Knowing where you stand financially is an important part of owning and operating a small business. Without this information, it can make it difficult to make plans for your future as a business. One financial document that can help you navigate these decisions is a balance sheet. It can be extremely valuable if you know how to use it. Propel Your Accounting is here to talk about why a balance sheet is important, and what you can expect to see in a balance sheet.
What a Balance Sheet Can Tell You About Your Business
When you have a balance sheet that is up to date, it can give you all the information that you need to make some big financial decisions. You want to have a clear picture of what the net worth of your business is? You will find it in the balance sheet. It helps you know what assets you have along with the liabilities that you are responsible for. You can see what investments from shareholders you have as well when you have a balance sheet. Here is a closer look at all the information that you should be able to find in this financial statement:
– Assets: Every company has some assets that can be valuable to them. This would include things like inventory, cash, or even money that other companies owe you. The assets are usually split up into two categories, current assets and fixed assets. The current assets will include things like bank accounts and inventories that can quickly be turned into cash if you should need it. Fixed assets would include more permanent things like properties, machinery, and long-term loans that you have with clients or customers.
– Liabilities: Another important part of a balance sheet is the liabilities portion. This will be the opposite of assets and show the things that the companies owes money to. The liabilities portion of the balance sheet is also split into two categories, short-term and long-term liabilities. Short-term liabilities will be things like salaries and rent. Long-term liabilities would include mortgages, large loans, or even long-term leases for the company.
– Shareholder Equity: This should give you a clear picture of your company’s net worth. If you had to liquidate your company tomorrow to pay off its debts, this would be the money that is left over. Usually this is seen in the form of stocks or retained earnings. You would also see capital investments in this portion of the statement as well. This gives the analysts that you’re working with as well as future investors a clear picture of the financial well-being of your company.
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The key to your success as a business is to have the financial statements that are required by law, balance sheet, income statement and cash flow statements to be accurate and up to date. This is why working with Propel Your Accounting is so valuable for small business owners. We will take care of all of it for you. Call us today!
