Virtual CFO | How An Entrepreneur Should Review Their Balance Sheets
An extremely important tool that is underutilized in business is the balance sheet says virtual CFO. When business owners need to make decisions in their business, if theyíre not consulting their balance sheet, they may be making decisions that are not in their best interest. By understanding their balance sheet, business owners can catch accounting errors, and gain an understanding of the overall financial health of their business. This understanding can significantly help them in any business decision that they are making. If businesses are able to make better business decisions, they can be more likely to avoid making decisions that can cause a financial strain on their cash flow. This can help them increase their business, and at the very least avoid running out of money in their business that would potentially cause them to have to close their business down.
Many entrepreneurs donít look at their balance sheets simply because they donít understand how to read it. They utilize their income statement, but the information contained in that is less complete than a balance sheet says Virtual CFO. By learning to read their balance sheet, business owners can start being proactive about their business decisions, as well as find and fix errors in their accounting. This can help them keep their accounting current and error-free, which means there fiscal year end will be easier to produce. Not only should business owners be reviewing their balance sheets, but itís important that there also looking at their balance sheet six months at a time. This is going to be able to help them see trends and any variances that may point to errors.
One way that business owners can use their bills sheet to catch errors in their accounting, is by looking to see if there loan balances decrease each month. Ritual CFO says that it should definitely decrease every single month as the business owner pays the principal of the loan down. If that is not indicated on the balance sheet, it may mean that the business owner is not paying that loan, which can be very troubling for the business owner. But most likely, is because the loan balance was either not added into the balance sheet, art was added incorrectly. Either of these errors end up making bigger errors in different places in the balance sheet, so if a business owner can catch that air and fix it they can ensure their balance sheets are more correct overall.
Another error that business owners be able to easily see by reading their balance sheets, is if they notice that your credit card charges havenít changed from one month to the next. Itís extremely unlikely that the credit card charges the business owner gets is going to be exactly the same as the previous month, so business owners should see this is a sign that there has been an error. The most typical. This indicates is that credit card charges havenít been added to the balance sheet. They can verify that, and then see if there are any other charges that hadnít been added properly as well.
If business owners want to be proactive in their business decisions, they should get into the habit of reviewing their balance sheets prior to making any decision in their business recommends virtual CFO. The reason for this, is because business owners will be able to get an overall view of whatís going on in their business by reviewing their balance sheets, that can help them with that business decision. Whether they need to increase their marketing efforts, higher staff or lace of off, or even purchase assets in their business, that decision can be made much easier by utilizing the information in their balance sheet.
Many entrepreneurs understand the importance of reviewing their financial statement, but primarily utilize their income statement when making business decisions. The biggest reason for this is because they can understand and income statement. However, virtual CFO recommends that this is not best practice for entrepreneurs. The reason is because the income statement doesnít contain as complete financial information about the entire business. It has great information about the most current month, but if business owners are trying to make a business decision for their entire business, they should be looking at their balance sheets.
The balance sheet of the business speaks to the businesses financial reserves, and can help a business owner determine the liquidity of their business. Businesses should be able to get an idea of how much cash the business owner has in their business, in addition to what payables are coming in and what payments are going out. Not only is it important information on the entire health of the business, but any accounting errors that have been made are going to be much more obvious and easily to find if a business owner reviews their balance sheet, as long as they know what theyíre looking for says virtual CFO.
When looking at their balance sheet, and can be an extremely powerful tool to be able to view six months at a time rather than each month individually says virtual CFO. The reason for this is because business owners will be able to see if their business is trending up or down, if they have seasonal periods, or if thereís any anomalies that exist in one month but not others. This may indicate errors that business owners can review that month to fix any errors if there are any.
Comfortable with how the cash looks on their balance sheet and stopped utilizing their bank statements in order to make financial decisions. The reason for this is because the amounts that a bank account, are subject to uncleared items. Checks that have not been cashed, or deposits that still need to be entered into their bank account, are two examples of how the cash in the bank statement is not reflective of the cash in the business. When entrepreneurs look at their cash balance on their balance sheet, that will include any checks that they have written, and any deposits that are coming into their business. This should give them a more complete idea of the amount of money they have in their business.