expenses of the business and the corporation is bad is this. A business owner who puts the expenses of their same rental properties, which may include condo fees, a special assessment and property tax in with their business expenses, it might look like not only are they not profiting. But it might also make the business look like they are losing money. As a result, the business owner lays off some staff and does not purchase the asset that they need to be able to grow their business. As a result, they fall behind in the orders that they can fulfill, and their business fails. Therefore, accounting Outsourcing says it’s incredibly important that business owners are keeping accurate track of their corporate income and expenses. But that they don’t put it in the same place on the income statement as to their business.

The appropriate place for business owners to put the income and expenses of their corporation is at the bottom of the income statement in a section called other income and expenses. Accounting Outsourcing says that whether they’re looking after the bookkeeping themselves, or if they are getting an accountant or bookkeeper to do it for them. A business owner needs to be able to communicate well to these Outsource companies what is corporate income and expenses and what is not. This will help ensure that the income statement is as accurate as possible, so a business owner can understand what’s going on in their business.

Accounting Outsourcing | Understanding Corporate Expenses Versus Business Expenses

When business owners are not able to separate their corporate expenses and business expenses, that could end up creating problems for the business says accounting Outsourcing. In fact, many business owners are not even aware that this is something that they need to do because they lack important business financial literacy. In fact, Intuit, who is the company that makes QuickBooks and QuickBooks Online wanted to do a survey to see how many business owners had a good grasp on are business finances. They discovered that an overwhelming majority of the respondents, 82% to be precisely scored under 70% on this test. Business owners were asked questions such as what is an accrual, what does a balance sheet indicate, and how to increase the profits in a business. With the majority of business owners lacking a lot of financial information, is easy to see how business owners might make this mistake.

The reason why business owners need to avoid putting corporate expenses and income in with their business is that it won’t allow the business owner to have a clear idea of what the profit-and-loss is in their business. Therefore, they won’t know how their Core Business is doing. If a business owner needs to look at their income statement in order to be able to understand if they have the money to run payroll or pay bills if the income statement has corporate expenses and corporate income mixed in, they’re not going to be able to know if they can for sure make those payments, or if they need to engage in some revenue-generating activities says accounting Outsourcing. If they have enough money and they don’t realize it, it may delay a business owner from paying important bills, and it may delay them in running payroll, which might end up with staff leaving out of frustration.

Business owners need to also understand that not only they need to make important decisions from looking at their income statements. But so does their Banker if they are applying for financing. Accounting Outsourcing says that Bakers or financing companies need to see a couple of years of income statements to understand the profitability of the business. If the business owner has corporate expenses listed in the business expenses, it might make the business look not profitable at all, and then a business owner will get turned down for the financing. Perhaps the financing was for a building to buy because they had already outgrown their previous business space. And if they are not approved for the financing, it’s going to make a business and able to grow. This is why it’s extremely important that business owners separate corporate expenses from business expenses.

The sooner a business owner can understand how important it is to separate these items, the sooner they’re going to have an accurate income statement says accounting Outsourcing. The sooner this happens, the sooner the decisions a business owner makes will be good ones, the sooner they’re going to have accurate income statements so that they can give their Bank the proof that they can qualify for the financing that they are looking for.