Outsourced CFO | Best Practices For Booking Fixed Assets
Industry Canada says that half of all Canadian entrepreneurs fail in their business within five years, and 29% of those failed entrepreneurs say that the reason why they failed is because their business ran out of money, outsourced CFO says that those audits can be changed significantly if entrepreneurs can make better financial decisions in their business. When it comes to reviewing their interim financial statements, small business owners are supposed to be looking at that information in order to guide them to make informed financial decisions in their business. Unfortunately, if transactions concerning major fixed asset purchases such as vehicles, real estates and leaseholder improvements are booked incorrectly, it is means the income statements are incorrect. When entrepreneurs use incorrect income statements to make financial decisions in their business, they put their business at risk.
In order to help entrepreneurs ensure the accuracy of their interim financial statements, entrepreneurs can understand simply the definition of what a fixed asset is in their business. Outsourced CFO says this is any purchase that an entrepreneur makes that has a useful economic life of over a year. For example, vehicles and computers count as fixed assets because an entrepreneur will be able to use them for several years to benefit their business. Expenses on the other hand, are purchases that entrepreneurs make that do not have a lasting value. Examples might be office supplies, for entertaining clients. They are beneficial to the business, but once the purchase has passed it cease having a useful value.
I will of them that can help entrepreneurs understand what in their businesses should be count as fixed assets is to discount anything worth under a thousand dollars. If entrepreneurs are already counting those assets under thousand dollars, they are not technically wrong, but the goal is not for an entrepreneur to be 100% correct, but be efficient with their time. The time it takes to account for all of those assets under thousand dollars as well as depreciate their value on a yearly basis is time that an entrepreneur is it best spent in other areas of their business.
Outsourced CFO says one benefit to entrepreneurs only assets over a thousand dollars, is that if they look at their interim financial statements, and see an amount in their asset account under thousand dollars, not only do they know it is an error, but they will also know what the error is in order to fix it quickly. The air will most likely be an expense being claimed incorrectly. An example of this helping would be if an office printer is purchased for five hundred dollars, it technically fits the description of an asset, but it is under the thousand dollar amount, and entrepreneurs can fix that error.
Not only by understanding what assets are in their business, but how they are going to look on their interim financial statements can help entrepreneurs first of all book them correctly in the first place, and second of all fix them if they have been booked incorrectly. This can help increase the accuracy of those interim financial statements, and verify increasing the ability to make positive financial decisions based on those same statements.
Outsourced CFO | Best Practices For Booking Fixed Assets
It is extremely important that entrepreneurs learn quickly in their business how to speak the language of business which is accounting according to Warren Buffett, outsourced CFO says that entrepreneurs who do not understand how to read interim financial statements, are at a disadvantage by being unable to understand how to use them to make positive financial decisions in their business. And if they do know how to make positive financial decisions using those interim financial statements, but they are incorrect, they still their business at risk.
Outsourced CFO says that entrepreneurs should understand when they make asset purchases in their business, they should understand how it shows up on their income statements and balance sheets so that they can not only troubleshoot, and fix errors, but me and more informed on how it looks so that they can be more informed business owner. When they make a fixed asset purchases in their business, entrepreneurs should understand that the expense should not show up on their income statement in the month that it was purchased. The reason for this is because if it appears on the income statement, it will negatively impact the prophets of that month. Therefore, entrepreneurs should understand that it should bypass the income statement completely at this point in be put directly onto the balance sheet., Entrepreneurs need to understand that it is eventually going to show up on the income statement. How this happens, is at the end of the year when the entrepreneur depreciates all of their assets, any asset purchases that were made in that year will now make their appearance on the income statement. The amount that it will show is the amount that it is depreciated. Each year that passes that asset will depreciate more and more until an entrepreneur sells it, or until that asset stops having a useful life of the year.
When entrepreneurs are making those asset purchases, outsourced CFO says that it is a good idea for entrepreneurs to be able to set up subaccounts while they are making asset purchases. What this does is it helps entrepreneurs stay organized, and maintain the maximum amount of information on those assets as possible. This is extremely important if an entrepreneur is ever going to sell their business and they want to have an accurate list of all of the assets in their business and how much they have depreciated. It is also beneficial for if entrepreneurs are ever going to sell those assets individually. A great example of this is when an entrepreneur is selling vehicles in their business, they have passed the useful life for an entrepreneur because they are costing too much to maintain, but there still going to be able to get a significant value out of them like ten thousand dollars for example. The having the most information possible can help entrepreneurs get the most money they can for those assets.