Financial statements are so important for the entrepreneur. However, many either have them and don’t use them on a consistent basis for operating their businesses. Or, some entrepreneurs just don’t have or use financial statements at all. These documents are critical to the success of any business no matter the size, as they tell the story of what’s going on in your organization. If you want to know the 4-1-1 on your small business and want to experience more success, start creating and reviewing financial statements on a regular basis.
Most financial experts will say that there are 3 very important financial statements, but I believe that there are four statements that are imperative for an entrepreneur to learn. I call this the BIC+B and they are the balance sheet, income statement, cash flow statement, and the often “forgotten sheet” the budget! Over the next couple of weeks I will briefly describe each of them. So today we will start with the balance sheet!
This financial document shows the financial position of your business. You can quickly review this statement to see if your business is financially healthy or unhealthy at any given time. The balance sheet reflects what you own and what you owe. What you own are your assets and what you owe are your liabilities and the difference between the two rather negative or positive is the equity in your business. A simple way to think of the balance sheet is to think of it just like you would your personal finances, it depicts your net worth! The simple personal finance equation: Owns-Owes=Net Worth
The Basic Accounting Equation for a Balance Sheet is:
Assets – Liabilities=Owner’s Equity or Assets=Liabilities+Owner’s Equity
Do you create and review a balance sheet for your business on a regular basis? Please leave a comment, we would love to hear from you.
Need help with developing and understanding financial statements to successfully run your business? Contact Antonina to get started with a strategy session by sending an e-mail to email@example.com.
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