Some of you out there might not have any clue what is going on with your finances. You never have to pay the bills, reconcile the bank and credit card statements, or worry about anything but spending that hard-earned money. In the age of plastic and wallet apps, spending is extremely easy even when you don’t have the money in the bank. This is true in ones personal finances as well as in small businesses.
So, how does one keep track of their spending and earning habits? This is where the balance sheet comes in handy. This little report shows you what you own and what you owe. It is like going to the doctor for a wellness exam. Once a year everyone should be going to the doc for a check-up to see how well he or she is taking care of his or her body. Your finances deserve the same wellness check-up only a little more often. Some people like to run this report at the end of each fiscal period. This can be monthly, quarterly, or yearly. It is preferable not to wait a whole year to run a Balance Sheet report, but quarterly is definitely a must if you want to stay on top of things.
The balance sheet is a short story illustrating in number format the three main components of your financial fundamentals. These include your assets, liability, and equity. If you have read my previous blog posts, you should have a good understanding of what these are in a business.
A good basic definition of an asset is anything of value that you own. This can be cash, savings, stocks and bonds, 401(k), vehicles, property, money you are owed (A/R), etc. All of this added together represents you assets. Staying in line with our accounting equation, this is the left side and must equal the right side, which lists your liabilities and equity.
Liabilities, on the other hand, are what you owe someone else. These include things like loan payments, credit card debt, Mortgages, money owed to vendors, basically your accounts payables.
Equity is what you have left after you subtract out your expenses from your revenue. Very simply, this is any money you have coming in through sales or services rendered that is left after you subtract out the cost of operations.
I read this week that 90% of small businesses fail within the first 5 years of operations. That is a high percentage, and for someone like me trying to make it on my own, a little discouraging. Sadly, the state of most American’s personal finances is not much better. I found that 80% of us are in debt of some kind. The total outstanding U.S. consumer debt is $3.9 trillion. Wow!! No wonder we can’t get ahead.
My question to you is have you ever run a balance sheet just to see your financial health? My guess is that if more small businesses ran a balance sheet and used it to make better business decisions, maybe we would see more than 10% of entrepreneurs succeed.
As always, if you are in need of assistance keeping up with your finances and the health of your company, please contact me. I have a passion for the small business owner and want to see you succeed and build wealth.
Bambi Samares – Epoch Bookkeeping, LLC Website: https://epoch-bookkeeping.com