Tuesday, August 28, 2012

Balance Sheets Tell All

by Anagha Hanumante

Have you asked your bookkeeper for a balance sheet lately?

Or perhaps you're wondering, what's a balance sheet? It's a snapshot of your company’s assetsliabilities, and owner’s equity at a given point in time.

Do you need one? Yes. For starters, it tells you what your business is worth. Specifically:

Current assets, i.e. the assets in a business that can be converted to cash in one year or less (i.e. cash, accounts receivable, and inventory).
Shareholder’s equity, which is the amount owners have invested in the company’s stock, plus or minus the company’s earnings or losses since you opened your doors.

Balance sheets are vital for all stakeholders as it allows them to know how much cash the company has left in the bank, the company’s most valuable assets, and how much money the company owes.

If you're running low on cash in your business bank account and accounts receivable—that’s like having a thin emergency fund. Just like you, your business needs a cash cushion to grow and be healthy, separate from your personal finances.

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