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

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Outsourced CFO | Looking For Financial Literacy?

Outsourced CFO | increasing business financial literacy

A sobering statistic is that 50% of small businesses will close their doors within the first five years of opening their business says outsourced CFO. One third of these businesses will say that running out of money was the reason for their failure. Entrepreneurs who donít understand how much money they need to make and how many products they need to sell in order to pay for their overhead expenses underestimate how much money they need to bring in in order to pay for these expenses. If entrepreneurs can learn more financial literacy, they will be better armed to not only cover their overhead expenses, but also turn a profit in their business. This can greatly impact if they run out of cash, eliminating that as a reason their business may fail.

Small business owners need to be educated on what overhead and general expenses are. These expenses are all the costs that a business faces that are not related to the production of their products or services. This includes rent and administration staff, and also things like business insurance, utilities, phone bills, internet, office supplies. Thereís many more things included in overhead and general expenses and it often depends what the business is says outsourced CFO. If business owners can understand these costs very well, they can start to understand how much money they need to bring into their business to cover these costs.

Not all of the businesses costs are included in overhead, direct costs are the other expenses a business owner incurs. These costs are directly related to the products or services that company produces. This includes direct labour costs as well as raw materials and supplies needed to produce that product. Business owner needs to be able to cover the cost of their direct expenses as well as their overhead in the pricing of their products or services. Often, business owners only include direct costs in the pricing of their products. This is a huge mistake says outsourced CFO because they need to be able to bring in enough money to pay for their overhead expenses. Knowing how much mark up to put on each product the business owner sells, as well as knowing how many products they need to sell in order to cover that break even point is very crucial to the businesses success. The

When the business owner can better understand how to calculate their overhead expenses and direct costs together, they will be able to better price their products confirms outsourced CFO. Helping them not just cover their overhead but allow them to turn a profit. By profiting in their business, business owners can start to use that money to create positive cash flow within their business. Since running out of money was one of the main reasons failed businesses said they failed, by understanding these basic finances in their business, business owners can be more prepared to beat that factor in their own business.

Outsourced CFO | increasing business financial literacy

Intuit, the company who makes QuickBooks did a survey of entrepreneurs and asked them basic business financial literacy questions such as what is cash flow, accruals and balance sheets. Out of all of the respondents, 82% of them scored less than 70% on the test. This should show that business owners arenít understanding basic business financial literacy. Businesses who can learn how to understand business finances, can stand a better chance at success because they will learn how to cover their expenses, increase their cash flow, and profit in their own businesses. Call us now to get the best Outsourced CFO every single time!

Understanding the difference between general and overhead expenses and direct costs, can help a business owner learn what costs can be controlled, as well as how to price their products to cover these costs. General and overhead expenses are all the costs that a business incurs just to be in business. None of the expenses of reducing their product is included in this. A few examples of general and overhead expenses are rent or mortgage, administration staff salaries, utilities, and office supplies.

These are the actual costs of what a business incurs just to stay open. Entrepreneurs need to completely understand these costs, and that the prices of their products needs to reflect these costs. Therefore all of the other expenses in a business are considered direct cost and are all of the expenses a business faces in order to produce their products or service. This includes supplies, raw materials, and direct labour. Many business owners often only puts the cost of the direct expenses into their price, and as a result donít cover their overhead says outsourced CFO.

Entrepreneurs believe that by slashing all of their expenses they will be able to save enough money to then turn a profit. While it is prudent for business owners to be mindful about expenses, expenses can only be cut so much. Rent is locked into a lease, if a business owner needs to move their location to a smaller building, or more cost-effective area of town, thatís a great idea but it can only affect the bottom line so much. Administrative staffing costs are the second biggest expense other than Brent, and itís difficult to slash those prices as well says outsourced CFO. The reason is other than laying off staff or rolling back their wages are cutting their hours, a business owner canít save much money there. If the staff is crucial to the businesses success, itís not practical to either lay them off or cut their hours. A business owner may choose to put the administration staff onto revenue producing activities in order to help offset the cost, but merely cutting that cost is not usually possible.

When business owners can understand all of their expenses as well as what expenses they have control over, they can make better pricing decisions for their products and services and start to learn how to not only cover all of their expenses but start to see profit within their business.