Managing the finances for your small business can be a daunting task, especially if your small business is also new. There are so many things to juggle, but it’s important to not let your finances fall to the wayside. A balance sheet is the perfect way to stay aware of your finances. What is a balance sheet? A balance sheet is a way for you to evaluate the financial health of your business, which can be calculated every month to give you a better idea of your financial standing.

Understanding the equation

There’s a simple equation that you’ll use for your balance sheet: the total sum of your company’s assets equals the value of the company’s liabilities and equity.

Assets = Liabilities + Equity

Or

Equity = Assets – Liability

You can use whichever format is easier for you.

Calculate your assets

The financial positive your company has is the assets, money, investments and products that can be converted into cash. Ideally, your company will have assets that have a greater sum than the liabilities. Assets can include:

Cash

Securities(Investments, stocks, bonds, etc)

Accounts Receivable

Inventory

Pre-paid Insurance

Supplies

Property

Intangible Assets(patents, copyrights, and other Intellectual property)

Determine Liabilities

This is the negative side of the equation. These are things such as operational cost, debt, and material expenses.

Accounts Payable

Business Credit Cards

Operating Line of Credit

Taxes Owed

Wages and Payroll

Mortgages

Equity Valuation

After calculating your assets and liabilities, knowing the value of your equity will help you determine your value of your company’s capital.

Opening Balance Equity

Capital Stock

Dividends Paid

Owner’s Draw

Retained Earnings

Having an income statement will help you determine the value of your equity. Once you’ve calculated all of the above, you can use the equation from earlier to determine your balance sheet.

Equity = Assets – Liability