What is a Balance Sheet for Small Businesses?

Balance sheets are integral to running a profitable small business. It’s a core fiscal aspect which will help to keep track of your finances – i.e., a form of bookkeeping. Your accountant can help you with a balance sheet for your small business but it’s important to know what they are and how they help to run your company smoothly. Read on to find out all you need to know.

What is a balance sheet?

A balance sheet in accounting is a financial statement that reports on your business’s assets, shareholder equity and liabilities. Essentially, it tells yourself and your stakeholders what you own and what you owe. It’s core to your small business’s finances and can be completed yearly or quarterly.

Why should I use a balance sheet for a small business?

Of course, a balance sheet will help to keep your finances in check, but what are the other benefits of a balance sheet for your small business? We’ve noted them below.

Business growth

  • Easily plan and make decisions on how to grow your business and the best way to spend money with the right data

Valuing your business

  • When you’re ready to sell your business or want to take on investors, balance sheets for accounting are important

Attract potential lenders

  • Show your assets and equity to potential lenders

File taxes

  • Getting your finances in order can make it easier to file for business tax returns

Keep on top of your financial health

  • Keeping track of your finances, like your debt and overall fiscal health, is easy with a balance sheet

Streamline the loan process

  • Your finances being in order provides an insight into your business to the bank, proving that you’re trustworthy could make securing a loan a lot easier.

What assets and liabilities are included in balance sheets?

Assets, liabilities and shareholder equity are the three components of creating a balance sheet. We’ve listed examples of each below. Read on!

Assets for balance sheets

  • Current assets: These assets will be converted into cash within the year. This will include bank account balances, accounts receivable, prepaid expenses and any inventory
  • Fixed/ long-term assets: Assets that won’t be converted to cash within a year. This could include buildings, land, furniture, equipment, furniture, fixtures, and leasehold improvements. The value of long-term assets will likely depreciate.
  • Other assets: This includes things like goodwill

Liabilities and Equity for balance sheets

  • Current liabilities: These are the debts you owe within a year including payable accounts, taxes, interest, payroll and utilities
  • Long-term debt: This includes bank loans, pensions and stockholder notes.
  • Owner’s equity: This is retained earnings (profits retained for investments) and working capital
  • Account Balances: The money in your financial accounts. This includes checking accounts and any long-term savings accounts you may have. This is also after debits and credits have been accounted for.

Shareholder equity

  • This is the net assets, including money generated by the business (profits), capital invested, donated capital

How to prepare a balance sheet for small businesses

So, how do you actually prepare a balance sheet in accounting? A balance sheet requires you to first gather all the relevant liabilities and assets data. We’ve listed the 7 easy steps to do this below.

  1. Pick the right date for your balance sheet
  2. Determine and add up all of your assets
  3. List your current liabilities
  4. Calculate your long term liabilities
  5. Add your current and long term liabilities to find your total liabilities
  6. Calculate the owner’s equity
  7. Find your balance total by using: liabilities + equity = assets

You could get an accountant, like one of our experts at Accountancy Solutions, to complete a balance sheet for your small business. Or, if you’d rather do it yourself, we also offer discounted QuickBooks for our customers. Simply contact us to find out more.

We hope this guide answering ‘what is a balance sheet in accounting?’ was helpful. Next, see our guide on financial forecasts for small businesses for further accounting insights for a successful company.