Find out how we can help your business this end of financial year Learn More

Know your Balance Sheet

Are you a business owner and have found yourself looking at your balance sheet not knowing what it’s telling you? If so then you aren’t alone! While most small businesses will regularly look at their profit and loss statement, the balance sheet is often ignored simply because it’s not understood.

What is a balance sheet?

A balance sheet (also called a Statement of Financial Position) provides a snapshot of a business’ assets, liabilities, and net worth at a specific point in time. This ‘net worth’ is represented as shareholders’ or owner’s equity.

Assets are anything of value owned by the business and can include bank accounts, stock, trade debtors and items of equipment.

Liabilities are debts owed to outside creditors or other parties and can include bank overdrafts, trade creditors, business loans, loans to directors, employee entitlements and ATO debts.

Why is the balance sheet important to your business?

The balance sheet provides a picture of the financial health of a business at a given moment in time — usually the end of a quarter or financial year. It can tell you if you owe more money than you currently have, or if you don’t have enough liquid assets to meet short-term liabilities. Importantly for most business owners it will let you know the overall value of your business.

Given this it is imperative that business owners are examining their balance sheet on a regular basis to identify errors or areas of concern. Incorrect classifications on the balance sheet can mean corresponding errors in the profit and loss, leading to incorrect tax and GST calculations. If your balance sheet reveals that your liabilities are getting to be greater than your assets, your business may be heading towards insolvency.

Financial institutions will certainly look to the strength of a balance sheet just as much as a healthy profit and loss when assessing financial viability to repay debt. Plus a better understanding of your balance sheet can foster more in-depth analysis of your business through the use of financial ratios. These ratios may identify potential cash-flow shortfalls, excessively long delays in collection of debtors, or even issues with pricing.

Balance sheets also help current and potential owners / investors better understand where their funding will go and what they can expect to receive in the future.

A final thought.

Understanding how assets, liabilities and equity work together on a balance sheet can provide you with enough knowledge to identify warning signs within your business before it cripples you. Early identification is imperative so that timely changes can be made and strategies implemented to give your business the best shot at success!

To discuss how your balance sheet may be affecting your business, talk with us so we can help dissect the important information and you can work out if we're the right fit for you.

Whatever you decide we wish you every success!

*This information is correct at time of publishing and is subject to change.*
Filter Categories

Are you ready to speak to a business adviser?

Let us show you how we can help.

If you’re more of a talker we’d love to chat, call us on 02 4229 2211

Talk with us

Schedule your chat

Do you have business challenges you need answers to?
Our team can help you. Fill out the form, find out if we are the right fit for you, then you can start receiving results!

close (3)

Related Reads

Understanding Fringe Benefits Tax (FBT)

Who pays FBT?

The employer is responsible for paying FBT, and it is based on the taxable...

The Benefits of Electric Vehicles for Business

Fringe Benefits Tax

Fringe Benefits Tax (FBT) is a tax paid by employers on non-cash benefits...

Federal Government Stage 3 Tax Cuts – What Changes for You?

The below table is a summary of the changes, compared to Scott Morrison’s original stage 3...

mail (1)

Get business advice that helps you, no matter what stage of business you’re in.

Yes, an email that matters!