When you own and operate your own business, much of your attention will be on providing quality goods or services. Another important aspect of running your enterprise is being aware of and documenting your fiscal activities. One tool you will want to use for this purpose is a balance sheet. If you are not using this crucial financial device, you may be wondering: What is a balance sheet, and why does it matter?
What is a Balance Sheet?
A balance sheet is a financial document that includes details regarding a company’s assets and liabilities. These statements will also include information about shareholder equity.
How are Balance Sheets Used?
Balance sheets are used to record financial data and provide a way to calculate rates of returns for investors. These documents are also used to assess what a company owns and owes and the amount of shareholder investment. Investors and other entities look to a company’s balance sheets to determine risk and financial health. Balance sheets are also often used in conjunction with Profit and Loss (P&L) statements and other financial records to evaluate an entity’s fiscal well-being and capital structure.
What is the Difference Between a Balance Sheet and a Profit and Loss Statement?
A balance sheet provides a snapshot of a company’s financial position at a specific point in time. By contrast, an income statement evaluates a company’s performance over a set period of time.
Why Do Balance Sheets Matter?
Balance sheets are important for companies to assess their fiscal health. In addition, they help provide detailed information regarding operations and the company’s future potential profitability. These documents also reflect the company’s equity and ability to remain solvent in the future.
Balance sheets assist in assessing financial well-being using ratios. In addition to assisting the company, balance sheets help lenders and investors evaluate an enterprise’s access to collateral, fiscal solvency, and creditworthiness.
What does a Balance Sheet Include?
Balance sheets provide a list of a company’s assets, liabilities, and shareholder equity as of a specific date.
Assets—A company’s assets can include cash holdings and related resources, accounts receivable, inventory, intellectual property, real estate, other intangible assets and fixed assets, and other property.
Liabilities—A company’s liabilities include its debts, such as money owed to banks, suppliers, and lenders. A company’s liabilities can also include pension plan obligations, wages payable, interests owed, dividends payable, and deferred tax liability.
Shareholder Equity—shareholder equity refers to the assets attributable to shareholders and undistributed dividends.
Balance sheets, Profit and Loss statements, and other financial records are essential to running a business. A company will also need to maintain accurate and detailed payroll records and employ other practices to support its operations. There are also other elements that can impact business operations and profitability.
The best way to evaluate your business practices and requirements is by working with an experienced Florida business attorney. Your business lawyer can help you evaluate your enterprise and identify and understand the available tools, devices, and methods you can use to account for your financial activity and plan for the future.
Contact an Experienced Florida Business Lawyer
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with commercial leasing, business, and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.