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Many entrepreneurs are aware that they have a steep learning curve when it comes to running their corporation says Edmonton CPA. However, they may not know the first place to start about what they need to learn first. The recommendation by most accountants would be for entrepreneurs to learn how to read their financial statements. When entrepreneurs do this, they will be better equipped to be able to make financial decisions in their business that can help them not only avoid mistakes, but grow their business as well.
One of the first things that entrepreneurs should understand, is that when their Edmonton CPA refers to their financial statements, this typically means the three reports including income statement, statement of retained earnings and a balance sheet. Many entrepreneurs wonder what the difference between an income statement and a profit and loss statement is. However, this is not as complicated as it might seem, because while most Canadians call this report the income statement, it is referred to as a profit and loss statement in a lot of accounting software. Therefore, entrepreneurs should understand that whichever they want to refer to it as, or their software called is referring to the same thing.
While many entrepreneurs like reviewing their income statement or profit and loss statement first because it easiest to read, is not the place for entrepreneurs to start. In fact, the best place for entrepreneurs to start reading and understanding their financial statements is with their balance sheet. The balance sheet is going to give an entrepreneur an overview of the financial picture of the business. Edmonton CPA says this is important to understand first, because it will allow business owners to have context when reading their income statement.
The income statement on the other hand is going to show entrepreneurs how profitable a specific timeframe was. As is typically viewed over the period of one month, but the recommendation is for entrepreneurs to review six months at a time in what is called a comparative statement. Why this is important, is that entrepreneurs can not only see mistakes and anomalies for example if one month is extremely high or extremely low. It can also allow entrepreneurs to see trends, if they are starting to make more money, overseeing their revenue slip over time. An example of understanding the anomaly would be if a retail outfit solve one month was extremely profitable by three or four times over any other month that year. They might think it is a mistake, or they might be able to say that is what they did over Christmas, and so it is understandable that so high.
By learning how to read their financial statements, entrepreneurs will be able to make more informed financial decisions in their business. When they do that, they will be able to not only avoid making errors that might cause their business damage, like spending money they do not have. But it also will allow entrepreneurs to be able to more informed decisions, that can help them plan the growth of their business.
It is very important for entrepreneurs to learn the finances of their business quickly says Edmonton CPA. This means learning all about the financial statements in the business, and how to read. One mistake that entrepreneurs often make, especially as their new in business is looking at their bank account in order to see how much money they have to spend. This would be a huge mistake, that could end up with entrepreneurs running out of money. Therefore, it is very important that entrepreneurs not only learn how to read their financial statements, but that they look at them prior to making any decisions concerning money.
The reason why a business owner can not look at their bank account in order to know how much money they have is because the bank account will only show exactly how much money is sitting in the bank account at that moment. Edmonton CPA says that if an entrepreneur has written any checks, or has scheduled a disbursement of funds that is not good be taken into consideration in their bank account. For example, if an entrepreneur has written a five thousand dollars check, and they see that there is five thousand dollars in the bank, they may not realize that the check has not been cashed and any money that they spend will cause that check to bounce.
A much better way of determining how much money that an entrepreneur has to use is by looking at the balance sheet of the business. Edmonton CPA says the information that is included on the balance sheet is the assets, liabilities and the equity. When looking at the asset section which will be at the top of the balance sheet an entrepreneur will build a see all the cash they have available, all of the accounts receivable, inventory, and property including vehicles, equipment and machines and buildings a real estate. This list of assets will have taken into consideration all of the funds that has been scheduled to be dispersed as well as all of the checks the been written.
Therefore, if a business owner wants to be able to know if they have money to utilize their business, they can simply look at the balance sheet. However, every time they make a payment, disburse funds or run payroll, the number will change therefore it is important that they are getting updated financial statements either from their bookkeeper, or if they are pulling that information from QuickBooks.
Even though business owners may no the general idea of how to make great financial decision, by learning how to read the financial statements, will give them the tools to do so efficiently and effectively. Helping entrepreneurs avoid making financial mistakes, or learning how to use that information to strategize their growth is important. When they do this, they will be able to not only avoid the problems that have caused other businesses to fail, but they will be that much more able to grow their business and become profitable.
