A positive balance sheet can impress investors, creditors

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A positive balance sheet can impress investors, creditors
1/17/2012 5:39:30 PM
Category: Business Finance

A balance sheet is a breakdown of your company's success, or "a cumulative record that reflects the results of all recorded accounting transactions since your enterprise was formed," according to VA-Interactive.

It's important to keep a record of this information. Not only will it help you determine if your business is making progress, but it will provide creditors with assurance that you'll be able to make on-time payments and give investors confidence that their funds are being deposited into a solid company.

With a properly devised balance sheet, you should, at a glance, be able to determine your business' value, debts, working capital and net worth.

According to Money Management International, calculating a company's net worth is "the best way to know exactly what your starting point is in any financial plan you develop."

Net worth is determined by comparing the business' sum of assets with liabilities and taking the difference. By gaining an accurate depiction of your financial situation, you'll have a much easier time setting up current and future goals.

In order to properly create a balance sheet, owners should gather their latest bank statements and principal balances on any loans.

First, begin by listing all your assets (what is owned). This may include cash, investments (i.e. mutual funds, savings accounts, individual securities), as well as the values of your business property, business automobiles and accounts receivables. Inventory of supplies and machinery (depreciated) also falls into this category.

Next, list your liabilities (what is owed). This is typically pending payments to creditors and suppliers, outstanding or long-term debts, taxes, unpaid wages, interest payments or other unpaid expenses.

The Houston Chronicle explains that the sum of the money owed are your liabilities, and the difference between assets and liabilities equals working capital, or the amount of money a company has to work with - which, ideally, should be positive. Over time, working capital can be increased by decreasing liabilities, growing assets or both.

QFinance notes that the balance sheet itself shouldn't be viewed as the only indicator of past or future performance, but rather should be used in tandem with the cash flow statement and profit loss statement to accurately gauge a business' progress.

The balance sheet should be updated at least twice per calendar year to ensure that all financial goals are being met, Money Management adds.

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