Balance Sheet
/ˈbæləns ʃiːt/
A Balance Sheet is a financial snapshot that shows what your business owns and is owed (assets), what it owes to others (liabilities), and what's left over for the owners (equity) at a specific point in time.
A Balance Sheet is a financial snapshot that shows what your business owns and is owed (assets), what it owes to others (liabilities), and what's left over for the owners (equity) at a specific point in time.
A Balance Sheet gives you a clear picture of your company's financial position at any given moment.
It helps you understand whether your business is building wealth or accumulating debt, and it's essential when applying for funding or selling your company.
Investors and lenders use it to assess whether your business is financially stable enough to warrant their investment or loan.
Whilst an Income Statement shows your income and expenses over a period (like a month or year), a Balance Sheet is like a photograph taken on a specific date.
Think of it this way: the Income Statement tells you how fast you've been running, whilst the Balance Sheet shows where you're standing right now.
Both documents work together to give a complete financial picture of your business.
A Balance Sheet lists three main categories: assets (things like cash, equipment, and money owed to you), liabilities (debts, unpaid bills, and loans), and equity (the value that belongs to the business owners).
The fundamental rule is that assets must always equal liabilities plus equity - that's why it's called a "Balance" Sheet.
You're legally required to prepare a Balance Sheet as part of your annual financial statements filed with the relevant company registry.
However, many businesses create monthly or quarterly Balance Sheets to monitor their financial position more closely.
Banks will also request a current Balance Sheet when you're applying for loans or credit facilities.
A Balance Sheet reveals your working capital (the difference between current assets and current liabilities), which tells you if you have enough resources to cover short-term obligations.
It also shows your debt-to-equity ratio, helping you decide whether you can afford to take on more borrowing or if you need to focus on paying down existing debts before expanding.
Many founders focus solely on their Income Statement and ignore the Balance Sheet, not realising their business might be profitable but cash-poor due to unpaid invoices or excessive stock.
This can lead to cash flow crises even when the business appears successful on paper.
