Many businesses only look at their accounts when it’s time to file a tax return. The balance sheet is the tool that changes that: a snapshot of your business at a specific point in time, not just what you’ve invoiced.
What it shows
The balance sheet brings together three blocks:
- Assets: everything your business owns, cash in the bank, invoices pending collection, equipment, premises if you own them.
- Liabilities: everything your business owes, loans, invoices pending payment, the part of your taxes you haven’t settled yet.
- Equity: the difference between the two. In practice, this is what your business is worth at that moment.
Why look at it, not just the profit and loss account
The profit and loss account tells you whether you made or lost money over a period. The balance sheet tells you something different and complementary: whether your business is solvent, whether you depend too much on being paid on time, or whether you’re building up debt faster than you think.
It’s common to discover things with the balance sheet that the profit and loss account doesn’t show, for example that almost all your “profit” is sitting in invoices you haven’t collected yet, and that in practice you’re short on cash to pay your own expenses that month.
How often to check it
Quarterly is a good pace for a self-employed worker or small company: enough time for a change in trend to show up, but not so long that you react late. This is exactly the difference between just filing your taxes and being handed a balance sheet you can actually read and use to decide, which is how we work.