BALANCE SHEET REVIEW

Use our balance sheet example template, which is available as a free download. Discover how you can access this free balance sheet template. No need to spend money on fancy software.

Business owners must understand how to read and interpret their Balance Sheet. The balance sheet provides a manager or potential investor with a snapshot of an organization for a single point in time.

For instance, if the date listed on the Balance Sheet of the financial statement says 'January 30, 2011', you can be certain that the numbers provided are only accurate on that specific date, not a day after or a day before as numbers will fluctuate continuously.

Many times business analysts overlook the importance of the balance sheet. Instead, they tend to focus more on the Income Statement because they are most interested in actual earnings rather than a simple listing of assets and liabilities.

While earnings are of the utmost importance, one needs to review all of the available financial data in order to complete a proper analysis to determine the overall fitness of the organization.

An easy way to describe the balance sheet is to point out that by subtracting the liabilities from all the assets of a company, the remaining difference is the equity or net worth. The net worth shows, in part, the current strength of the organization, as capital is the foundation of any organization.

A high net worth means a stronger foundation than a low net worth. A high net worth equates to a lower level of risk to the organization.

The reason that this particular financial statement is called a balance sheet is that both sides of the statement MUST balance. In other words, Assets = Liabilities + Equity

The left hand side of our balance sheet example lists the following:

• Current Assets = Cash, Accounts Receivable and other assets that can quickly be converted into ready cash.
• Non-Current Assets = Property, Equipment and other long-term assets that are certainly worth something but might take longer to convert to cash.
• Other Assets = Goodwill and basically anything that doesn’t really fit into one of the other two categories above.

The right hand side of our balance sheet example lists the liabilities and equity in the following order:

• Current Liabilities = liabilities of the organization that are due within the next 12 months.
• Non-Current Liabilities = debt which will not become due in the next 12 months.
• Equity = this equates to the difference between total assets and total liabilities and may also reveal amounts of equity held in common or preferred stock, treasury stock and retained earnings.

Learn more the Balance Sheet and view another balance sheet example or two by checking out these free sample business plans.

Business Lesson Plan #18 / Management As An Asset

"In the field of observation, chance favors the prepared mind."
- Louis Pasteur

Many years ago, the President of Bradstreet’s, the late Charles F. Clark was quoted as saying, “The structure of our society is based on the confidence of the consumer. We could have no civilization were it not for the fact that millions of men and women in the past were deemed worthy of credit by their fellow countrymen.”

“I would like to say,” continues Mr. Clark, “as strongly as possible to every young business person, that one of the chief aims of your daily work should be to strengthen your reputation for quality and honesty.”

Good intentions must be paired with true ability in order to carry out your claims. You must continually prove your ability; turn your promises into successful results and routinely meet or exceed your business obligations.

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Next Business Plan Resource Chapters

» Income Statement Review
Receive a free income statement sample template, along with multiple examples of business plans complete with income statements.

» Cash Flow Statement Review
Receive a free sample cash flow statement template, along with multiple examples of business plans complete with cash flow statements.

» PART X - The Appendix
Using the free business plan example template, you will learn to provide all supporting documentation in the appendix of the business plan.