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Outsourced CFO | How To Calculate The Value Of An Asset
Entrepreneurs often struggle making financial decisions in their business says outsourced CFO. Half of all Canadian entrepreneurs fail within the first five years of being in business, and he 9% of those failed entrepreneurs say that the reason why their business failed was because they ran out of money. One way that entrepreneurs can avoid running out of money is learning not only how to read their interim financial statements, but help ensure the accuracy of the information in those financial statements so that when they make decisions based on the information, their making the best possible decision for their business.
Although entrepreneurs are supposed to be able to use their interim financial statements, if they are booking their transactions concerning major equipment like vehicles or real estate incorrectly, come statements and being completely unusable. Therefore, in order to help entrepreneurs book those major transactions correctly, they should understand not only what the definition of what those are, but how they should look in their interim financial statements. Outsourced CFO says a simple definition of an asset that entrepreneurs can remember when they are looking at their interim financial statements, is that it should include any purchases that an entrepreneur makes where the purchase has a useful economic life of longer than one year. Great examples of assets include vehicles, major equipment, real estate, computers and even leaseholder improvements.
When entrepreneurs are booking the assets into their interim financial statements, they should ensure that they are only booking assets over one thousand dollars. That is not to say that assets under thousand dollars do not technically count, but it is a better use of an entrepreneurís time to not worry about the smaller assets in their business. Can take a lot of time to include those small assets, and then depreciate them on a yearly basis. Entrepreneurs can spend their time better in their business by achieving their strategic priorities instead of calculating small assets that are going to impact their bottom line either way.
One of the benefits entrepreneurs have two only counting assets over thousand dollars, is it makes it very easy for entrepreneurs to spot a mistake as well. Outsourced CFO says if entrepreneurs see smaller amounts being counted for in their asset account, they should understand not only that it is likely mistake, but that the likely mistake is an expense being counted as an asset by mistake. An example of how this could happen, is if a business owner purchases an office printer for five hundred dollars, that technically fits the description of an asset, but it is too small for business owner to calculate, so if they see that five hundred dollars charge in the asset account they know exactly where it came from and how to fix it.
By understanding the assets of their business and how they appear in their interim financial statements can help entrepreneurs very easily ensure the accuracy of their statements so that when they use them to make financial decisions in their business, they will ensure the accuracy of the information and ensure they are making the best possible financial decision.
Outsourced CFO | How To Calculate The Value Of An Asset
When entrepreneurs use interim financial statements to make decisions in their business, the accuracy of those statements is of paramount importance says outsourced CFO. However, if entrepreneurs are not sure how to view those statements, or what they should be looking for then they are less able to catch mistakes and improve the accuracy of those interim financial statements. Can be very easy for entrepreneurs to learn, so that they can ensure that they are making the best possible financial decisions in their business.
One of the first things that entrepreneurs should understand is when they purchase assets, how that is supposed to show up on their income statements and their balance sheets. Outsourced CFO says that the initial purchase should not end up showing up on the income statements of the business for good reason. That reason is because if the asset purchase was put on the income statement, it would make the profit of that month look very poor. The reason why it should not is because that just was not an expense of the business, but an asset that is going to benefit the business for several years. Because of that, it should not appear on the income statement and instead go directly into the balance sheet. However, it is important that it eventually does show up on the income statement, which is why at the end of the year when an entrepreneur is depreciating all the assets, it will appear on the income statement for the amount it has depreciated. All asset purchases that happened within that year should make their appearance on the income statement at that time.
Entrepreneurs should also be keeping in mind when they purchase assets in their business to set up subaccounts on their balance sheets for those assets. The reason for this says outsourced CFO is so that they can stay organized and have the maximum amount of information possible on those assets. The reason why this is important, is if an entrepreneur is ever planning on selling those assets, the more information they have on them the better. This is especially beneficial for businesses that tend to go through a lot of vehicles like contractors. They will sell those assets as soon as they start having a larger maintenance cost to them even though they will be in good shape and will be able to be sold for a significant amount of money. This is also beneficial for entrepreneurs are ever going to sell their business, to have a good and complete list of all of the assets in their business.
By keeping good record of their assets and how they are going to appear on their income statement and balance sheet can help entrepreneurs stay organized, and have the most information possible so that they know what assets they have, how they have depreciated, and then how much those assets are worth if they ever need to sell them in the future.