A balance sheet is an integral part of the story of your business. When your bookkeeping is up to date, you can use this data to determine your company's health and future.
The balance sheet can seem like another level for some small business owners. You might be thinking:
“Reports are for bigger businesses than mine.”
“You’ll get around to it when you start making some “real money.”
“It’s only me here; what do I need that for?”
Or even, “Only banks use that information.”
But the truth is, a balance sheet is an essential source of information for all business owners.
It tells you how much your business OWNS and how much it OWES. If you’re a sole proprietor or a single-member LLC, how much your company owns and owes is how much YOU own and owe. Once you know what you’re looking for, it’s easier to spot the necessary details.
Let's have a look
As you can see, there is a list of Assets: Things you own - including cash, savings, accounts receivable, investments, equipment, inventory, and more.
At a glance, this tells you how much money is in the bank, how much you expect to collect, and how many things you OWN.
Following the assets is a list of Liabilities - including accounts payable, credit card debt, lines of credit, loans on assets, and even deposits held for customers.
At a glance, this tells you how much you OWE and how much you expect to pay out over time.
Finally, we get to Equity. Equity can have different names and forms depending on your legal structure, but what it tells you is - if you were to liquidate your company today - what is the book value?
Using these numbers, we can now calculate three critical pieces of information:
Does the business have enough cash to meet ongoing expenses?
How much debt is the business carrying?
Does the firm have a positive or negative net worth?
Thoughtfully asking these questions will help to steward your business toward fiscal accountability.
When you’re ready to find out what your balance sheet is telling you, I’ll be here to help explain.
May you find your balance,