{"id":6221,"date":"2022-03-29T20:13:44","date_gmt":"2022-03-29T20:13:44","guid":{"rendered":"https:\/\/intelekbusinessvaluations.com\/en-au\/?p=6221"},"modified":"2023-01-16T16:36:48","modified_gmt":"2023-01-16T16:36:48","slug":"balance-sheet","status":"publish","type":"post","link":"https:\/\/intelekbusinessvaluations.com\/en-au\/financial-statements\/balance-sheet\/","title":{"rendered":"Balance Sheet"},"content":{"rendered":"

The balance sheet is essentially the\u00a0\u201cstatement of position\u201d\u00a0of the company. The regular review and analysis of the\u00a0financial position\u00a0of your company is important in keeping your business on the right track. Without the knowledge of the economic health and investment return of your company, it is much more difficult to make wise decisions. As a business owner, you know your business\u2019 operations like the back of your hand, but equally important is the knowledge about financial statements and what information they provide.<\/p>\n

What is a Balance Sheet and How to Prepare It<\/strong><\/h2>\n

A balance sheet is a financial statement containing the information about all the\u00a0assets\u00a0(what the company has\/owns),\u00a0liabilities\u00a0(what the company owes), and shareholder\u2019s\u00a0equity\u00a0(what is left after paying the obligations\/liabilities) at any specific point in time.<\/p>\n

A balance sheet is also used as a source of information for the investors to learn about the financial situation of the business. A simple balance sheet for your company can be done easily by following these steps:<\/p>\n

    \n
  1. Determine the specific date that the balance sheet will be presented<\/li>\n
  2. Make a list of the assets of your business\u2014cash balances, savings account balances, inventories,\u00a0accounts receivable<\/strong><\/a>, machinery, furniture, etc. (pro tip: do some further research on current and non-current assets, and why they are categorized as such)<\/li>\n
  3. Make a list of your business\u2019 liabilities (including\u00a0accounts payable<\/strong><\/a>, bank loans, credit cards, tax payable, pending wages, etc.)<\/li>\n
  4. Subtract your company\u2019s liabilities from your company\u2019s assets to derive the equity balance<\/li>\n<\/ol>\n

    Now, refer to this equation:<\/p>\n

    Assets = Liabilities + Equity<\/p>\n

    Make sure that equation is satisfied (hence the term \u201cbalance sheet\u201d, as it has to balance). The equity amount should be positive and demonstrate that the company is able to meet its obligations with the resources available. A negative equity balance is a big red flag, and if you have one, you should seek professional financial advice.<\/p>\n

    \"Balance<\/p>\n

    What Are Balance Sheet Accounts?<\/strong><\/h2>\n

    A balance sheet account is the categorization of the financial information\u2014a grouping of information together\u2014to form an account. This is how you accurately manage your financial information. For example, all the businesses and suppliers that the company owes money to are categorized into an account called \u201cAccounts Payable<\/strong><\/a>\u201d. A business may have debt (money owed) to multiple lenders, so these are categorized together into an account called \u201cFinancial Obligations\u201d and so on. This way, the balance sheet becomes organized and much easier to understand.<\/p>\n

    Benefits of Using a Balance Sheet<\/strong><\/h2>\n

    Analyzing your company\u2019s balance sheet allows you to track your investments and obligations, allowing you to know your financial position and potential in the market. Moreover, it also helps you to identify problems at early stages, or issues that could become much more problematic later if left unattended. As discussed, the fundamentals behind a balance sheet aren\u2019t complicated, and it\u2019s a powerful tool to help you handle the finances in your business. Some benefits of a balance sheet include:<\/p>\n

    Tracks Your Investments and Returns<\/strong><\/h2>\n

    The balance sheet helps you to list all assets and investments, allowing you to track the returns from the investments made by the business. It also allows you to determine the timeline of the investments and their liquidity levels, as well as the time of expiration of your liabilities so that you can better plan the payments of your obligations. Assets and investments are funded by equity and\/or debt. Some options are more expensive than others (debt is generally cheaper than equity) and the balance sheet allows you to see and evaluate what is the best way to fund your assets and investments.<\/p>\n

    Evaluates the Financial Health of Your Company<\/strong><\/h2>\n

    A balance sheet not only enables you to manage your finances, but it\u2019s also helpful for the outside investor to determine the current position and fate of their investment. Additionally, it carries information about the financial state of your business and, when properly elaborated, the historical evolution of it. For example, updating your balance sheet regularly will help you to know your current financial position, how you\u2019re funding your assets, and, very importantly, the\u00a0trend of your company (when comparing the differences between multiple balance sheets over time). Are your debts getting smaller? Are they costing more? Is your equity growing (this is obviously the long-term goal)? Based on this, you will gain valuable information to make better decisions for your business.<\/p>\n

    Final Thoughts<\/strong><\/h2>\n

    As a business owner, it\u2019s a part of your responsibilities to keep an eye on investments, assets,\u00a0cash flow<\/strong><\/a>, business productivity, and liabilities. Checking those metrics without a balance sheet makes your work a lot harder and it could lead to poor decision making.<\/p>\n

    Also, regularly updating the balance sheet allows you to provide more accurate information to your potential investors; when you don\u2019t have records to show to the investors, it\u2019s much more difficult to close a deal. It\u2019s an excellent practice if you consistently make a balance sheet and utilize the data from it.<\/p>\n","protected":false},"excerpt":{"rendered":"

    The balance sheet is essentially the\u00a0\u201cstatement of position\u201d\u00a0of the company. The regular review and analysis of the\u00a0financial position\u00a0of your company is important in keeping your business on the right track. Without the knowledge of the economic health and investment return of your company, it is much more difficult to make wise decisions. As a business […]<\/p>\n","protected":false},"author":1,"featured_media":6231,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[50],"tags":[108,110,111,56,109,112],"yoast_head":"\nBalance Sheet - Intelek Business Valuations Australia<\/title>\n<meta name=\"description\" content=\"The balance sheet is the \u2018statement of position\u2019 of the company. 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