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E-Myth – “Why most small businesses don’t work & what to do about it”

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Virtual CFO | The Importance Of Understanding Balance Sheets Decrease From

when business owners are making important business decisions the should be consulting their balance sheet instead of their income statement in order to make these decisions is virtual CFO. The reason why this is important, is because the most important information for business owners to know is contained on the balance sheet. If business owners are looking at the income statement, chances are they can make bad financial decisions, which could end up impacting the cash flow in their business. 50% of all businesses close their business within five years, and 29% of these businesses that have failed end up saying that the reason why their business failed was because they ran out of cash.

Business owners should understand why they should be looking at their balance sheet first, and not at their income statement. The biggest reason is there is a good chance that the interim financial statements that they look at are going to contain errors. Virtuals CFO says that interim financial statements are not being prepared by chartered professional accountants, therefore they are likely to contain errors. When business owners review balance sheets, they are more able to catch errors than if they were looking at income statements instead.

Some of the errors that business owners will be able to catch if they look at their balance sheet first is when they are looking at the credit card balances. Virtual CFO says that if business owners notice that the credit card charges have not changed from one month to the next, this should be a cause for concern. Business owners can look for errors to ensure their catching any information that has been omitted, or added to the incorrect place on the balance sheets. One of the biggest errors that would make a credit card balance be unchanged from one month to the next would be credit card charges that havenít yet been added to the balance sheet. Once business owner catches this error and fixes it, this should trigger them that they should also look for other charges that may not have been added to the balance sheet as well.

Another example of why looking at the balance sheet can help business owners catch errors, is if there loan balances do not decrease from one month to the next. If a business owner notices at any time that the balance of the loan doesnít change from one month to the next it could mean a few things is virtual CFO. The first one is the business owner did not make their loan payment that month. This is a huge cause for concern, business owners should ensure that they are always making their loan payments and if they find this mistake, they can fix it immediately so they donít default on their loan. The other thing that it could suggest is that be loan balance information has been entered into the balance sheets incorrectly, which triggers other errors. If a business owner notices that loan balances donít one month to the next, they should check their balance sheet for other entry errors.

Itís extremely important that business owners are mindful of financial decisions and how it can impact their business is virtual CFO. Since 50% of all entrepreneurs close their business within five years, and 29% will say that the reason their business failed was because they ran out of money. Making as informed financial decisions as possible is crucial for business owners to avoid making financial errors that could force them to close their business.

One of the most important things that a business owner can do is look at their balance sheets before they make any financial decisions. The reason for this is virtual CFO is because the balance sheet contains the most important information dealing with the finances of the business, and is most probable that business owners are going to be able to catch mistakes when they look at the balance sheet first. When business owners are looking at the balance sheet, they should look at their six month comparative balance sheet because this is going to help business owners notice any deviances from month-to-month that donít make sense. If the business owner is looking only at one month at a time, that doesnít necessarily give them a good enough view of trends or anomalies. If there is anything that looks extremely different from one month to the next, that should trigger a business owner to have a look at the month and see why itís different.

Something else that business owners should open mind when they are looking at the cash on their balance sheet and the cash on their bank statements. Virtuals CFO says those totals are going to look different from time to time and business owners need to be aware of why. Amounts that are contained on the balance sheet have already taken note of the items that need to clear. When business owners are looking at their bank statement, certain items may not have cleared yet. For example, business owners that have written the $2000 check the day before, that amount will show up on their balance sheet and yet it will not show up on their bank statements until the check clears. Because of this, business owners should make financial decisions based only on their balance sheet instead of their bank statements.

Business owners should also be aware of how they should add to their long-term assets onto their balance sheets is virtual CFO. Long-term assets need to be added into the section on the balance sheet listed property, plant and equipment. Assets there and a greater value of that thousand dollars that also have a useful life thatís longer than one year should be included here. Even if business owners have assets that have a lower value than thousand dollars, they should resist putting it onto their long-term assets on the balance sheet.