Understanding your Balance Sheet

What is a balance sheet?

A balance sheet shows what your business owns, owes, and what’s left over for you or other owners. It’s like a snapshot of your business's financial position at a specific moment in time. Think of it as your business’s "big picture" financial selfie.

The balance sheet has three main parts:

Assets: (a.k.a. "The Good Stuff You Own")

• These are things your business owns that have value—like cash, equipment, inventory, and even money you still owe

Liabilities: (a.k.a. "The Stuff You Owe")

• These are things your business owes—like loans, unpaid expenses, or money you still owe.

Equity: (a.k.a. "What’s Left for You")

• This is what’s left for the business owners after liabilities are subtracted from assets. It’s sometimes called “net worth” or “owner’s equity” i.e. the stuff you own.

The formula is simple:

When do I use a balance sheet?

Regularly: Review it quarterly or annually to check your business’s financial health.

When applying for loans or investments: Banks and investors use it to assess whether your business is financially stable.

To guide big decisions: Like expanding your business, buying new equipment, or evaluating if you are racking up too much debt.

Why should I use a balance sheet?

To see what you own vs. owe: It helps you understand if you’re financially balanced or taking on too much debt.

To track growth: Comparing balance sheets over time shows whether your business is growing, shrinking, or staying steady.

To reassure others: Lenders and investors rely on it to gauge if your business is worth their money or support.

In short, the balance sheet tells the story of your business’s financial standing at a glance. It helps you understand if you’re in a strong position to handle challenges or take advantage of new opportunities.

Tips on how to use a balance sheet:

• Do you have more assets than liabilities? That’s a good sign.
• Too much debt? Time to rethink how you are spending money in your business.
• Is your cash balance growing or shrinking? Use this to manage your cash flow and plan.
• Compare your balance sheet to last year's, is your equity growing? Your business is becoming more valuable!