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

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Vancouver CPA | Planning You Income Statement

When a business or company plans an income statement, Vancouver’s CPA cautions that 80% of small businesses score less than 70% on an income statement test.

Entrepreneurs have long since been making the mistake of filing long income statements as a result of making bad choices, and they can’t fit all of the information on simply one, easy-to-read, and efficient page.

Vancouver’s CPA teaches us of the four main sections in a quality income statement. They are, number one, revenue. Revenue is the gross amount that you’re bringing in to your business.

Number two the cost of sales. The cost of sales is directly related to providing goods and or services.

Number three general expenses. These general expenses may include, but are not limited to rent and or mortgage, amortization, etc.

Number four other income. These are the expenses that don’t necessarily relate to the day today business operations.

Vancouver’s CPA recommends organizing your income statement in numerically descending order. That will allow you to keep focused, and find easily accessible and important information such as the gross margin. Business owners tend to be fixated on small items, and often don’t have a plan and neglect the big picture.

Vancouver’s CPA also cautions against writing an income statement longer than one page in length. Having a one page income statements will allow you to make business decisions intuitively, quickly, and efficiently.

What happens to classification and variance analysis when your chart of accounts gets too big can become too big of an issue if one does not pay close attention. Keep classification to a minimum. The more classifications you have, the more ambiguous and confusing it will gets in your organization methods.

Yes, feel free to use sub accounts or even items, but don’t cloud the big picture.

Vancouver’s CPA recommends no more than three revenue accounts. That’s where the planning happens, and a business can still boil them down to do more than just one. At the and, it’s all about getting to an average. Don’t forget, too, to include the proper items in your direct cost of sales section.

In most businesses the most significant general expenses and the key culprits if you will are the cost of administrative salaries, rents and or mortgage, and the amortization of equipment. As these three are the most significant general expenses, a prudent business owner will be wise to make a positive adjustment in one or all three expenses. If this happens, the business owner will undoubtedly make a positive change in their revenue.

The sort of items you should be putting in the direct cost of sales section of your income statements are the fact that now you’ll have to account for salaries, corporate tax, and investment income. A reminder that if the business itself is saving, that’s a prudent income and revenue strategy.

Yes, net income is important, although it is not as important as business owners might think.

Organizing your income statement is as easy as making small, concise, and efficient decisions.

80% of small businesses score less than 70% on small business tests, cautions Vancouver’s CPA. One of the most common mistakes that entrepreneurs will make will be to prepare long income statements that can’t fit on one page and are quite unnecessary.

Vancouver’s CPA guides you in noticing four main sections to pay specific attention to when preparing your company’s income statement.

Number one revenue. The revenue accounts for the gross amount that you’re bringing in to your business.

Number two cost of sales. The cost of sales is directly related to providing your company’s services and goods.

Number three general expenses. The general expenses are often the common expenses that one must deal with on a weekly or monthly basis. These expenses include but are not limited to rent and or mortgage, the amortization of a mortgage.

Number four other income and expenses. This is the other income and expenses related to the day today operations of the business. Such examples include power, sewage, electricity, and expenses such as cable and Internet, the courier of goods, etc.

Vancouver’s CPA states that it is a good idea to organize your income statement in numerically descending order as it will keep you focused on the specific information you need, such as the gross margin. Small businesses tend to make the mistake of fixating on the smaller items instead of the larger less frequent expenses.

Vancouver’s CPA suggests that small businesses summarize their income statements on one clear and concise page.

Small businesses might be concerned with what happens to classification and variance analysis when there chart of accounts gets too big. Keep your classification to a minimum. The more classifications you have, the more ambiguous or confusing your income statements will get.

Yes, you can certainly use sub accounts and even items. However, don’t cloud the big picture.

Three revenue accounts are recommended as that is where the planning happens. To make it even easier, you can boil them down to do more than just one, as it’s all about getting to an average.

In most businesses the most significant general expenses and the key culprits of loss of revenue are the cost of administrative salaries, rents, and the amortization of equipment. If businesses make a small or large positive adjustment, in simply one or all of these key expenses, that will make a positive change in your overall revenue.

The sort of items that go into the income and expense category are, but are not limited to salaries, which now you do have to account for, corporate taxes, and investment income, to name a few. Be advised, if the business itself is saving, that’s a prudent income and revenue strategy.

Yes, paying attention to net income is important. However, it should not be the be-all and end all and the only thing small businesses should pay attention to.

Follow these simple steps for an easy and concise way to organize your income statement.