Virtual CFO | What Information Should Be In A Balance Sheet
When business owners need to make decisions in their business, the more information they have to help them make that choice the better says virtual CFO. While many entrepreneurs understand that the financial statements in their business are important, they donít know exactly how to read them, or what information is in them. Since they donít know how to read the information, they donít use their financial statements to help them make business decisions, and as a result they end up making decisions that are not as good as they could be. Business owners should understand that half of all businesses fail within five years, and 29% of those entrepreneurs say that the reason was because they ran out of money. By utilizing all of the information they have at their disposal, help business owners avoid this situation.
Not only are financial statements extremely important to help business owners make decisions, but the most important information that a business owner can review is on the balance sheet. If they look at nothing else says virtual CFO, they should be looking at the balance sheet. Itís not just enough to understand how to read it, but how a business owner looks at it is also important. By ensuring that they are looking at a six-month comparative statement of the balance sheet, business owners can gain a whole lot more insight into their business, as well as their business finances. If entrepreneurs are looking at their balance sheets one month at a time, they will be less likely to see any deviances that occur in one month and not others, that may indicate mistakes. Also, business owners will be able to see how their business financing is trending, which can indicate if there marketing efforts are working, and if they need to be thinking ahead of if they should hire staff or not. Business owners should consider a six-month comparative panel sheet is a powerful tool to read.
Business owners should also get used to how theyíre Accounts Receivable in their balance sheets. If they have overstated or understated either, it can end up looking like business owners are in a much different financial place and they actually are says virtual CFO. If they have overstated theyíre Accounts Receivable, that usually looks like they have more revenue in their business and that actually due. Understated Accounts Receivable makes the business look like itís not doing as well financially as it should. Duplicate invoices or missing invoices are the most common errors for over or understated Accounts Receivable.
Similarly, if business owners have over or understated their accounts payable, this is usually due to invoices that have not been entered properly either missing invoices, or duplicating invoices. Understated accounts payable makes it look like a business owes for less than they actually do and the prophet is better than this. If accounts payable is overstated in a balance statement, it will show that a business is making less money than they actually are. Itís extremely important that business owners are watching their accounts receivable and accounts payable from month-to-month to ensure the balances make sense.
When business owners want to make business decisions, they should be reviewing the best documents that can help them make that decision says virtual CFO. Many entrepreneurs donít understand the importance of the balance sheet, to help tell the overall financial health of their business. If business owners want to ensure that there making the best financial decision that they can for their business, learning how to read a balance sheet can be significant for business owners.
Many business owners arenít even sure what information is contained in their balance sheet says virtual CFO. The balance sheet is going to tell the overall financial health of the business, how much money a business owner has, and the overall liquidity of the business. Balance sheet will be able to tell the business owner what is in their reserves, the all nobles that are coming in and what payments are going out. Many entrepreneurs believe that they can understand the financial health of the business simply by looking at their income statement, and while they can determine what happened in the previous month, thatís not going to be a good indication of the overarching health of their entire business.
Also included in their seats, says virtuals CFO is the cash balance in their business. Many entrepreneurs believe that they can get that same information simply by looking at their bank balance, but this is not true. The amount that is in their bank account does not include the amounts of money that are uncleared as of yet. Any checks that have been written that have not been cashed, or any deposits that have been entered into the bank but also have not cleared such as debit or credit machines. If a business owner makes financial decisions based on the money that in their bank account, they may risk bouncing payments when uncleared checks cash. This is owners should always be mindful if they need to see how much money they have to use, that they are checking their balance sheet instead of their bank account.
Another important piece of information that business owners can get from their balance sheet says virtual CFO, is what their corporate tax accountant looks like. Many entrepreneurs pay their taxes in instalments, and get panicked when they see on their balance sheet that it is a negative number. The reason for this is because any time the liability is prepaid, it shows up on the balance sheet as a negative number that grows each month. However, business owners should be assured that when they receive their tax bill in the final month of their fiscal year, it will then be applied to the balance sheet and bring that tax accountant amount back down to zero.