Christian business owners need to increase their financial IQ if they want to keep on top of their business. It is not hard, so let’s break down the simple balance sheet.
What is a balance sheet?
A balance sheet is a snapshot of the business at any specific point in time. It shows where the business is financially. You can think of it like your check book register. You can see how much money came in, how much money is going out and how much money you have left over.
The top part of a balance sheet is known as assets. These are all the things you own, cash on hand and anything of value to the company. Where the check book register looks at the cash, a balance sheet looks at everything you own. Computers, company car, office equipment, inventory, etc. are all listed at their current value.
Liabilities are everything you owe. It could be credit card balances, payments owed to suppliers, loans, etc. Anything that they company owes money on is in this column no matter how large or small. This column just gives us a view of outstanding debts.
Equity (Owner’s Equity)
The last line is the important line. It shows how much money is left over after bills are paid. You can think of it as the bottom line on your check register, but it is much more than that. It shows the absolute value of your company. Once all the assets are added up, minus all the liabilities, the equity is how much your company is worth at that moment.
Putting these numbers together
Keep in mind that your numbers must balance, hence the name ‘balance sheet.’ If you take money out to pay a credit card, that money must move from your cash (assets) to pay down your credit card (liabilities). You can quickly see how money flows from assets to liabilities.
Your goal as a Christian business owner is to gain more assets and decrease liabilities. If you want your business to grow, you must be putting more in the assets column than you are in the liabilities column.
There will be times where you need to buy some equipment or inventory for a large order and the liabilities may increase temporarily, but overall you want to focus on building assets for your business so that your business can weather the ups and downs of any business cycle.
I want to keep this page simple and I hope this summary helps you understand the balance sheet in your business. Most every accounting software will allow you to create a balance sheet report. You can ask your accountant how to access that report or you can create it yourself. If you are a do-it-yourselfer, look for some videos on Youtube.
The key is to know how your business is doing so that you can track your progress. The balance sheet is the simplest way to track whether your business is growing or shrinking. You want to check this number on a monthly basis, at least, and see if there are any trends. Is equity increasing or decreasing?
[bctt tweet=”A balance sheet is the simplest way to track the growth of your business.” username=”ChBizRevolution”]