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Edmonton CPA | First Steps To Learning To Read Financial Statements

If an entrepreneur is not able to or simply does not read their financial statements regularly says Edmonton CPA there putting their business at risk. In fact, not only should entrepreneurs be reading updated financial statements regularly, but they should be reading them prior to making any financial decision in their business to ensure that the decisions their making our sound. In fact, 50% of all entrepreneurs fail in Canada by five years, and 29% of those entrepreneurs say they failed because they ran out of money in their business. Being able to make better and more informed financial decisions can help entrepreneurs succeed.

Business owners should first understand that when it comes to their financial statements, there are three components or reports that are included in this. Edmonton CPA says that includes the statement of retained earnings, the income statement and balance sheet. It is not just important for an entrepreneur to learn how to read one of those statements, but all three give a clear picture of the overall financial health of the business, and need to be taken into consideration when entrepreneurs are making financial decisions in their business.

However, the first one that business owners should focus on partially because it is the report that should always be considered first is the balance sheet. This is going to show entrepreneurs all of the assets and liabilities in the business, to give them an idea of the overall financial health of their business. They should expect to see on the balance sheet a list of the assets at the top, in the order of how easy it is to make those assets liquid. This means will see a list of all the cash in the business, the accounts receivable, the inventory in the business, and then the property including things like vehicles, machines and equipment and property, real estate or buildings.

Edmonton CPA says after the assets of the balance sheet, should be a list of all of the liabilities entrepreneur has in the business. This means all bills and payments that an entrepreneur needs to pay including all loans and financing. Finally, the equity will be listed at the bottom of the Fort, and this includes retained earnings as well as the share capital. A business owner should be able to take the liabilities and add them to the equity in order to end up with the value of all of the assets in the business. This is why it is called a balance sheet.

When entrepreneurs are able to read this statement, they will already be able to make more informed financial decisions. At the very least, be able to understand if they have the money in their business to be able to make certain payments, or not. Whether business owner decides to engage in some revenue-generating activities, or start calling to collect on some of the Accounts Receivable, I reviewing this statement first, they will know if they can make those purchases or not.

Edmonton CPA | First Steps To Learning To Read Financial Statements

It is not just important for entrepreneurs to understand how important it is to read their financial statements says Edmonton CPA. They also need to ensure that they are reviewing the statements regularly, and ideally prior to any financial decisions that they need to make. If they make decisions without consulting these reports, they made their business at risk. Some entrepreneurs believe that they can simply look at their bank statement in order to see how much money they have to utilize in their business, but this would take into consideration any payments disbursements, or checks that need to be cashed.

Although the recommendation by Edmonton CPAs for entrepreneurs to read their balance sheet first, business owners should also understand what their income statement is saying, so that after they looked their balance sheet, they can use it together with their income statement to make even more informed financial decisions in their business. What the income statement is going to be showing an entrepreneur, is how profitable a specific timeframe the business was. Typically, the income statement is doing one month of time, but the recommendation is for entrepreneurs to review a six-month comparative statement.

By viewing six months a time, business owners are more able to see trends and anomalies. I can help them determine if there was a mistake, or if there was reason why one month was either much more profitable than the others, or not. For example, Edmonton CPA says retail stores should see that December is an anomaly on their income statements, because of how busy they typically are. Entrepreneurs should expect to see all of the revenue that has been generated the business, and then all of the expenses including the direct cost of sales as well as the general expenses. When entrepreneurs use the income statement longer with their balance sheet, they will gain special insight into the finances of their business.

Ultimately, it is well worth the effort for entrepreneurs to learn how to read their financial statements especially including a balance sheet and income statement says Edmonton CPA. it is also important to note that these reports should be a single page long, in order for them to be easy to read read and understood. That way, it does not take a lot of effort for entrepreneurs to look at the information in order to make informed financial decisions. If entrepreneurs feel that it is not enough information, they can always talk to their Edmonton CPA and get reports that go deeper into the finances of their business.

By developing the skill of reading their financial statements, entrepreneurs will be able to make more informed financial decisions. Not only will this ensure that there avoiding making mistakes, but that they can be proactive in the growth of their business as well. Business owners to learn how to do this early on in their business only can avoid the setbacks that cause entrepreneurs to fail, but they will also be more likely to grow their business faster as well.