Business Balance Sheet

Small Business Balance Sheet Management ...

The business balance sheet is one of those essential financial statements that your business must keep if it is to succeed.

It is an essential part of business management, along with your income and cashflow statements.

All essential business measures you cannot do without it.

Learn from your business balance sheet and discover how to properly manage your business.

Your Business Balance Sheet - Learn from it

As any business manager should be aware every business consists of two streams of money ... money-in and money-out.

Track both of them carefully and provided the money-in stream is greater than the money-out stream your business will grow.

Like everything else to do with bookeeping this can be a total pain, but let me assure you, it is essential.

Tracking these money streams is a lot easier if you have prepared a business balance sheet as a projection of your company assets and liabilities into the future.

The hard work that goes into forecasting your assets and liabilities over the next twelve months and then over the next two to five years, only to find that in fact you hardly ever meet that forecast can be disheartening, if you let it be, but it still needs to be done.

The thing to remember about any form of budgeting is that the thought that goes into the preparation is what counts.

If you can begin to understand the money-out and money-in basis of business through your account books, you will begin to understand when you can and should spend money even before you see the month end figures. That is what good business is about.

Right, let's get down to understanding the business balance sheet.

The Balance Sheet Defined

Simply put, your business balance sheet will show you the financial position of your business at a given point in time. Now, how much more useful can it be?

A balance sheet lists your company assets, all the claims against those assets and then it balances them.

This then shows the financial strength or weakness of your business.

Balance Sheet Periods

The balance sheet periods will very much depend on the type of business we are talking about and are best based on the industry norm.

When starting out in a new business however, I would suggest that for your first year in business you project your business balance sheet on a monthly basis and then at least quarterly thereafter. Discuss this with your bookeeper or accountant.

So, what is in a balance sheet?

Well, balance sheet contents are designed for the specific business covered, but all contain similar components.

As an example let's look at the actual year end business balance sheet of a furniture manufacturing company.

BALANCE SHEET XYZ Furniture Company ASSETS Year 2 Year 3 Current Assets Cash 25,000 50,000 Accounts Receivable 205,000 360,000 Inventory (stock) 462,500 575,000 Prepaid Expenses 12,500 12,500 Total Current Assets 705,000 997,500 Fixed Assets Land 0 0 Buildings 0 0 Equipment 375,000 300,000 Accumulated Depreciation -75,000 -75,000 Total Fixed Assets 300,000 225,000 Intangibles 0 0 Other Assets 25,000 27,500 1) Total Assets (current and Fixed) 1,030,000 1,250,000 LIABLITIES AND EQUITY Current Liabilities Notes Payable - Short Term 150,000 106,000 Current Maturities of Long-Term Debt 75,000 75,000 Accounts Payable 205,000 215,000 Accrued Expenses 19,750 33,750 Taxes Payable 0 0 Stockholder Loans 0 0 Total Current Liabilities 449,750 429,750 Long-Term Debt 300,000 225,000 2) Total Liabilities 749,750 654,750 Stockholders' Equity Common Stock 187,500 187,500 Paid-in-capital 0 0 Retained Earnings 92,750 407,750 Total Stockholders' Equity (1 - 2) 280,250 595,250 Total Liabilities and Equity 1,030,000 1,250,000

Table 1.2a: XYZ Furniture Co. Balance Sheet

As you can see, the total assets are balanced against the Total Liabilities and Equity, hence the name Balance Sheet.

But, to make a business balance sheet more meaningful it could and normally does contain the budgeted figures and percentage of budget columns as shown below:-

BALANCE SHEET ASSETS Current Assets Budget Actual % Cash 20,000 25,000 125 Accounts Receivable 195,000 205,000 105 Etc.

Table 1.2b: XYZ Furniture Co. Balance sheet

A monthly balance sheet would be identical but for the figures and twelve months figures would make up the year end balance sheet.