Keeping an excellent financial balance is crucial for any business, but even more critical for small companies. And to ensure the company directors have total control over the financial health of their small businesses, a small business balance sheet report is fundamental. Small business owners must look for one of those, whether it is a typical balance sheet or a more detailed balance sheet statement full of information about the company’s financial position.

The best way to describe a balance sheet is to call it a financial statement about the company it refers to. These financial statements bring much information about the company’s financial position, pointing to its general value and financial standing. This means you will understand how much you earn, how much you owe, and all your investments, current assets, liabilities, and equity.

A good balance sheet example gives stakeholders complete control of the company’s financial data and financial obligations. It also shows a business owner the potential business growth or decline, indicating some important financial decisions they must take to ensure or avoid specific scenarios. A financial statement such as this can be created monthly, quarterly, or yearly, depending on the business’s financial needs.

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What Financial Information These Financial Statements Must Contain?

Before understanding a balance sheet and its importance for a small business, let’s see what kind of data one should add to such financial statements. To ensure that this fundamental document plays its part in keeping business finances well, a single owner or all the business owners must gather all the documents recording business finances.

With everything displayed correctly, we will have a snapshot divided into three categories: the already referred assets, liabilities, and equity. From there, the accountant can analyze the company’s financial resources. Let’s see what these categories are.

Business’s Assets

The first category is the company’s assets. They are items that can be directly or indirectly turned into money or cash equivalents. Items that can be turned directly into money are products your company sells. 

Those indirectly turned into money are items with actual value that aren’t directly sold, such as machines used to create products. It is important to compare total assets with liabilities. The more assets your company have, the better.

Categorizing the Total Assets

There are different ways to divide a company’s assets. The first way is to divide them into two categories on your balance sheet example: tangible assets and intangible assets. Tangible assets are not for sale and serve operational purposes. Intangible assets are not physical and work more as a concept, such as intellectual property. Uniting the two, we have the total assets.

Another way to divide the assets when you create a balance sheet is by calling them current or short-term and non-current assets, also known as long-term assets. Current assets are everything that you can turn directly into cash within one year. Non-current assets are the contrary, or, in other words, things we can’t turn into money in a short period. It is what a small business owns. Let’s list some assets divided into some mentioned sections.

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Tangible Asset List

• Plant
• Property
• Equipment

Current Asset List

• Cash
• Inventory
• Accounts Receivable
• Prepaid Expenses

Intangible Asset List

• Goodwill
• Copyrights
• Patents
• Trademarks

Company’s Liabilities

Assets and liabilities are the two main factors determining your company’s cash flow. Simply speaking, the result of the liabilities subtraction from the current assets determines how much cash the company has, and that’s what the balance sheet shows. This is the Working Capital, from which you can calculate the owner’s equity. For all of that, you need both assets and liabilities listed. That’s why they are so important. 

This means you can say that total liabilities are everything the business owes. A company’s balance sheet is more than just an income statement; it describes far more than your net income and what the company owns. Generally, the total liabilities go on the right side of balance sheet reports. 

Like assets, liabilities can also be divided into categories. We can also describe them as current liabilities and non-current liabilities. These can also be divided into short-term and long-term liabilities. Short-term or current liabilities mean the debts you must honor in a short period. On the other hand, long-term liabilities, or non-current liabilities, are those with more extensive periods that don’t demand fast payment. 

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Of course that any liability must be honored. But to ensure the company’s financial health, the current liabilities are the ones that require more attention. Noncurrent liabilities and costs allow corporations to better organize themselves before payments for the debts owed begin. A company’s long-term debt balance sheet presents pension fund liabilities and long-term business loans. Other liabilities can be

• Accounts payable
• Taxes
• Bank Loans
• Rent
• Utilities
• Goods you owe to customers
• Bonds

Shareholders' Equity

Last but not least, we have owners' equity, or shareholders’ equity, depending on the model of the company we are talking about. As mentioned before, equity refers to the company’s money after subtracting the liabilities from the assets. Simply speaking, it is the result obtained after you get all the accounts receivable and honor all the accounts payable without considering the retained earnings.  

If the small business has only one owner, we refer to it as owner’s equity. This means that shareholder equity refers to a company with different shareholders or a company that received initial investments from others and has more than one owner. Retained earnings are kept in the company, therefore, aren’t split in the shareholder's equity. 

The total equity businesses make is divided among the shareholders, and this division can be calculated using different criteria. The most common is to decide on a shareholder’s equity based on his initial investment in the company. Another way is to consider the time of service in the business. 

The shareholders' equity can change if new investments are made in the business, allowing for more or fewer shareholders. This is one of the reasons why a company can have more than one basic balance sheet, each one referring to one reporting period.

Balance sheets work very well. Even though they are not obligatory, having your own balance sheet will help owners break through many financial questions. But a simple balance sheet is just one of the three different financial reports you can use to have a complete track of your business's economic activities and development.

Besides balance sheets, you will also operate cash flow statements and income statements, also known as profit and loss statements. All three are essential financial statements and will give you the overall balance of your business and its potential errors in the current period or given point, such as a specific date. And you can use a weekly, monthly, or yearly basis to determine your assets, liabilities, and owner’s equity.

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Tips to Create a Balance Sheet

You already know the three main sections you need on your balance sheet. They aren’t the only data you want on important financial statements, such as a balance sheet. Other helpful information, such as the debt ratio, is generally present. But, instead of focusing on data, we give you some tips about the process.

Establish the Period of Time

The first thing you must be sure of is the specific period the important financial statement will refer to. The balance sheet will contain your accounts, cash information, debts, overall value, revenue, and many other things, so you must have the period established. Decide if you want the same report to cover a month, a quarter, or a year. After establishing that, stick to the first reporting date and stop considering it after the final day.

Gather all the Necessary Data

After that, gather all the pertinent information for your balance sheet. The most prepared companies work with other financial documents, such as the cash flow statement, but they aren’t a reason for making a balance sheet with missing information. Bring everything related to assets, liabilities, and equity together, and be picky about it. Excessive data is terrible but is better than missing data.

Fill the balance sheet to ensure that assets, liabilities, and all the data are precise. You can put assets on the left and liabilities on the left part of your balance sheet. After that, make sure to separate the equity from retained earnings.

Confirm Results and Decide the Next Steps

To complete, check and confirm if all the data match. If it does, confirm your balance. The results will indicate which kind of measures you can or should take to keep or bring your business back on track. This balance sheet is a complete report of your financial situation and net worth. It is perfect for giving you insights about errors and the necessary steps you need to take to ensure the business’s health.

Other information Present in a Balance Sheet Template

Besides the three categories we presented above, you will see that a strong balance sheet brings some other ratios and calculations. We will learn about debt ratio, working capital, and other line items you may want to include on your balance sheet.

Debt Ratio

It determines the financial standing of your company through its debt. To calculate the ratio, you must divide the liabilities by the assets. (DR) = Liabilities ÷ Assets.

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Working Capital

The term refers to funds used to cover your business’s operating costs. As mentioned above, this number is obtained with the formula (WC) = assets - liabilities.

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Debt-to-Equity Ratio

This specific value determines which percentage of the company is in debt. In other words, it is a way to calculate how significant and potentially problematic the company’s debts are. The obligations are recalculated based on the net worth. The right way to figure it out is through the formula Debt/Equity Ratio = Total Liabilities ÷ Total Equity.

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Indeed, business owners can find good accounting software to create their balance sheets, but we have a great and far cheaper option: using Microsoft Office. MS suite programs, such as Excel, are perfect for balance sheets because they allow users to make all the changes and customization they see fit. Besides that, you can get the whole office package for incredible prices.  

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Balance Sheet Templates

Now, the only thing left is offering our readers some useful MS Office Balance Sheet templates. That way, you can easily control the business’s financial situation.

Excel Balance Sheet Template

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Sample Balance Sheet for Excel

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We have finally presented the most important information about balance sheets, touching upon their meaning, structure, and necessity of a balance sheet. Besides all that, we also talked about using Excel to create such reports and presented some useful templates. Now, you are more than prepared to organize your company's financial situation!

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