The Balance Sheet: Where We Stand Today

balance sheetThe Balance Sheet is the first of the three important financial reports that every business owner needs to master. You will notice that the date at the top of this report sets it apart from the other reports. The others cover a span of time (last month, the last year, a date range, etc.)  The Balance Sheet, on the other hand, tells you where you stand at a given moment in time (today, at the end of the month, at the end of the year, etc.)  It is a statement of your "financial position" at that given time. Your Balance Sheet shows you four major things:  

1. Is your business solvent?

In other words, are its assets at least equal to its liabilities?  If your assets exceed your liabilities (which is most desirable), you have equity. If your liabilities exceed your assets, well, then you're upside down in your business – not a good a place to be.

2. Is your business sufficiently liquid?

In other words, does it have enough cash and other liquid assets to cover its short-term obligations?  Or put even more simply, can you pay your bills?  Your Balance Sheet will show you how much cash you have on hand at that given time.

3. What do your company assets consist of?

The Balance Sheet not only shows you how much cash you have on hand; it also shows how much money you have tied up in inventory, plant, and equipment. In addition, it shows you how much you're owed by other people – better known as "receivables."

4. Who has claim on your assets?

The Balance Sheet doesn't name names, but it does show you how much you owe to various creditors (e.g. vendors, lenders, the government, etc.) The Balance Sheet is easy to learn. Once you know how to find this information, it becomes a powerful tool for management. When you know how to do this, you have mastered the Balance Sheet. If you need some help, see your CPA or a good business coach. Personally, I find it very gratifying to help my small business clients master the Balance Sheet. When you do, the information it provides will give you a great sense of power in your business. You will be on your way to becoming a strong financial leader.

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One Response to “The Balance Sheet: Where We Stand Today”

  1. Yazmin says:

    Glenn, thank you for this information you already teach us about this… but you always find new ways to explain to us the most important information as owners we need to master.
    Thank you for your E-Newsletter.

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