The Balance Sheet is exactly what it says, a sheet where you will show the balance between your assets and liabilities, and most importantly how much your company is worth overall. This sheet is included in your business plan to project the worth of your company, but also used by existing businesses to show the financial health of your venture. For the business plan, you will do the first year in quarters and second to fifth years annually. If you are already in business, you will need a current balance sheet and the past two years' balance sheets to include in your plan.The balance sheet gives anyone who views it an easy yet thorough review of your company. Some companies are highly valued because of their land and building worth, while their accounts receivables is rather low. Other companies hold a lot of wealth in their inventory. Bankers and investors will want to know exactly how you derived the value of your company, or its projected value. This is also a place that unethical business people tend to "pad" their value. Your balance sheet is broken down as followed:
Assets
You will account for all the assets the company has and separate them between current assets and fixed assets. Current assets (more likely to fluctuate in value) will include:- Cash
- Accounts Receivable
- Inventory
- Prepaid Expenses
Fixed assets (will not fluctuate in value) are:
- Land
- Building
- Furniture / Equipment
- Fixtures
- subtract accumulated depreciation (choose a method, stick with it, and record it here)
Additionally, you may have other assets like patents, intellectual property, or what is referred to as intangible assets that you will record on the sheet to give you the total value of your assets.
Current + Fixed + Other = Total Assets
Next, you will record your liabilities, separated as current liabilities and long term liabilities. Those willing to invest in you are entitled to know how much you already owe:
Liabilities
Current Liabilities: - Accounts payable
- Accrued Payroll
- Taxes Payable
- Short-Term Notes Payable
Long-Term Liabilities
- Long-Term Notes Payable (Could be loan or mortgage)
Current + Long-Term Liabilities = Total Liabilities
The difference between the liabilities and assets is the shareholder's equity. Then you will add any retained earnings (earnings that are not paid out as dividends to shareholders) to arrive at the companies total net worth.
The information provided in this portion of your successful business plan shows that you have a good grasp of how to determine the health of your company, and separate those things that add value (assets) from those things that detract from the overall value of the company (liabilities). All companies will always have liabilities, but balance sheets help entrepreneurs see what percentage of their income is going towards debt vs being re-invested. In the simplest terms, the balance sheet shows what you have versus what you owe. It helps potential lenders understand how big of a risk you are, and how much ability you have to pay them back.
