Running a business means making tough decisions every day. Though experience and instinct will get you so far, you need cold, hard facts to keep your business financially healthy for the long term.
This is why financial reports (also called financial statements) are essential. Among the most useful types, the balance sheet provides a simple and comprehensive view of your overall financial position.
This article will help you make the most of your balance sheet with a professional template to get you started.
What a balance sheet is used for
A balance sheet is a list that compares everything your business owns (assets) and owes (liabilities), and the amount invested by shareholders (equity). It’s called a balance sheet because the sum of your liabilities and equity should equal your assets.
Assets = Liabilities + Equity
In other words, it should “balance”.
Most business run a balance sheet at the end of a quarter, or year.
It’s mainly used:
- To show how much money is available to shareholders.
- For investors to gain insight into the business and its operations. They may also be looking to see if there is enough cash available to pay dividends or to invest more in the business.
- If your business is for sale, for potential buyers to assess the viability of the business.
- To work out your “liquidity ratio”. This tells you whether you have enough money in the bank or assets that can quickly be converted into cash to pay your bills.
How to create a balance sheet
Balance sheets have a very simple layout, which means they’re easy to create manually in a document or spreadsheet. There are only 3 main sections you’ll need to populate with your latest figures: a list of all assets, liabilities, and equity, complete with their amounts.
Our balance-sheet template is ready to use, so you can skip setting up a document and start adding your line items straight away.
We’ve included some of the most common items in each section, but you’ll need to add any others you have in your business.
Get smarter with software
If you’re using accounting software to run reports, you’ll get even more out of the balance sheet. Advanced capabilities such as pre-configured views, full customization, multiple export options, and custom-report saving, give you more control over what information it shows.
Discover real-time insights in a fraction of the time it takes to create a balance sheet manually.
How to use our balance sheet template
Once you’ve downloaded our balance sheet template, you’ll need to add your company name, logo, and the date you’re creating the report. This is particularly important, as you’ll accumulate balance sheets over time and will need a record of when historic reports were run.
Next, adjust the year columns to the reflect the period you want to report on, add more if you want to compare more than 2 years. Alternatively, you can remove a column and create the report for a single year.
Now populate all the suggested line items that are relevant to your business, including the latest figures and total calculations.
Remove any lines that are not relevant, and add any other assets, liabilities, or equity items not already included. Remember, the balance sheet should be a snapshot of your entire business finances, so leave nothing out.
With all 3 sections populated, including figures and totals, you can start calculating some common financial ratios:
Total liabilities ÷ total assets
Current ratio (liquidity ratio)
Total assets ÷ total liabilities
Current assets – current liabilities
Total assets ÷ total equity
Total liabilities ÷ total equity
Run these financial ratios to build a picture of your financial position, and you’ll be able to make key decisions and communicate the health of your business to shareholders, buyers, and investors.
Whether you build it using our simple and professional template, or run it through your accounting software, the balance sheet will help you understand the health of your business based on every financial element.
We recommend running this report at least every quarter to maintain visibility of your financial position.
This will help you make better long-term decisions and raise any red flags early so you can prevent future difficulties.