Regardless of the size and nature of your business, a strong balance sheet is an important aspect of it. This crucial financial statement provides an understanding of the workings and performance of your company. Besides, a balance sheet, along with other financial statements, helps a lender determine your financial stability when you apply for an MSME loan.
Then, you must invest your time in creating an accurate balance sheet. Here are a few tips to help you do this.
1. Establish the reporting period
To begin with, you need to determine the reporting date for your balance sheet. This date is usually the last date of the reporting period. Typically, the financial year for businesses is April 1-March 31. Moreover, many businesses divide their reporting period quarterly for easy reporting. In which case, you will prepare a balance sheet for business for the following periods-
- January 1 to March 31
- April 1 to June 30
- July 1 to September 30
- October 1 to December 31
At the same time, you can also choose to prepare reports annually.
Additional Read –What is the Role of Balance Sheets on Getting a Business Loan?
2. Be consistent
Adopt and apply consistent practices every year. Prepare the balance sheet at the same time each year and use similar methods. This will allow for easy comparison and help you in analysing your performance versus the previous year.
3. Use the current values
While preparing your balance sheet, make sure you determine the correct value of your assets. Assets like, machinery, equipment, inventory, property, etc., should be estimated at realistic rates. For instance, for machinery, you can either use the purchase price or reduce the value as per depreciation. Or for real estate, you can get the existing market value as it doesn’t vary much year to year. This will help you better analyse your financial standing and minimise errors.
4. Get accurate debt values
Accurate numbers are essential. A balance sheet for small business analyses your business performance through the assets, liabilities, and capital. Then, it is important to keep track of your cash, debtors, loan payments, credit card debt, etc. Make sure to enter all the elements of a balance sheet correctly. Even a slight miscalculation can affect the results on your balance sheet.
5. Compare performance with previous years
A balance sheet helps you assess your financial health. It also gives interested parties – be it lenders or investors – a complete picture of your business. Then, it acts as an important tool to evaluate your growth and performance from the previous years. Pay close attention to your improved net worth. Or look for any areas that might need improvement. With access to such insights, you can take the necessary steps to increase your business’s profitability.
Additional Read – 5 Things You Should Include in Your Business Loan Application
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