A balance sheet is a financial statement that gives you a snapshot of your business’ financial health at a particular date in time. Balance sheets can also show you how much your business is worth, how much debt you owe, and alert you to any changes in cash flow (which might reveal potential pitfalls).
Understanding the balance sheet can help businesses make more informed decisions. If you can analyze how the balance sheet connects to other financial statements, you can increase your cash inflows and profitability.
Not sure how to read a balance sheet? These are the three components they focus on:
What you own or control, such as cash on hand, money that you expect to collect from customers, inventory, company vehicles and money in the bank.
TOTAL: The value of everything you own or control.
What you owe, such as debts, loans or credit cards, wages and salaries, rent and utilities, money owed to suppliers and taxes.
TOTAL: The value of everything you owe.
What you own and control minus what you owe. Your piece of the business holdings after paying your debts and obligations.
TOTAL: The value of your assets minus your liabilities.
Remember: Your balance sheet is only as accurate as your bookkeeping, and the best way to keep your bookkeeping accurate is to hire a CPA that specializes in small businesses, such as Goldin Group.
We hope this post helps to provide some clarification on balance sheets. If you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.