If you’re an SME, it’s crucial to consult your balance sheet when making key decisions. We’ll go into why shortly.
Firstly though, what is it?
A balance sheet tells you what your company owns and owes. It displays your assets, liabilities and shareholder equity at a specific point in time.
If you subtract your liabilities from your assets, you’ll be able to work out your equity as a business.
Understand your balance sheet
Why?
Simply put, to encourage growth. It’s important to know how much spending capacity you have as a business and it’s good for investors.
Your assets should always at least equal your liabilities plus shareholder equity. If this is the case, your books are balanced.
If your books are unbalanced in favour of more liabilities than assets, you’re in debt and will struggle to attract investment.
If you have more assets than liabilities, you’re more likely to attract investment and you have more spending power to hire people, buy equipment and grow your business.
It’s also important to have things in order in case you need a business loan. The banks are more likely to lend you money if you have a strong balance sheet. This means there are more opportunities for you to invest in your own business and grow.
Finally, understanding yours allows you to plan for the future because you have full visibility of your liabilities.
Ask your accountant
The quickest way to get your latest one is to ask your accountant. They should already have everything in order to produce this for you.
When analysing your balance sheet, compare it to previous ones to make sure you’re going in the right direction. This will also help with planning around future growth.
Your local AIMS Accountant is an expert in balance sheets and more. Find your nearest one here:
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