We’re all familiar with profit and loss, and cash flow. The balance sheet is ugly thing nobody wants to talk about. We’re going to talk about it today.
What is a balance sheet?
The balance sheet is a scorecard about who owes you money, who you owe money to and what’s left.
You can have a look at it any time, if it’s up to date. It will indicate your financial position at a snapshot.
How to look at your balance sheet
Look at your assets. Assets also include money people owe you. You might have a car, that’s an asset. But you can’t do much with it. The key assets for your business, is how much money is coming in.
On the other side you have liabilities. Who do you owe money to? It could be the tax department, superannuation, or the bank.
The last part is the equity, or the shared capital. What‘s left over? How much profit did you make? It indicates your financial stability. But it’s about the assets and liabilities.
Balance sheet reconciliation is a must
9 times out of 10 that I see a new client, these items haven’t been reconciled. How can you do a financial evaluation of a business if the information you have is rubbish?
Look at your balance sheet and ask your accountant: Have these items been reconciled?
What does that mean? It means I’ve got a 3rd party piece of information. If I have a look at their bank statement and my accounts, they should match. If I have a look at the tax department statements and my balance sheet, they should match.
You have to make sure that every month your balance sheet items are reconciled.
Good financial reporting is done monthly.
You should demand your accountant a profit and loss, a balance sheet and a cash flow, monthly. If you’re not getting this information you should consider looking for someone else.
At the end of the day the financial viability of your business is you. You cannot abrogate that responsibility to anyone. You’re the driver!