Everything you need to know about balance sheets
A balance sheet is an important document to have for your business. This is a financial statement that can report a company’s assets, liabilities, and shareholder equities at any specific point of time. This can provide valuable information about the financial position of the company. A business sheet is important, as it can help you identify where you can improve financially within your business, helping you to decide on your next steps to take. Let’s find out more…
What is a balance sheet comprised of?
A balance sheet is made up of a simple equation. This equation is:
Assets = Liabilities + Shareholders’ equity
In short, this means that everything the company has to pay for (its assets) has to come from borrowing money (liabilities) or using funds from investors (shareholders’ equity). This allows the company to see in a quick snapshot, what they own and what they owe.
Assets
An asset is anything a company owns that holds current or future economic value. This could be physical, such as the machinery in the office, or intangible, such as investments.
Liabilities
Liabilities are legal debts that a company owes. This is to third-party creditors, and can include taxes owed, money owed to suppliers, bank debt, and more.
Shareholders’ equity
A company’s shareholders’ equity is the amount that owners have invested in the business. This is both the money they have directly contributed, and the income the business has earned.
Why is a balance sheet important for a business?
A balance sheet is important for a business to look back on. This is because it offers valuable insight into evaluating the company’s capital structure. It also allows you to calculate the rates of return for investors. Comparing your balance sheet against those from previous periods can allow you to identify financial trends within your business, meaning that you can prepare for the future using your past activity as guidance.
Writing a balance sheet
Creating a balance sheet is something that you may find difficult, especially if you aren’t familiar with which figure goes under which category. That’s where it could be a good idea to get professional advice. Working with professional accounts will guarantee that you are provided with an accurate balance sheet, benefitting your business with trustworthy services. This will allow you as a business owner to have a good perspective on your company’s financial health. If there is anything that could take stress off your shoulders as someone in charge of a business, it could be outsourcing financial responsibilities. This could especially be the case if you don’t have training in finance!
Here at Adams Accountancy, we are the team of professionals that can provide you with a seamlessly curated balance sheet. Our expert accountants will be able to talk you through your finances and your debts, and advise you of the best course of action. Get in touch with us by calling 01322 250 001 or email info@adams-accountancy.co.uk to start the process.
