Virtual CFO | Business Owners Need To Understand Balance Sheets

Business owners need to be able to understand and read their balance sheet when making financial decisions as virtual CFO. The reason for this, is because when making important and critical financial decisions in the business, having a clear understanding of whatís happening to their business finances at the time, can help them with those decisions since percent of all failed entrepreneurs say that the reason the business failed was because they ran out of money, helping business owners make financial decisions to help them grow their business, and avoid them running out of money is critical.

Business owners should understand that when they are looking at their financial statements, how they looked is as important as actually looking at. CFO says that business owners should look at their balance sheet first, because battleships have the most important information on them, and they are the easiest to catch errors. Many business owners may wonder why they should Worry about errors. Since interim financial statements are not being prepared by their chartered professional accountants, business owners need to be aware that mistakes are possible. If they know how to read to their balance sheets, they can understand how to look for and catch errors, to fix their balance sheet and then continue making their important financial decision.

When looking at penalties, business owners should always into the habit looking at the balance sheet will six months at a time. This can help business owners draw attention any variances donít make sense from one month to the next. Virtual CFO says one month of time wonít necessarily give the business owner you of various trends or anomalies. If business owners are looking six months at a time, if they see something that doesnít make a lot of sense, itís a lot more obvious when theyíre looking at several months at a time. Business owners should understand that a six month comparative balance sheet statement is a powerful tool to see variances.

Business owners should be able to understand what types of things are looking forward to catching mistakes. Virtual CFO says an example is when a business owner looks at their loan balances on their six month comparative sheet, and they notice that the loan change from one month to the next, this is an error seeing this on the balance should can mean one of two things, either the business owner didnít make their loan payment. If thatís the case, business owners should immediately rent the situation so they donít end up defaulting on their loan payment. Work mean that the loan balance was entered into their bank account incorrectly. This is the case, could be sitting in other accounts which is triggering other errors for example, in a profit and loss statement it will show the business owner is making less money than they actually did. Or perhaps it was completely missed being entered at all, business owners should look to see if thereís any other information that was entered incorrectly or completely omitted.

Itís extremely important that business owners need to be able to read and understand balance sheets in their business says virtual CFO. Since 50% of all businesses close the door to their business within five years, and 29% of those failed entrepreneurs end up saying that running out of cash was the reason they had to close their business. Business owners are able to read and understand their balance sheet, they are able to make better financial decisions in their business. They should hire new staff, my stuff off or purchase assets, a business owner should always consult their balance sheet first, in order to be able to understand if they have the money in their business to do that, or they need to create money in their business.

The information that exists income statement is about Messrs. that a business has and what money is coming into business. Virtual CFO says by looking at the balance sheet, a business owner can understand how much cash they have, what peopleís are coming in and what payments are going out. Ability can help the business owner determined the liquidity of their business. If a business owner is only looking at income statement, all they know is if they had a good month or bad month. Understanding that business owners canít to determine the entire financial readiness of their business based on one good or one bad month.

Business owners should also understand that interim statements, the statements that are being prepared themselves in their financial year ends, since those statements are not being prepared by a chartered professional accountants, is a high degree of likelihood that there are errors. Itís important that business owners are reviewing them in order to minimize the errors, not only so that they can make great financial decisions, but so they keep their financial statements error-free throughout the year.

One of the things that business owners should be reviewing periodically in order to ensure is correct are there shareholder loans, and the individual transactions in them. Virtual CFO says that global loans are the most significant account the business owner will ever tax purposes. Not only is this the business ownerís income, but itís also the income that the business owner is taking out of the company. If they end up having amounts that come out of there shareholder loan that was actually amounts that were used for their corporation, they will end up paying personal tax on those business expenses. Since the top personal tax rate in Alberta is 48%, business owners should be very diligent in ensuring that all of the amounts that are taken out of there shareholder loan account is an actual personal expense and not for business. Itís a lot easier for business owners to go through this every single month, and they have a higher chance of remembering what charges about, rather than doing it at year end, which could take extra time and forget what the charges are about.