I’m willing to bet that while you were dreaming about becoming your own boss you were thinking more about freedom and independence than you were about cash-flow and balance sheets.
Being your own boss can be amazingly rewarding, but unless you’re a multi-millionaire with a financial team on board to do the math stuff for you, it’s important that you know how to understand a balance sheet.
What is a Balance Sheet?
In it’s most basic form, a balance sheet illustrates the financial health of your business at any given point in time. The balance sheet will indicate the health of your business on an exact date (rather than a date range) and the sheet is usually prepared at the end of each month, or each quarter, depending on the business’ requirements.
Balance Sheet Basics
Your balance sheet will look at 3 specific things.
- Assets: Your assets will include anything of value that your business owns or controls including cash, office equipment and inventory. Accounts receivable (ie: people who owe you money but haven’t paid yet) are included in your assets list. Even things like business vehicles, which might still be owned – in part at least – by the bank should be included as an asset.
- Liabilities: Your liabilities are what you owe to other people. This includes credit card debt, loans, even outstanding payments to suppliers. Basically any future financial obligation should be included in the liabilities section of your balance sheet.
- Owner’s Equity: This section represents the portion of the assets that you own outright. Think about it like this: If you liquidated all your assets, then paid off your debts, whatever is left over will be your “owner’s equity”.
The Maths
The balance sheet is so called because the numbers need to balance out. If you have assets on one side of the page, and liabilities and owners equity on the other, the two totals must be the same.
Assets = Liabilities + Owner’s Equity
Simple right?
So, now that you’ve discovered the secrets of the balance sheet you can get back to dreaming about the freedom of being your own boss!
Want to take the plunge and become your own boss in 2015? Contact the Kwik Kopy Franchise team today to find out how you can become the proud owner of your own Kwik Kopy Franchise.
