HomeHome SearchSearch MenuMenu Our productsOur products

Starting a business? Your balance sheet could be the most important piece of paper you own

by , 01 April 2014
If you're planning to start a new business, one of the main things you need to understand is the balance sheet. Why? Because the information it explains could literally break or make your business. Continue reading to discover the importance of a balance sheet.

What is a balance sheet?

Investopedia defines a balance sheet as a financial statement that summarises a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

To make sure yours does all this, your balance sheet must follow the following formula...


Do you know why Gail doesn't spend R10 000 a month on bookkeeping fees?

Gail is a GP who's just opened her own private practice. Because she's trying to save money on admin costs, she is doing her books herself. She thinks: 'How hard can it be?' The answer: 'It's very hard unless you've got the right tools at your fingertips!' Well, I found just such a tool. It has everything from checklists about how to prepare for an audit, to detailed explanations about financial statements.

Find out more about my newly-discovered one-stop accountancy resource!


Here's a formula for a balance sheet

Assets = Liabilities + Shareholders' equity

This financial statement is called a balance sheet for a reason. And that's because the two sides balance out.

After all your company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders' equity), explains the site.

'Each of the three segments of the balance sheet will have many accounts within it that document the value of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt.'

A balance sheet is important because it reveals how financially sound your company is

Experts at the Investors Club say analysts use the balance sheet as an indication of the financial strength of a company.

Essentially, having a healthy balance sheet means investors may be more keen on investing on your company. That's why it's important you understand what it is and how it works.

Vote article

Starting a business? Your balance sheet could be the most important piece of paper you own
Note: 5 of 1 vote

Related articles

Related articles

Related Products