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

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Accounting Outsourcing | Understanding Corporate Income Versus Business Income

When mistakes that business owners make quite often according to accounting Outsourcing is mixing in their corporate income with their business income. This is a mistake that frequently happens, often because entrepreneurs don’t understand why it doesn’t belong together. In fact, some business owners think that they are making their business look even more profitable by including income and revenue generated by their corporation in with their business. However, this should not be done, because when this happens, business owners will not be able to understand how profitable their business is, which could lead them to make grave mistakes in their business.

An example of why the revenue of a corporation should not commingle with that of the Core Business is because if business owners had a very large investment that had a huge return, that huge return might make the business look like it is extremely profitable. When a business owner sits down to create their business plan for the next year, their accounting Outsourcing company might suggest that they should hire more staff, purchase a large asset, or even move into a larger building because their business is so much more profitable. In fact, their business is not this profitable, and if a business owner makes those changes, they are going to put their business at risk for running out of money. This is why it isn’t so nurse needs to keep the revenue of their corporation separate from their Core Business.

Another example of a type of income that a business owner should keep separate from their Core Business is if the corporation owns one or multiple rental properties. Whether it is a commercial rental property or a residential commercial property, the reasons are the same. If a business owner had a rental condo and was getting $1,500 every month for rent, that should not exist in the revenue of the business, or else it would make the business look like it did several thousand dollars more in profits that year.

However, business owners need to understand that it is extremely important that the revenue of the corporation is noted somewhere, and it can even be noted accurately on the income statement, business owners just need to know where it says accounting Outsourcing. At the bottom of the income statement, in a section called other income and expenses is where business owners should put all of the income and all of the revenue generated by their corporation. Whether this is from Investments, rental properties, or the sale of large assets such as equipment or a building.

When business owners understand where to put all of the corporate income and expenses on their income statements, business owners will be able to more accurately read and understand this document so that they can make more informed financial decisions in their business. The sooner business owners can figure this out, the sooner they will not be putting their business at risk for the wrong business decisions.

Accounting Outsourcing | Understanding Corporate Income Versus Business Income

One of the most important things that a business owner can do is learn some basic business financial literacy says accounting Outsourcing. Many Business owners lack a lot of financial literacy, and the sooner they learn, the better off it will be for their business. In fact, Intuit who is the makers of QuickBooks surveyed small business owners in order to determine how financially literate they were about their businesses. 82% of the respondents scored less than 70% on the test, showing into it how few business owners had the skills to grow their business themselves.

However, it can be very simple for business owners to learn the skills that they need to help them avoid disaster and grow their business. Accounting Outsourcing says understanding how the income statement is organized can help ensure that business owners are putting everything in the right places, so that they can understand the revenue of their business, the expenses, and the overall profitability. When business owners look at their income statement in order to make business decisions, it’s going to be very important that they are able to not make any mistakes when looking at this, so that they can understand if they can afford to pay bills, run payroll, or if they need to cut expenses or lay off staff.

The way an income statement is organized is the revenue at the top, followed by the direct cost of sales and then the calculation of the gross margins of the business. Underneath that says accounting Outsourcing are the overhead expenses of the business, followed by the total of income called net income from operations. This is what the revenue is minus the direct cost of sales and minus the overhead expenses. After that, business owners will see a section called other income and expenses. This is where business owners should put everything generated by the corporation. By putting everything here, business owners are avoiding commingling income and expenses from the business with the corporation.

When business owners learn how to read their income statement, it will be more able to either do their own bookkeeping where they don’t commingle corporate and business expenses. Or, they will be able to communicate well with their accounting Outsourcing company to let them know what is a corporate expense or a corporate income so that their accountant can put it on the right spot of the income statement.

Meaning of complete understanding of their business finances and help entrepreneurs ensure that they are avoiding making mistakes when it comes to their income statement. Since business owners should be looking at this documents before making any business decision, its accuracy is extremely important. By being able to make financial decisions with better information is going to mean better financial decisions, which can help an entrepreneur grow their business significantly. Therefore, entrepreneurs should not underestimate the importance of learning how to read and organize their financial statements in their business.