What's Your Business Worth?

The Balance Sheet: Your Financial Snapshot

So, you’ve learned about the Profit & Loss (P&L) Statement, which tells you what your business earned over time. Now, it’s time to look at the Balance Sheet. Think of your P&L as a movie showing your business’s performance, while the Balance Sheet is a single, clear snapshot of your business on one specific day. It tells you exactly what your business owns versus what it owes, giving you a crystal-clear picture of its financial health.

The Balance Sheet is built on one simple equation:

Assets = Liabilities + Equity

If your books are in order, the numbers on both sides of this equation will always be in perfect balance!

Why Your Balance Sheet Matters

It’s a Snapshot in Time: It’s the ultimate financial report card for a single day, showing you exactly where you stand.

It Shows Solvency: A healthy Balance Sheet shows lenders or investors that your business is stable and well-managed.

It Reveals Growth: By comparing Balance Sheets over time, you can see how your assets, liabilities, and equity are changing and how your business is growing.

Balance Sheet Glossary: Key Terms

• Assets: This is everything your business owns. It can be everything from cash in the bank to a new computer, or even the building your business is in.

  • Current Assets: Cash and anything you could convert to cash within a year (like money owed to you by customers).

  • Non-Current Assets: Things that are harder to convert to cash and will be used for over a year (like equipment or a vehicle).

• Liabilities: This is everything your business owes to others.

  • Current Liabilities: Debts you must pay off within one year (like your monthly rent or a credit card bill).

  • Non-Current Liabilities: Debts you'll pay off over a longer period (like a business loan).

• Equity: This is the portion of the business that belongs to the owner. It’s what's left over when you subtract all liabilities from all assets. It’s essentially your investment in the business plus any accumulated profits.

The Balance Sheet might seem intimidating, but once you understand it, it becomes one of your most valuable business tools. A professional bookkeeper can make sure your Balance Sheet is always accurate, giving you the confidence and clarity you need to run your business effectively.