Being a business owner means that you have to keep track of a great many things, especially when first starting out.
Until your business grows enough to be fully staffed with specialists, you will be in charge of sales, operations, customer service, and strategy, with your responsibilities never fully going away, no matter how big your team gets.
Keeping track of everything runs the risk of some important information becoming lost in the cracks.
One thing that you cannot afford to overlook is your balance sheet.
What is a balance sheet?
A balance sheet is a summary of your business’s financial position at a specific point in time.
The balance sheet will show your liabilities and equity which, when added together, can reveal your assets.
Everything your business owns is funded by money it owes or money invested in it.
Your assets can be divided into current and fixed assets.
Current assets include cash, inventory, money owed to you, and other short-term items.
Fixed assets include equipment, vehicles, property, and anything else with long-term use in the business.
Liabilities are also divided into two categories, with these being current liabilities and long-term liabilities.
Current Liabilities are things you’ll pay within 12 months, like suppliers, tax, or short-term loans, while long-term Liabilities are larger debts like bank loans or hire purchase agreements that will take multiple years to repay.
Your equity is split between share capital, the money you or shareholders have put into the business, and retained earnings, which are the profits the business has made and kept.
Why is a balance sheet so important?
A balance sheet is an indicator of your business’s financial health.
The balance sheet shows you the ratio of assets to liabilities and helps you to know whether you can meet your obligations.
If your liabilities are growing faster than your assets, then you need to give some serious thought to the future of your business operations.
You can also use balance sheets to check equity over time.
By keeping a record of old balance sheets, you can monitor whether your business has grown more or less profitable as you have been trading.
This can expose when decisions have not panned out the way you would have wanted them to.
Ultimately, the balance sheet should be seen as more than just a compliance check for HM Revenue and Customs (HMRC).
Your balance sheet provides vital information that can allow you to grow a more successful business in the future.
We can help you understand your balance sheet and boost your business’s financial forecast.
