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

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Accounting Outsourcing | What Is Other Income

Many small business owners lack business financial literacy, which creates problems says accounting Outsourcing. If they don’t understand their business finances, they will have a hard time understanding how to grow their business and be more profitable. In fact, this is such a problem that Intuit, the makers of QuickBooks did a financial literacy test for small business owners in Canada. They discovered that 82% of the respondents scored less than 70% on the test, meaning most business owners lack a lot of very vital Financial knowledge that they need to be successful in business.

One of the biggest things that people don’t understand is what other income is on their income statement. Many business owners put all income weather was generated by their core business or their corporation into the revenue of the business. They might believe that since the revenue is a legitimate income of the corporation, that it belongs to the income statement says accounting Outsourcing. And while they are correct, other income of the corporation does, in fact, belong to the income statement. It does not belong in the top Revenue section. It belongs at the bottom in a place called other income and expenses, so that a business owner can keep the revenue generated by their Core Business separate from other Revenue that they are getting in their corporation.

One example of other income that business owners might be generating by their corporation are from their Investments. They might have stocks and bonds, or other investments that are generating profit and loss for the corporation. And while the profits and losses of their Investments should go on their income statement, accounting Outsourcing says it should go in the other income section, because the Investments of the corporation does not relate to the revenue of the Core Business. By commingling, the two make it difficult for business owners to understand what the profit is of their Core Business.

The corporation might also have a rental property that they own. This might be a residential property, it might be a business property, but they rented outs and generate an income from that rent. Accounting Outsourcing says this should also go under the other income on the income statement. There might be a lot of income as well as expenses due to the rental property including condo fees, taxes, utilities, and parking fees just to name a few. They might also have special assessments that they have to deal with. All of this should go in the other income and expenses section of there income statements so that when they are looking at the profitability of their business, it will be very easy to see what was generated by the business, and what was not.

The earlier an entrepreneur can make these distinctions in their business, the better says accounting Outsourcing. In order to obtain financing, or sell the business, or even create a realistic business plan for the upcoming year, the more the other expenses and income are separated out, the more accurate the income statement will be, and the more successful they will have at generating a realistic business plan, obtaining financing and even selling their business.

Accounting Outsourcing | What Is Other Income

Many entrepreneurs struggle significantly with understanding their business finances says accounting Outsourcing. In fact, half of all Canadian entrepreneurs will fail, and 29% of all failed entrepreneurs say the reason why they failed is that they ran out of money in their business. Now if business owners are not creating accurate income statements, then they might be making the wrong financial decisions that could put their business at risk of failing due to running out of money. This is why it’s very important business owners understand not only what other income is, but what other expenses are so that they can put them in the right section of the income statement, and understand the profits of their business a lot better.

In order for business owners to understand where it should go, they need to understand how an income statement is organized as accounting Outsourcing. The revenue of the Core Business should be at the top, followed by all of the direct costs of sales this includes the supplies and materials, and paying for the labor whether they are staff, or independent contractors. Underneath stats, is his owners will see the gross margin of their business, what the revenue is minus the direct cost of sale. Underneath that, we’ll be all of the overhead expenses, including administrative staff, rent or mortgage of their office space, office supplies, utility bills, phone and internet, and even Bank charges to name a few. Underneath that will be the net income from operations and the most important thing for business owners to look at on their income statement when they are figuring out the profits of their business, and if they need to increase their revenue.

Underneath all of this, is a section called other income and expenses says accounting Outsourcing. This is where all income and expenses generated by the corporation should be listed, that are not directly related to the income or expenses of the Core Business itself. This can be things such as profit and loss from Investments, rent from a rental property owned by the corporation, and even profits generated by the sale of assets of the business. Accounting Outsourcing says many business owners might think that the sale of assets should be included in the revenue of the core business since it was the core business’s assets that were being sold. However, business owners need to understand that the only Revenue items that should be in the revenue section are typical ways the business owner generates Revenue. Since an asset sale is typically not how business owners are going to generate Revenue usually, it should go in the other income section.

When business owners are able to understand why other income and expenses are kept separate from Core Business you see, they will be able to end up with more accurate income statements, and whether they need that to increase the profits of their business, help minimize expenses, obtain financing or even sell their business, by having correct income statements, can help them achieve all of those things when the timing is right in their business.