The Importance of Having an Up-To-Date Business Balance Sheet

Do you struggle to keep up with your business's financial reporting and bookkeeping? Regular bookkeeping and financial statements give your business the foundation to make informed business decisions, get funding, and grow.

The balance sheet is one of the most vital financial statements business owners must regularly create. It provides information about what you owe and what you own. You must implement all controls necessary to keep your balance sheet current.

Understanding Your Current Financial Health

The balance sheet allows you to assess the financial condition of your company. For example, what amount do you owe vendors and suppliers? How much do your customers owe? To make informed decisions, it is crucial to have real-time access to account balances such as cash, accounts receivables, inventory, accounts payables, and loans payable.

Business owners, investors, lenders, and others often calculate financial ratios to assess the company's health. The balance sheet is a critical component of liquidity, solvency, valuation, and other metrics. These ratios will have the most significant value if you have the most current numbers to back them up. Therefore, it is crucial to understand where your company stands to move forward.

Make sure all deductions are recorded

You can record transactions in your accounting ledgers. The item will run through the income statement and the balance sheet. This means that you can promote accuracy in the income statement by making sure your balance sheet is accurate. Complete bank and credit card 

reconciliations can help you to maintain total accounting records.

It is easy to forget expenses like chargebacks, utility bills, office supplies, and ACH payments. However, you can increase your chances of getting every qualified business deduction and reduce your taxable income by prioritizing a current balance sheet.

Secure Investors and Loans

It can be challenging to find additional funding sources if you don't have financial statements. Investors and lenders can quickly review your balance sheet to assess the state of your business. You want to make sure that your changes, such as the purchase of more assets or repayments on loans, are reflected in your balance sheet.

A healthy balance sheet also shows lenders that your ability to repay your debts on time and without a default is possible. A balance sheet can help you determine the potential return on investment and the uses of funds. Your chances of receiving funding or additional investments are higher if you and your investors are more educated.

Long-Term Growth Plan

Growth is rarely a matter of chance. Scaling your business requires hard work, strategic goals, and transparency in operation. For example, to grow your business, you may need a lot of cash to buy new equipment, hire more employees, or expand into new markets. You can make informed decisions about how to grow your business by tracking the cash and receivables accounts and the upcoming obligations to suppliers.

This could be as simple as setting aside a specific amount each month for new equipment or having a weekly budget you keep track of. However, clearly understanding operations through balance sheet accounts is essential to plan effectively for long-term growth. 

Prepare for Tax Time

Small business owners are quickly approaching tax time. You can avoid missing tax planning or filing late returns if you update your balance sheet. No matter how big or small your business is, tax planning offers legal strategies to reduce your tax liability. However, these strategies must be implemented by year-end to be effective.

You can reduce your tax bill by keeping your balance sheet current throughout the year. This includes taking advantage of bonus deductions and considering switching accounting methods. You won't be able to make these important decisions if your balance sheet isn't up-to-date. In addition, a current balance sheet and bookkeeping will save you time at year-end. This will allow you to file your tax returns in plenty of time.

Manage Cash Flow

Many small businesses fail because they lack cash flow. Even though you might have a great product or service, you're more likely to fail if your money is not managed correctly. Cash flow management is all about the cash account; this balance can be found on your balance sheet. Bank statements are only issued once per month. You must regularly enter transactions or download them to see your checking account's real balance. This is particularly important if you frequently write checks. 

You can better plan your budget and leverage your cash balance by regularly updating your cash ledger balance. If you know you have a large proportion of cash, you might get early payment discounts from vendors or buy the necessary machinery. You might choose to wait to place the order or to call customers to remind them about their balance. You must ensure that your balance sheet is updated regularly to be able to make these decisions.

Summary

All businesses need to prepare balance sheets regularly. The balance sheet is essential for managing cash flow and updating your checking account balance.

Different procedures are required to create accurate balance sheets. These include bank reconciliations and journal entries. These items can be difficult to prepare if you are a busy business owner.

Working with experts can help. Basis 365 has many years of experience helping businesses of all sizes realize the benefits of a current balance sheet. Reach out to a member of our team for more information