The importance of your Balance Sheet right now.
“I don’t really understand the balance sheet - is it that important?”
Yep, it sure is.
It shows you what you own (assets) and what you owe (Liabilities).
You want to OWN more than you OWE.
This will be so important over the next few months, particularly with the economy in such a fragile state.
So, what to look at?
Each month, look closely at your Current Assets and Current Liabilities.
‘Current liabilities’ are those bills you have to pay over the next 12 months.
These are your normal Accounts Payable and finance payments.
But they should also include any amounts you owe the ATO for your BAS and also any Super that’s owed.
Sometimes these are not picked up on your Balance Sheet, which means you don’t actually have a full listing of the amounts you owe. Essentially this means you’re flying blind.
But these expenses are the ones that can bite you! And they can quickly get out of hand!
So, it’s important that you are sure these are included on your Balance Sheet.
Current Assets are assets which you expect will turn into cash in the next 12 months. For example, Stock, Work in Progress, or Accounts Receivable. You expect them to be converted into cash. This is what you’ll use to pay your Current Liabilities.
So, you want to be sure you’ll have more coming in over the next 12 months than going out.
To be sure of this, make sure your figures are up to date so you know what you’re dealing with. You want your current assets to be greater than your current liabilities.
This means you expect to have more coming in over the next 12 months than going out.
If it looks like it’s the other way around - that you OWE more than you have coming in, then drastic moves need to be taken. You need to have some turnaround strategies in place asap. Your business is in a vulnerable position and heading down the wrong track. Look carefully at your figures to be sure of your position, then get the thinking cap on to figure out what to do about it.
This is a tough spot to be in and needs careful guidance. Let me know if you need a hand.
Peter