Home > Balance Sheets: A Guide for New Entrepreneurs
Published at 28 October 2023
An essential tool for understanding your company’s financial health is the Balance Sheet. In conjunction with a well-crafted business plan, and as part of your detailed company financial projections, a balance sheet helps in steering your business towards financial stability and growth.
A balance sheet is a financial statement that displays a company’s financial position at a specific point in time. It provides a snapshot of what a business *owns* (assets), what the business *owes* (liabilities), and the *value left for the owners* (equity).
A balance sheet is essential for new entrepreneurs for several reasons:
Understanding a balance sheet might seem daunting, but it’s simpler than you think. Here’s a step-by-step guide:
1. Analyse Assets: Review both current and non-current assets. Ensure that your business has enough current assets to cover short-term obligations.
2. Examine Liabilities: Assess your short and long-term liabilities. A lower liability value is generally favourable.
3. Evaluate Equity: This represents the net value of your business. A positive equity indicates that the business has more assets than liabilities.
A balance sheet complements your business plan by providing the financial proof to back your strategy. When drafting a business plan: