Simple Balance Sheet For Small Business – Financial health turns into tunnel vision You can know how your business is doing by preparing various financial statements So, what are financial statements?
A financial statement is a collection of financial information about your business By analyzing and organizing financial statements, you can draw conclusions about the financial health of your business Statements include line-by-line items including totals for what you see There are three main financial statements: the income statement, the balance sheet, and the cash flow statement
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Each type of financial statement reports different information over a period of time (eg, month, quarter, etc.). Using the statement provides insight into many areas of your business’s financial health.
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Read on to learn more about the income statement, balance sheet, and cash flow statement Discover the purpose of each statement, the parts of the financial statement and the formula
An income statement, or profit and loss (P&L) statement, is a summary of your business’s profits and losses over a period of time. You can prepare the statement monthly, quarterly or annually Once you’ve decided on your time frame, break down your business income and expenses in a statement.
An income statement shows how well your company is doing over time It measures the profitability of your business
Find the bottom line on the income statement to see if you have a net profit or a net loss Represents whether your business’s net income was positive or negative during this period
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Use the following formula to find your business’s net profit (or net loss) and help you figure out where to find the information for your income statement:
Remember that the income statement does not show your overall financial health, your debts, or your assets and liabilities.
If you want to learn how to write a financial statement, see the sections on the income statement:
Products: You can see which sales items are the most and least profitable Also, you can reduce or eliminate any expenses
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Budget: Use income statements to determine if you are budgeting your business The statement shows how much cash is left after expenses. You can use the remaining cash to expand your business, pay yourself and other owners, and pay off debt. If you don’t have cash, find ways to adjust your budget
Financing: Investors, lenders, and vendors often want to see your business’s income statement. Financial reporting helps these people assess the level of risk involved in working with your company
A balance sheet summarizes your financial health as of a specific date It breaks down your assets, liabilities, and equity to show what you own You can create a balance sheet at the end of a period such as monthly or quarterly
So, what is the breakdown of this type of financial statement? Here are the parts of the balance sheet:
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Expenses: By looking at the balance sheet, you can make decisions about your business expenses and debt management
Liquidity: How liquid is your business? Because the balance sheet gives you an idea of how quickly you can turn assets into cash, you can see the stability and liquidity of your business. This information helps you determine your ability to finance growth without external funding
Net worth: Use a balance sheet to determine the net worth of your business, which is important if you want to incorporate or sell your business. Often, lenders and investors want to see your balance sheet They use statements to assess the level of risk associated with your business
The last of the three general financial statements: the cash flow statement So, what is a cash flow statement? In short, the cash flow statement measures the money flowing into and out of your business over a period of time You can use a cash flow statement to see how much cash you have Update cash flow statements daily, weekly or monthly
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The cash flow statement starts with your beginning cash balance Then, you must include cash inflows and outflows
Cash Management: A cash flow statement helps you manage incoming and outgoing funds The statement can also tell you if you need to raise additional financing or better manage expenses
Accounts Receivable: Ensuring you receive cash from customers on time to pay expenses is critical to financial health If your incoming cash has stopped, you may need to adjust your payment terms and conditions to accelerate accounts receivable.
You’re just in luck Check out our free guide, Using Financial Statements to Assess Your Business Health, Learn More About Different Types of Financial Statements for Your Business
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At first glance, creating and reviewing financial statements can be a little intimidating But, as a business owner, it’s your job to keep track of your company’s financial health. Statements give you a clear view of where your business is headed And, they help you plan your next steps to grow your company Gather your financial records to keep your details together
Remember that the income statement, balance sheet, and cash flow statement are not the only financial statements you can use Many create and analyze four basic financial statements, including a statement of retained earnings.
You can make smart decisions by looking at your financial statements For example, you can use the statement to check whether you are effectively pricing the product or service
Financial statements help keep you organized You don’t want to give false information to the government when you file a small business tax return Errors in official forms can result in fines, fees and other penalties
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The more you check your books, the more likely you are to report accurate information and avoid triggering an IRS audit. If the IRS audits you, your statement will help you report accurate information
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A balance sheet captures the net worth of a business at any point in time It shows the balance between a company’s assets, its liabilities, and shareholders’ equity—which is its debt versus ownership.
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A balance sheet gives useful insight into a company’s finances Because balance sheets usually contain the same category of information, they also allow for comparisons between different businesses of the same type.
A company’s balance sheet is one of three financial statements used to give a comprehensive picture of the health of a business Investors and analysts read the balance sheet along with the income statement and cash flow statement to assess a company’s overall financial position.
Fill out this free balance sheet template in Excel to get useful insights, and a detailed overview of how your business is doing.
Copy this Google Sheets template and fill in your business details to create your own balance sheet in a few simple steps.
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Assets are divided into current or short-term assets and non-current or long-term assets. Simply put, assets are what a company owns
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Liabilities are also divided into short-term and long-term concerns, and include debts and obligations to external parties. Liability equ – with equity – is the debt of the company
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As the name suggests, the equation is balanced, with assets equal to the sum of liabilities on one side and equity on the other.
Think like this A business is owned – its assets – financed through debt (liability), or investment by owners or shareholders (equity).
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Different industries, and therefore different companies, may have slight differences in reporting standards However, balance sheets generally use the same line items Looking below the surface of these figures gives analysts and investors a look at how a business is doing financially and compares one company to another.
On the balance sheet, assets are usually described as long-term, starting with the most liquid
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