Entrepreneurs and small business owners have a habit of studying their revenues and losses when it comes to dealing with their financial records. As pragmatic as that might seem, they end up forgetting to look at the data found in their balance sheets to get a better grasp of their assets and liabilities.
If you find yourself too busy to check your financial records regularly, it’s crucial to hire an accountant. They will take care of all your financial obligations for your business, including making sure your balance sheet is intact.
What is a Balance Sheet?
A balance sheet is also known as a statement of financial position. It contains a summary of everything your business owns and what you still owe. It provides you with a detailed account of how much your assets and liabilities are, and how much money you’d be left with if you ever decide to sell everything you own and pay off all your debts.
Your assets and liabilities are what make up the net worth of your business, so your balance sheet serves as proof of your equity. It focuses on particular dates instead of just a general rundown of a period.
A balance sheet classifies your assets and liabilities into current and non-current categories. Current assets come in the form of cash, accounts receivable, and stocks; whereas non-current assets involve equipment, appliances, and vehicles your company is using.
Following that, current liabilities include accounts payable, credit cards, and bank overdrafts, or an extension of your credit limit. Meanwhile, bank loans are considered non-current liabilities.
The Importance of a Balance Sheet to Your Business
A Balance Sheet can Indicate Your Current Financial State
With a balance sheet on-hand, you have a better chance of handling your financial obligations because it displays your debts, the money you currently have, and the amount you’re expecting to receive from your clients. It also tells you the value of your assets and how flexible your business can still be with your current situation.
A Balance Sheet Helps Maintain Your Progress
A balance sheet allows you to keep track of everything going on in your business. It helps you determine the current financial trends so you can come up with an approach to handle your finances well.
Aside from that, it can also advise how you’ll meet your deadlines, pay off your debts on time, and improve your methods of using your financial credit properly!
A Balance Sheet Lets You Compare Your Previous and Current Performances
If you’re looking for ways to expand your business, this record holds the information from your past years which gives you leeway to compare them with your current data. It will show you how your business has been running and if there’s any room for improvement for your recent progress.
A Balance Sheet Assists You to Avoid Issues
It’s always good to be prepared for any issues you may overcome while maintaining a business, but it’s better to do whatever it takes to avoid it before it happens. Examining your balance sheet is one way to prevent problems from occurring that could take a toll on your business.
A Balance Sheet Serves as a Guide for Your Other Financial Statements
Your balance sheet can stand as your guide to navigating your other financial reports, including your profit and loss statements. It will help you figure out if an approach is worth investing in and whether it will result in a profitable outcome or not. If you’re handling a start-up business, you have the chance to review your return on investment (ROI) to calculate how well your business is doing.
Conclusion
You should expect your balance sheet to change with each transaction you make, so it’s best to monitor it daily. It’s also essential to determine the next step you need to take to maintain your assets, control your liabilities, and run your business smoothly. If you aren’t sure about your decisions, you can always rely on an accountant to help you accomplish all your financial duties correctly.
Are you looking for a small business accountant in Australia to help you out? The ECommerce Accountant serves as your reliable business advisor, offering accounting tips, financial advice, and cash flow management solutions to anyone who needs help. Get in touch with us today to book a free strategy session!