Virtual CFO | Teaching Entrepreneurs How To Read Balance Sheets
Entrepreneurs need to be able to make critical financial decisions based on their financial documents such as balance sheets and income statements says virtual CFO. The reason is, business owners can always wait there are and financial statements back in order to make financial decisions. They need to hire staff, they have staff asset purchases during the year in their business. By being able to understand their financial documents, can help them make the best financial decisions in their business, that can help them grow their business.
One of the first things that business owners should understand is when they are looking at their financial documents, they need to first look at their balance sheet. Many business owners think that they should look at their income statement first, but virtuals CFO says the balance sheet can help them find if there are any errors which is more important first. There is a good possibility that there are mistakes on income statements, therefore reviewing the balance sheet as the first point of order is extremely important.
Many business owners donít look at the balance sheet because they donít know what it is says virtual CFO. So business owners to understand that amount she speaks to the business owners financial reserves business. indicates what is coming in to the business, what is going out of the business, and how much cash a business owner has. This is a document that will help business owners determine liquids the business is. It can help determine what financial state the business. Because of this, business owners should always review the balance sheet first, and then review the profit and loss statement.
When a business owner getting ready to look at their balancing, a great rule of thumb is that they should look at a six-month comparative balance sheet says virtuals CFO. This is so that they can review six months of their business at a time, which will help them draw any attention to all variables notice. As the business seasonal? Have they had something unusual happened in one month has occurred no other months? Business owner who is looking at several months at a time can see if the business trending, trending down, or if these variances are caused by mistakes.
Another way that business owners can review the balance sheet in order to ensure there are no mistakes, is they should look at their loan balances says virtual CFO. The reason is if they notice that there loan balances are not decreasing each month, that can indicate a couple of things. The business owner and it makes a loan payment in a month, which they should fix immediately, or that there is an error on the balance sheet and the amount that the business owner paid on their loan is being indicated in a different account, which is triggering other errors.
By understanding how to read balance sheets, business owners can look for and mitigate errors in their financial statements, which can help them make better financial decisions for their business.
Itís extremely important that entrepreneurs understand how to read their financial statements such as balance sheets, profit and loss statements as well as income statements says virtual CFO. Itís especially important when they are making financial decisions in their business especially decisions like hiring new staff, or purchasing assets. By understanding how to read these financial documents, business owners can understand what kind of financial state their business is in, which can guide them towards the right decision. Business owners who are able to review their balance sheet in order to make better financial decisions can help themselves avoid running out of money in their business, which is a reason why 29% of entrepreneurs that have failed in business say is the reason their business failed.
Since interim financial statements often have errors, business owners should understand how to detect those errors and fix them before making financial decisions on them. By looking at their balance sheet first, they can look for obvious errors, that they will be protected if they are looking at their income statement first. One obvious error that business owners can detect once they look at their account statement, is if they have noticed on their belt statement that the credit card balance is either unchanged or in the negative. Virtual CFO says that if a business owner notices that their credit card balance has not changed from one month to another, this is most likely because the credit card charges have not been to the balance sheet. They can ensure that the credit card charges get added, and while theyíre at it review to ensure that no other errors have been made. If a business owner is only looking on their income statement they are going to miss this error. This is one of the biggest reasons why business owners should not make financial decisions based solely on their income statement.
Another example of how the business owners contact mistakes on their belt statement is if theyíve noticed that there loan balance does not decreasing from one month to the next. As the business owner pays down there loan says virtual CFO, the balance should decrease. If it doesnít, it means one of two things the business owner did not make the loan payment month, which is extremely important that they catch the error and fix, that the amount was attributed somewhere else on the balance sheet which is causing other errors to happen. A business owner will be able to fix their balance sheet and look for any other obvious errors.
By ensuring that theyíre looking at their balance sheet first, and preferably a six-month comparativeís statement, business owners will be able to more easily see mistakes and errors, in order to get those fixed so that they can use balance sheets to make good financial decisions for their business.