Small business tips

The Balance Sheet

Balance Sheet. You know, that other financial statement in your software you probably don’t look at. Two words that cause eyes to glaze over.

I promise you the Balance Sheet is one of the most powerful tools you own in your business.

Why though?

The P&L only articulates one part of your business story. Yes, it tells you if you made a profit but not the whole narrative. The most common concern I’ve heard is “I am making a profit but we don’t have any cash!”

When you view your business through the balance sheet you develop a greater understanding of true financial position – do you have enough cash to run your business, are your assets generating enough income, are you making sales but your receivables balance is all in 90 days? What are your tax obligations? Are your debts helping you generate income to cover the repayments? I also love a good provisions account – especially an annual leave one – this will tell you if your employees are banking up leave that if they resign you are going to have to fund. Can you do it?

Andrew Codd posted on Linked In about the Balance Sheet Mindset and Cash Flow Mindset for three way thinking in your business. Successful businesses invest in not just making the quick sale but developing assets such as new systems, new products, refreshing your brand and understand how to best utilise your net assets.

Moral of the story? Equilibrium in your business is essential for achievement. If you are only looking at the P&L and wondering why you aren’t kicking goals you may need to change your mindset and develop new indicators to honestly measure success.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s