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

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Outsourced Accounting Services | Understanding Financial Statements?

Many business owners have no prior business ownership experience, says outsourced accounting services. They get into business because they are good at providing the service that their business provides, and not because they are seasoned business owners. Because of this, business owners can sometimes make financial decisions in their business that is not beneficial to their business. By helping business owners understand financial statements, they can help them immensely in learning how to make great fiscal decisions in their business. Since 29% of all entrepreneurs who were forced to close their business say that running out of money was the reason why their business shut down, financial literacy can go an extremely long way in helping business owners succeed. As Warren Buffett has been famous say, accounting is the language of business

Business owners should understand that there are three different types of financial statements that they can get for their business year end says outsourced accounting services. These three financial statements are audited financial statements, reviewed financial statements and notice to reader financial statements all of the information contained in each of these financial statements is the same. They are the income statement, statement of return earnings and balance sheet. Together these three reports create a formal statements for the corporation for the entire fiscal year. This outlines exactly what happened in the business including the profit and loss, assets and liabilities as well as this will earnings in the corporation over time.

Business owners can be assured that the only difference between each of those three statements, is the level of reviews and checks to ensure the numbers are correct. In the notice to reader financial statement, this has the least amount of checking, and the aim is to ensure that the numbers are with medically correct and plausible. The reviewed financial statement has more processes in place, and the goal is to ensure that the numbers are reasonable. The audited statements are the most involved, and takes a lot of time, as well as working with other financial institutions and the goal is to confirm the accuracy of all of the numbers.

Outsourced accounting services says that because of the different amount of time that go into creating each financial statement, that is reflected in the cost of each one. Notice to reader as the least amount of time to produce, and is therefore the least expensive. The audited financial statements take the most amount of time, and is the most expensive. Business owners should be reassured that most entrepreneurs and small businesses only require the notice to reader financial statements. The expensive audited statements are usually only done for nonprofits as well as large corporations says outsourced accounting services.

Other benefits to the notice to reader financial statements, is that the accountant is able to be very involved in advising their clients. Since accountants see hundreds or thousands of clients, this advice can be extremely beneficial to business owners.

When business owners are unsure of how to read financial statements, it can cause them to make less than great to decisions in business says outsourced accounting services. Helping business owners understand how to financial statements, they can make better decisions not only at your end, but throughout the life of their business, which can help them not only succeed in business, but avoid going into cash flow problems, which is the reason why 29% of businesses that failed in the reason as their failure.

When an entrepreneur reaches their fiscal year end, they need to file their taxes, and in order to do that, they need to get a statement prepared by accountant says outsourced accounting services. What a financial statement is, is a formal statement of the Corporation for its entire fiscal year. The annual financial statements will include an income statement, balance sheet, as well as a statement of returned earnings. This should show the accountant as well as the business owner everything that has gone on in the business in the last year as it relates to profit and loss, the liabilities of the business as well as the assets, and the earnings in the corporation over time.

All three types of financial statements include the same information, but how they are prepared is different says outsourced accounting services. There is the notice to reader financial statement, often called the NTR, the reviewed financial statement and the audited financial statements. The only difference in the statements, is the amount of time it takes accountant to prepare, and therefore the price. The notice to reader financial statement takes the least amount of time, and is the most cost-effective. This is good news for entrepreneurs, because it is the report that is needed for entrepreneurs to run. The audited and reviewed statements are usually only fired for nonprofits or large corporations.

Business owners should understand that there are limitations to the year end financial statements. Those year ends are due six months after a corporations fiscal year end, which means that by the time the business owner is looking at the reports, some of the numbers can be up to 18 months old. Outsourced accounting services says that as long as business owners understand that those numbers may be slightly out of date, depending on what can happen in the business in 18 months. Business owner can make better financial decisions based on these reports, but as long as they understand the limitation. If business owners are looking to get better financial information in their business says outsourced accounting services, when they can do is develop better internal reporting requirements within their business. This way they should be able to see what’s going on financially in their business a lot sooner than the year end financials, six months after their fiscal year end. This is especially important for financial decisions that need to be made immediately in the business, such as whether a business can afford to buy a new piece of equipment after one has broken, or if they need to hire or lay people off.