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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 Your Competitive Income Statement

Organizing your income statement is nothing more than making a few select adjustments and paying attention to certain little things, says Vancouver CPA.

80% of small businesses score less than 70% on the basic financial literary see tests. Specifically, entrepreneurs have long income statements that can’t fit on just one page. Therefore, they end up making bad choices in that they run of the cash, they hire staff but can afford to pay them, or they’ve bought equipment that isn’t working out for them and their business. Follow these main four sections for a proper income statement put forth by Vancouver CPA.

Number one, revenue. Revenue is the gross amount that you are bringing into your business.

Number two, cost of sales. Cost of sales is directly related to providing these services directly on the products such as the staff, and the materials.

Number three, general expenses. General expenses can be, however are not limited to rent, administrative staff, the ammortization of the building or property, or office supplies, for examples.

Number four other income and expenses. Other income and expenses don’t necessarily relate to the day-to-day operations of the business.

Vancouver CPA says it is a very good idea to organize your income statement in numerically descending order as this will no doubt keep you focused and on task. Draw a line down the middle of the page, the big numbers should be at the top. Also, look for the gross margin. Business owners tend to be fixated on small items. They neglects to remember the big items that are not taken care of on a daily basis.

Your income statement should never be longer than one page in length. By all means, summarize it on only one page as you will need to make quick business decisions in an intuitive and profound way. You will need to find the numbers promptly if asked.

Vancouver CPA recommends keeping classification to a minimum when your chart of accounts gets too big. Take office supplies for example. The more classifications you have, the more ambiguous and confusing it gets.

Yes, absolutely, it is okay to use sub accounts or the items tool as it will not cloud the big picture. You can find items on both on most bookkeeping software.

Vancouver CPA recommends no more than three revenue accounts because that’s where the planning happens. Entrepreneurs can boil them down to do more than just simply one. At the end of the day, it’s all about getting to an average, then you can make reliable projections based on that average.

In most businesses the most significant general expenses is generally going to be the cost of administrative salaries, rents or mortgage of the property, the amortization of that property and the businesses equipment. If you make a positive adjustment to one or all of these that will make a positive change in your overall revenue.

Other items in the income and expense category are the salaries to owners and their dependents, corporate tax, and investment income.

Vancouver CPA assures small businesses that despite 80% of them scoring less than 70% on basic financial literacy tests, a concise income statement is beneficial.

Often times, entrepreneurs make the mistake of writing long income statements that cannot fit on three or four pages. Because of this, they run of the cash, they have hired staff but can afford to pay them, they’ve bought equipment that isn’t working out quite right for them and their business, and ultimately have made bad business choices and decisions.

Vancouver CPA provides peace of mind that writing a concise income statement is beneficial in every way. They remind us of the four main sections;

Number one revenue. Revenue is the gross amounts that you are bringing into your business.

Number two cost of sales. Cost of sales is directly related to providing those services and products directly onto the customer using their staff and other materials.

Number three general expenses. General expenses could include rent, administrative staff, and amortization, to name but a few. It could also include office supplies.

Number four other income and expenses. Other income and expenses don’t necessarily correlate to the day today operations of the business.

Vancouver CPA recommends that it is a good idea to organize your income statement in numerically descending order as it will keep business owners focused on the gross margin. Draw a line down the middle of the page, the biggest numbers should be at the top of the page. As well, business owners tend to be fixated on small items rather than the bigger, less frequent expenses.

Vancouver CPA cautions us to write your income statement in only one page. The reason is because as a business owner you will need to make quick, efficient, and intuitive business decisions. You will also need to find the numbers quickly.

When your chart of accounts gets too big what happens to classification and variance analysis must be kept to a minimum. The more classifications you have, the more ambiguous and convoluted the information and numbers get.

Vancouver CPA advises that yes, it is in fact okay to use sub accounts or items if you need more detail. For these items, most bookkeeping software has them installed.

They also recommend no more than three revenue accounts because that’s where the planning happens. Business owners can however, boil them down to do more than just one. After all, it’s all about getting to an average, then you can reach reliable projections based on that average.

The most significant general expenses to a small business and most often the key culprits are generally going to be the cost of administrative salaries, rent, and amortization of the property and equipment. In the end, if you make a positive adjustment, that will make a positive change in your revenue.

The items that go in the other income and expense category are, salaries to owners and their dependents, Corporate tax, and investment income.