Virtual CFO | How To Review Balance Sheets For Mistakes
Many entrepreneurs understand the value of reviewing their financial statements prior to making a business decision says virtual CFO. However, if business owners arenít reviewing the correct financial statements, is still a be making critical errors in their business. Since half of all businesses go out of business within five years, and out of those failed entrepreneurs, 29% said they ran out of money in their business. Business owners need to understand how critical it is for their business to be able to make the most sound financial decisions in their business in order to avoid this problem. By understanding which financial statements the next review and how to review them, can help them significantly.
The first financial statement that business owners should become acquainted with is there balance sheet. Not only does the most important financial information exist on the balance sheet, but balance sheets are also going to be able to be reviewed in order to look for mistakes that may exist. Business owners should understand that there is a greater chance of errors existing in interim financial statements, so learning how to find those mistakes and fix them, can help their accounting only stay current, but up their balance sheets the is helpful as possible. If business owners are reviewing their income statement, chances are theyíre not going to be able to find errors on income statements.
Itís not only important for business owners to look at their balance sheets, but they need to be looking at their balance sheets in a six month comparative statement says virtual CFO. But this is going to do is help the business owner see any trends or deviances in their balance sheet that doesnít make sense. If a business owners only looking at their balance sheet on a month-to-month basis, variances or trends may be significantly less obvious.
Business owners should look for when they are reviewing their balance sheets in order to be mindful of errors, is taking a look if balances are unchanged from month-to-month. Virtual CFO says that examples of this is if a credit card balance is unchanged from one month to the next, or the loan balance does not decrease from one month to the next. Credit card balances should be different every month, because itís extremely unlikely that execs encourage who have been in two consecutive months. And loan balances should increase from one to the next as the business owner pays off their loans. If these things are not changing looking at different months, this often means that there has been an error in entering the amount. It may have been missed, or added to the wrong part of the balance sheet. Either way, not only does this mean thereís an error in this place, but it often triggers errors in other places. By catching this mistake and fix, business owners can ensure the correctness of the balance sheet.
While many entrepreneurs understand how important it is to review financial statements prior to making business decisions says virtual CFO, business owners also need to understand which financial statements are the most important to review, and also how to review those financial statements for errors. The reason why business owners need to be mindful of errors, and so that they can make the best financial decision possible. Since 29% of all failed businesses say that the reason why the failed is because they ran out of money. Making the best financial decision possible starts with reviewing the best information possible.
When business owners are reviewing their financial statements, virtual CFO says itís most important to review their balance sheet first. The most important information financially exists in the balance sheet. Many business owners believe that they can review their income statements in order to make financial decisions, but their income statement doesnít have as clear financial information on the entire business, just on one month. Business owners need to make business decisions based on the financial health the entire business and not just one month. Not only to business owners look for their balance sheet, but that they look at their balance sheet in a six month comparative statement. This is going to help business owners look at any variances from month-to-month that donít make sense that may point to errors, or it may allow business owners to see trends that may not be possible to see if they are looking only at one month to the next. Trends can help business owners be proactive and make business decisions based on what things are looking like. For example, if they are noticing that their business is trending up, they may want to make plans to hire people their business, or it may allow them to see that there marketing efforts are working.
Business owners also need to be able to catch errors on their balance sheets, especially since interim financial statements are more likely to have errors on them, simply because theyíre not being prepared by a chartered professional accountants, reviewing errors is going to be an extremely important aspect of reading balance sheets. For example, virtuals CFO says that if a business owner notices that the loan balance does not decrease from one month to the next month, that can trigger them to see that there may have been an error in entering information into the balance sheet. Or if it also means that the business owner did not make the loan payment in that month. Either way, business owners should be able to see that and then fix the air right away in order to have current balance sheets.
Virtual CFO says that business owners can also see if credit card balances have unchanged from one month to the next, that may show them that certain charges may not have been added to the balance sheet properly, or at all. If business owners are only looking at income statements, theyíre going to miss these a errors. Business owners should make the best financial decisions they can with as much information as possible, which only shows up when business owners read their balance statement properly.