In order to expand or attract investors, your company needs to make sure its assets and liabilities are accurately accounted for. You get that with by generating a balance sheet. Often called a “Statement of Financial Position,” a balance sheet pulls all the company’s assets, liabilities and owner’s equity to determine the company’s liquidity or current net worth.
A balance sheet is one of the financial statements a business uses to determine the financial health and status of their business. To get a clear look at the balance of the business, an accountant looks subtracts the liabilities from the assets to see the amount of equity, or the value of the business at a given time.
A company’s assets are acquired resources with measurable economic value. They are typically divided into 2 categories:
Liquid – Cash or items easily sold or converted to cash, such as product inventory.
Non-liquid – Not easily converted into cash assets, such as property.
*intangible assets may be included in the asset log, but due to the nature of such assets, they are not easily valued. Speak with an experienced accountant for clarification on what is accepted.
All businesses have costs or obligations associated with operating. These costs are defined as liabilities and are usually owed to creditors, stockholders, etc.
Liabilities are divided into the categories of:
Current – Must be paid within a single year
Long Term – Payoff due outside of a single year cycle
After deducting all business liabilities from the assets, a company now has a picture of their equity or Shareholders’ Equity if incorporated. This can be considered the value of the company. The lower the expenses compared to revenue, the higher equity of the business.
A balance sheet will disclose financial records to creditors and provide a snapshot of the company’s financial position at a given point in time. If a company is looking to expand and requires funds to accomplish the goal, then a bank or credit agency will look at the balance sheet to determine if the company seeking support is capable of paying the debt.
Anyone who has a stake in the financial improvement or current financial operating condition will have a need to review a balance sheet such as:
You work hard to build your business and knowing your financial health allows you to create a strategy moving forward. Our team of experienced small business accountants can help you create that strategy by generating your balance sheets.