The secrets of your balance sheet

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See your business in a new light…

If you were trying to evaluate how healthy your personal finances were, what would be more useful?

Knowing how much you earned last year, and how much you spent?

Or looking at a statement outlining all your assets – like the property you own, your investments and pension – together with your liabilities or debts?

Of course it’s a trick question.

To get a full picture, you’d have to look at both of them together.

But I would guess that most people rely on their salary and spending as their primary measure of financial health. It’s easier to calculate, and to understand.

Their assets and liabilities – which are just as important – remain in the background, under-estimated and often shrouded in mystery. The upshot is that you never have a true picture of your financial worth.

It’s the same story with business finances.

In my experience, when trying to evaluate their financial position, business owners without a strong financial background tend to focus on their profit & loss account. This shows your revenue and expenses over a period of time, like last month or last year.

They tend to ignore their balance sheet, which – full of opaque financial terms and calculations – can be harder to understand.

Yet it’s just as important. It shows what you own and what you owe at the exact point in time at which it’s drawn up. This could include property your business owns, how much stock you’re carrying, whether you’re paying your bills on time, how much customers owe you, what you owe your suppliers and other debtors, and so on.  

It’s probably one of the most ignored financial documents out there, but it shouldn’t be.

Understanding this information gives you a snapshot of where your business stands right now, so it’s very different to the profit & loss account, which looks backwards and over a period of time.

And of course, they show different types of information. Anyone (such as a bank or buyer) trying to calculate the value of your business will be looking at your assets and liabilities – it’s fundamental.

It’s also useful to compare today’s balance sheet to previous months and years, so you get a picture of how your business’s fundamentals are evolving across time.

When was the last time you took a look at your balance sheet?

When you work with Insight Associates, you’ll look at your balance sheet every single month, together with us – so we can make sure you understand the information it contains and the implications for your business.

It’s one of the core documents in the monthly management accounts we prepare, so that every month you have a clear idea of where you stand financially.

It comes with the profit & loss account, and with a cashflow statement which shows your cash position, and forecasts how much money you’ll have in the bank next week, next month and in the foreseeable future.

It also comes with any additional financial information we’ve decided together will be helpful to track – whether that’s looking more closely at the profitability of specific products or services, tracking stock levels, options for raising funds and so on. This section is completely bespoke, depending entirely on what’s useful for you.

Can you imagine how knowledgeable you’ll be about your business, once you have access to all this information, and have discussed it with our specialists?

Perhaps for the first time, you’ll have a detailed view of your financial performance in the past and present, and be able to forecast with confidence what might happen in the future.

Many of our clients say this is the first time that they understand in-depth what’s going on in their company and how well they’re doing.  

Armed with this knowledge, you’ll be able to make better, more confident decisions about your future, based on real facts and figures rather than gut instinct (and don’t worry, we’ll help you there too).

The clue is in the name – monthly management accounts help you manage better, and drive you to faster growth and better profitability.

So if you’re currently making financial decisions in the dark, and would prefer to move to a more professional way of managing your finances, please get in touch with us today. Simply hit ‘reply’ to this email or call us on 01279 647 447 to discuss your financial management needs and find out more about how we can help you.



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In this blog archive our Managing Director, Garry Mumford simplifies all things financial and shares with us a lifetime of practical financial business advice.


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