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Cfo Services | Business Owners Need To Know Profit And Loss Statements
Business owners are often very good at providing the products or services that their company is to look for, which is why they went into business for themselves says CFO services. However, business owners are less knowledgeable about how to run their own business, which means that they make mistakes that can negatively impact their business. 50% of all entrepreneurs close their business within five years, and 29% of those entrepreneurs say that the reason why their business failed was because they ran out of money. Business owners can positively impact their cash flow situation of the business when they are able to understand their business finances, in order to make better decisions that can help them increase their business, and avoid running out of money which is why 29% of all failed entrepreneurs close the doors.
There are several things that business owners should keep in mind when they are reviewing their profit and loss statements, is that first of all they should look at their balance sheet first before looking at their income statement. The reason for this, is that the balance sheet will allow them to see any obvious errors that exist on the income statement says CFO services. Once a business owner is certain that the balance sheet looks good, they can then look at the income statement and be certain that when they’re making a significant decision on that information, the decision that they make will be a good one.
Other things for them to keep in mind as they look at their profit and loss statement said CFO services, is that they should be looking at their statements six months at a time. The reason for that is because a period of six months will be able to tell a business owner what’s going on in their business a lot clearer. They’ll be able to see trends, within their business is increasing, decreasing, this is especially important if businesses are seasonal, or if they have an extremely busy period of time. A business that does most of their business during the summer months it will be hard to understand what’s going on looking at a month December versus a month of July, but if you’re looking at six months at a time will be able to see where the peaks are.
Business owners should also understand that they should review their previous year before they look at their current year. CFO services says that this way, a business owner will be able to see and compare what various years look like. Having this in their mind before they look at their current year, can help them understand where they were last year so that looking at their current year is more impactful.
By understanding their financial statements, business owners can be able to understand more what’s going on in their business so that they can make better decisions a lot faster than waiting for their fiscal year end Annual reports to be done.
Business owners often run out of time in their business says CFO services, which means that they don’t have time to get everything that they want it done in their business. Because of that, they miss out on learning how to read their financial statements which means if they ever have to make financial decisions in their business, it is less likely to be an impactful decision. Making financial decisions without having all the proper facts, business owners risk making the wrong decision which can impact their business negatively by stalling their business, or forcing them to run out of money. Simply by learning quick and easy strategies on how to understand their financial statements, business owners can learn what they need to know in order to make their business decisions on the fly, so that they can avoid running out of money in their business, and smell that they have enough money in order to increase their business as they need.
The first business owners should understand is that there is one of the most important tools. CFO services says that the most important aspect of this tool is that it is simple, easy to read. Because of this, business owners need to avoid trying to put too many subcategories on the statements. Often business owners do this is a way of trying to provide additional information, but it’s far more impactful for the income statement to be simple, and on one page. This way it can be easy to read and help a business owner make financial decisions easier.
The next thing that business owners should take into consideration when they are looking at their income statement, is that they should be organizing it and numerically descending order. The reason for this, so that the most important information is listed at the top. That is to say, the cost of their business that impact their bottom line the most will be at the top of the page. CFO services says that examples of the expenses that are going to be at the top of the page, will be the rent, and administrative salaries. If a business owner wants to cut costs in their business, they should fold the sheet half and look only at the top half of the business. If they look at the bottom of the list, there might be many things on the bottom of the list, but they won’t impact the bottom line as significantly. Examples of what is going to be at the bottom of the sheet that provides a less impact the business will be utilities and bank fees. While it might be possible for business owners to reduce some cost, and they should reduce costs whenever possible, spending a lot of time on the bottom of the list will have the biggest impact on their bottom line then if they spend time on the top of that list.