Outsourced Accounting Services | Why Financial Statements Are Important To Entrepreneurs?
50% of entrepreneurs end up closing their business within five years according to an industry Canada study says outsourced accounting services, and 29% of them said that the reason why their business failed was because they ran out of money. Business owners that aren’t able to read or understand financial statements, are not able to make sound financial decisions in their business as easily, and their business can end up suffering as a result. By understanding financial statements, business owners can start increase their financial literacy in their business, in order to make better business decisions. This cannot only help them avoid running out of cash, but can also help them increase their business and reach their goals.
A good place to start for business owners to gain financial literacy in their business, is to understand what financial statements are and how to use them in their business. Outsourced accounting services says that annual financial statements are the formal statements of the business owners corporation for an entire fiscal year. He uses three different parts to the business owner an idea of where the finances are in the business over the year. A business owner should expect to get an income statement, statement of returned earnings as well as a balance sheet. Business owners should be able to read the statements in order to get an idea of what the essence of the business owner, what the liabilities are, the profit and loss is as well is what the earnings are in the corporation over time.
Outsourced accounting services says that there are three different types of financial statements, but all of them give the same information. There is the notice to reader into which is the most common for entrepreneurs, the reviewed financial statement and the financial statement, which is most common for operations and nonprofits to use. The only difference between each of these three financial statements, is the level of verification that each of the reports. The notice to reader has the least amount of verification which means it takes less time and costs the least amount of money. The reviewed financial statements and audited financial statements take quite a bit more verification to produce, which means they are far more expensive.
Many business owners often believe that the increased cost and increase due diligence in the reviewed and audited financial statements are beneficial to the business owner but outsourced accounting services says that this is actually not true. The advantage of the notice to reader financial statement, is that a business owner is able to use the advice of their accountant in order to set goals and great financial decisions. For the reviewed and audited financial statements, the accountant must remain at arm’s length so impartial to the business says outsourced accounting services. Because of that, they are not able to give advice to their clients, which doesn’t help them in any way at all.
Accountants often see that business owners are challenged when it comes to understanding their finances says outsourced accounting services. They see this, because when business owners see them, they either don’t have any financial statements to bring with them, they have the financial statements but they are inaccurate, or they have the financial statements but they don’t know how to read them. If business owners don’t know how to read financial statements, chances are very high that they won’t make beneficial financial decisions in their business. By helping business owners understand financial statements, they can not only avoid running out of money in their business, they can start their business successful.
Outsourced accounting services says that annual statements of the business should be able to give a business owner look at the finances of the corporation has been entire fiscal year. Everything that happened should be included in the report including the profit versus loss, assets and liabilities as well as earnings in the corporation. There are three reports included in the statements, includes a statement of returned earnings, and in consultant as well as a balance sheet. I understanding what is contained in the financial statements, and how to read them, business owners will be able to starts to put together a picture of how the business is doing financially.
One thing that business owners should keep in mind though when they are looking for financial statements, is that there are inherent limitations to them. While it can be a great tool for business owners to use to help them make decisions, this is just a single snapshot of the business for certain period of time. Financial statements are prepared in the business after their fiscal year end, and are due to be filed six months after the fiscal year end. This means that when a business owner is looking at their financial statements for a year, they’re looking at information that is 12 to 18 months old. Outsourced accounting services says that this is a little bit limiting. If business owners are interested in creating being able to review more current financial information in their business, they should develop internal financial reporting requirements in their own business. This way, and can be up to the business owner to decide when they would like to take a look at the finances of their business, and this will allow them to see where the business going and help them make better financial decisions in the moment instead of waiting for the fiscal year end. Some decisions are most beneficial made the moment says outsourced accounting services. Such as whether or not to lay people off, hire more people, by equipment for example.
Once business owners understand what a financial statement is, and how to read it, outsourced accounting services says, then they will be able to make great financial decisions for their business, that can benefit them for a long time to come.