Having a successful business means knowing the health of your finances. Using a balance sheet, also called a statement of financial position, is one of the most commonly used financial statements accountants and business owners utilize to see the financial standing of a business during a specific period of time.
Every balance sheet is comprised of three main sections: liabilities, equity, and assets.
Assets are cash, items or inventory that can be converted to cash by being sold, land and property with value, and resources that have been paid in advance and have not run out, such as rent that’s paid through the month or a pre-paid insurance plan. Assets are often divided up into liquid, including cash or easy-to-liquidate items or property and non-liquid assets that can’t be converted into cash like property or pre-paid insurance.
Running a business always costs money through operating costs and financial obligations. Most liabilities are current, meaning they will be paid within one year, and long term, meaning there is a longer owing period.
Equity is the amount left after subtracting your liabilities from your assets. Knowing your equity tells you how much your business is worth, with a higher equity meaning a healthier business in most cases.
In order to get a line of credit, banks will want to look at your balance sheet to make sure your business is a good investment. If there are shareholders or partners in your business, they will have the right to review the balance sheet to make sure the company is moving in the proper direction.
It’s also important for you to have a clear look at where your business is financially. You can use information in your balance sheet to create a plan to pay off debt, increase or decrease inventory, and make a plan for continued growth.
At C.E. Thorn, CPA, PLLC, we assist small businesses and startups in Rolesville, providing multiple accounting services for small businesses. Let us help you create an accurate, up-to-date balance sheet and give you the clarity of your business to strategize your next move. Learn more about our services and how we can help you when you call us at 919-420-0092 or complete our online contact form to schedule a consultation.