balance sheet in business plan

How to write a balance sheet for a business plan

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What is a balance sheet?

Elements of a balance sheet, liabilities, how to write a balance sheet, manage your business finances with countingup.

A balance sheet is one of three major financial statements that should be in a business plan – the other two being an income statement and cash flow statement .  

Writing a balance sheet is an essential skill for any business owner. And while business accounting can seem a little daunting at first, it’s actually fairly simple. 

To help you write the perfect balance sheet for your business plan, this guide covers everything you need to know, including:

• What are assets?
• What are liabilities?
• What is equity?

A balance sheet is a financial statement that shows a business’ “book value”, or the value of a company after all of its debts are paid. 

For those inside the business, it provides valuable financial insights, allowing the owners to assess their current financial situation and plan for the future. 

For external investors, a balance sheet lets them know whether it’s a worthwhile investment.  

Putting a balance sheet together isn’t all that difficult. You just need to know the value of three things:

• Owner’s equity

Once you know these three figures, there’s just a little bit of maths – nothing too scary though.

Assets are items or resources that have financial value. They might be physical items, machinery and vehicles, or they could be intangible items, like copyrights or brand identity .

Assets are separated into two groups based on how quickly you can turn them into cash. There are current assets and fixed assets. 

Current assets are things that are fairly simple to value and sell, such as:

• Stock and inventory
• Cash in the bank
• Money owed to you (through unpaid invoices )
• Customer deposits
• Office furniture, equipment or supplies
• Phones or laptops
• Even relatively trivial items like a coffee machine or pool table

Fixed assets are valuable items that take much longer to sell, such as:

• Property or buildings
• Specialised equipment for your business operations
• Investments
• Vehicles 

On your balance sheet, the asset column is the simplest. All you need to do is list each item your business owns, along with their individual values, in a separate column. Then, add up the values to get a total at the bottom. 

Liabilities are the funds that you owe to other people, banks, or businesses. They can be:

• A business loan (the total, not the monthly payment amount)
• A mortgage or rent payment on a property
• Supplier contracts you owe
• Your accounts payable total
• Other financial obligations, such as paying wages or freelancers for support
• Taxes you’ll owe to HMRC

List these in the same way you did with your assets – on a spreadsheet with their values in a separate column. 

When you know the value of your assets and liabilities, working your equity is simple – it’s just the total value of your assets, minus the total value of your liabilities. 

Record the owner’s equity in the same column as your liabilities. When you add them all up, it should be the same value as your assets. 

After you’ve totalled up your assets, liabilities, and owner’s equity, all that’s left to do is fill in your balance sheet. 

Using a spreadsheet, record your assets on the left and your liabilities and owner’s equity on the right. 

For example, here’s what a balance sheet might look like for a painter and decorator:

If you’ve recorded everything correctly, both sides should have the same total. Whenever you make a change, the balance sheet will change, but it should still be balanced. 

For example, let’s say our painter and decorator sold their equipment. In that case, they’d lose an asset worth £200, but they’d also gain £200 in cash, so the asset total would stay the same. 

Alternatively, let’s say they lost the equipment altogether and got no money for it. In that case, they’d lose £200, leaving their asset total at £5,600. Then, they’d have to adjust the other side, so it remains balanced, like this:

If your two totals are not balanced, it’s most likely for one of these reasons:

• Incomplete or missing information
• Incorrect data entry
• A mistake in exchange rates
• And inventory miscount

Basically, if things don’t look right, try not to panic. It’s normally a simple mistake, so go over the figures again and you’ll find the culprit. 

The trickiest part of writing a balance sheet for a business plan is accurately recording financial information. 

With the Countingup business current account, you’ll have access to a digital record of all your transactions in one simple app, giving you all the financial information you’ll need for a business plan.

Start your three-month free trial today. 

Find out more here .

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What Is a Balance Sheet? Definition, Formulas, and Example

Trevor Betenson

10 min. read

Updated May 2, 2024

Business financial statements consist of three main components: the income statement , statement of cash flows , and balance sheet. The balance sheet is often the most misunderstood of these components—but also extremely beneficial if you understand how to use it.

Check out our free downloadable Balance Sheet Template for more, and keep reading to learn the different elements of a balance sheet, and why they matter.

• What is a balance sheet?

The balance sheet provides a snapshot of the overall financial condition of your company at a specific point in time. It lists all of the company’s assets, liabilities, and owner’s equity in one simple document.

A balance sheet always has to balance—hence the name. Assets are on one side of the equation, and liabilities plus owner’s equity are on the other side.

Assets = Liabilities + Equity

• What is the purpose of the balance sheet?

Put simply, a balance sheet shows what a company owns (assets), what it owes (liabilities), and how much owners and shareholders have invested (equity).

Including a balance sheet in your business plan is an essential part of your financial forecast , alongside the income statement and cash flow statement.

These statements give anyone looking over the numbers a solid idea of the overall state of the business financially. In the case of the balance sheet in particular, what it’s telling you is whether or not you’re in debt, and how much your assets are worth. This information is critical to managing your business and the creation of a business plan.

The balance sheet includes spending and income that isn’t in the income statement (also called a profit and loss statement). For example, the money you spend to repay a loan or buy new assets doesn’t show up in the income statement. And the money you take in as a new loan or a new investment doesn’t show up in the income statement either. The money you are waiting to receive from customers’ outstanding invoices shows up in the balance sheet, not the income statement.

Among other things, your balance sheet can be used to determine your company’s net worth. By subtracting liabilities from assets, you can determine your company’s net worth at any given point in time.

• Key components of the balance sheet

Typically, a balance sheet is divided into three main parts: Assets, liabilities, and owner’s equity.

Assets on a balance sheet or typically organized from top to bottom based on how easily the asset can be converted into cash. This is called “liquidity.” The most “liquid” assets are at the top of the list and the least liquid are at the bottom of the list.

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In the context of a balance sheet, cash means the money you currently have on hand. In business planning, the term “cash” represents the bank or checking account balance for the business, also sometimes referred to as “cash and cash equivalents” or “CCE.”

A cash equivalent is an asset that is liquid and can be converted to cash immediately, like a money market account or a treasury bill.

Accounts receivable

Accounts receivable is money people are supposed to pay you, but that you have not actually received yet (hence the “receivables”).

Usually, this money is sales on credit, often from business-to-business (or “B2B”) sales, where your business has invoiced a customer but has not received payment yet.

Inventory includes the value of all of the finished goods and ready materials that your business has on hand but hasn’t sold yet.

Current assets

Current assets are those that can be converted to cash within one year or less. Cash, accounts receivable, and inventory are all current assets, and these amounts accumulated are sometimes referenced on a balance sheet as “total current assets.”

Long-term assets

Long-term assets are also referred to as “fixed assets” and include things that will have a long-standing value, such as land or equipment. Long-term assets typically cannot be converted to cash quickly.

Accumulated depreciation

Accumulated depreciation reduces the value of assets over time. For example, if a business purchases a car, the car will lose value as time goes on.

Total long-term assets

Total long-term assets is used to describe long-term assets plus depreciation on a balance sheet.

Liabilities

Like assets, liabilities are ordered by how quickly a business needs to pay them off. Current liabilities are typically due within one year. Long-term liabilities are due at any point after one year.

Accounts payable

Accounts payable is the money that your business owes to other vendors, the other side of the coin to “accounts receivable.” Your accounts payable number is the regular bills that your business is expected to pay.

Pay attention to whether this number is exceedingly high, especially if your business doesn’t have enough to cover it.

Sales taxes payable

This only applies to businesses that don’t pay sales tax right away, for example, a business that pays its sales tax each quarter. That might not be your business, so if it doesn’t apply, skip it.

Short-term debt

This is debt that you have to pay back within a year—usually any short-term loan. This can also be referred to on a balance sheet as a line item called current liabilities or short-term loans. Your related interest expenses don’t go here or anywhere on the balance sheet; those should be included in the income statement.

Total current liabilities

The above numbers added together are considered the current liabilities of a business, meaning that the business is responsible for paying them within one year.

Long-term debt

These are the financial obligations that it takes more than a year to pay back. This is often a hefty number, and it doesn’t include interest. For example, this number reflects long-term loans on things like buildings or expensive pieces of equipment. It should be decreasing over time as the business makes payments and lowers the principal amount of the loan.

Total liabilities

Everything listed above that you have to pay out or back is added together.

This is the sum of all shareholder money invested in the business and accumulated business profits. Owner’s equity includes common stock, retained earnings, and paid-in-capital.

Paid-in capital

Money is paid into the company as investments. This is not to be confused with the par value or market value of stocks. This is actual money paid into the company as equity investments by owners.

Retained earnings

Earnings (or losses) that have been reinvested into the company, that have not been paid out as dividends to the owners. When retained earnings are negative, the company has accumulated losses. This can also be referred to as “shareholder’s equity.”

This doesn’t apply to all legal structures for a business; if you are a pass-through tax entity , then all profits or losses will be passed on to owners, and your balance sheet should reflect that.

Net earnings

This is an important number—the higher it is, the more profitable your company is. This line item can also be called income or net profit. Earnings are the proverbial “bottom line”: sales less costs of sales and expenses.

Total owner’s equity

Equity means business ownership, also called capital. Equity can be calculated as the difference between assets and liabilities. This can also be referred to as “shareholder’s equity” or “stockholder’s equity.”

Total liabilities and equity

This is the final equation I mentioned at the beginning of this post, assets = liabilities + equity.

• How to use the balance sheet

Your balance sheet can provide a wealth of useful information to help improve financial management. For example, you can determine your company’s net worth by subtracting your balance sheet liabilities from your assets, as noted above.

Overall, the balance sheet gives you insights into the health of your business. It’s a snapshot of what you have (assets) and what you owe (liabilities). Keeping tabs on these numbers will help you understand your financial position and if you have enough cash to make further investments in your business.

Perhaps the most useful aspect of your balance sheet is its ability to alert you to upcoming cash shortages. After a highly profitable month or quarter, for example, business owners sometimes get lulled into a sense of financial complacency if they don’t consider the impact of upcoming expenses on their cash flow .

There are two easy-to-figure ratios that can be computed from the balance sheet to help determine whether your company will have sufficient cash flow to meet current financial obligations:

Current ratio

This measures liquidity to show whether your company has enough current (i.e., liquid) assets on hand to pay bills on-time and run operations effectively. It is expressed as the number of times current assets exceeds current liabilities.

The higher the current ratio, the better. A current ratio of 2:1 is generally considered acceptable for inventory-carrying businesses, although industry standards can vary widely. The acceptable current ratio for a retail business, for example, is different from that of a manufacturer.

Current ratio formula

Current Assets / Current Liabilities

Quick ratio

This ratio is similar to the current ratio but excludes inventory. A quick ratio of 1.5:1 is generally desirable for non-inventory-carrying businesses, but—just as with current ratios—desirable quick ratios differ from industry to industry.

Quick ratio formula

Current Assets – Inventory / Current Liabilities

Knowing your industry’s standards is an important part of evaluating your business’s balance sheet effectively.

• The limits of the balance sheet

Remember, the balance sheet alone doesn’t give you a complete view of your business finances. You’ll want to keep tabs on your profit & loss statement (income statement) and cash flow as well.

Your profit & loss statement will show you the sales you are making and your business expenses and calculates your profitability. This is crucial for understanding the core economics of your business and if you’re building a profitable business, or not.

Your cash flow forecast shows how cash is moving in and out of your business and can help you predict your future cash balances. Fast growth can reduce cash quickly, especially for businesses that carry inventory, so this is a crucial statement to pay attention to as well.

The three statements all work together to provide you with a complete picture of your business. The balance sheet also helps illustrate how cash and profits are very different things .

• Example of a balance sheet

Large businesses will have longer and more complex balance sheets for their businesses, sometimes having separate balance sheets for different segments or departments of their business. A small business balance sheet will be more straightforward and have fewer line items.

Here is a balance sheet from Apple, for example. You’ll see that it includes a complex stockholder’s equity section and several specifically itemized types of long-term assets and liabilities.

Apple’s balance sheet .

You’ll also notice that it says “Period Ending” at the top; this indicates that these numbers are reflective of the time up until the date listed at the top of the column. This terminology is used when you are reporting actual values, not creating a financial forecast for the future.

• Get familiar with your balance sheet

Most companies should update their balance once a month, or whenever lenders ask for an updated balance sheet. Today’s accounting software programs will create your balance sheet for you, but it’s up to you to enter accurate information into the program to generate useful data to work from.

The balance sheet can be an extremely useful financial tool for businesses that understand how to use it properly. If you’re not as familiar with your balance sheet as you’d like to be, now might be a good time to learn more about the workings of your balance sheet and how it can help improve financial management.

Create your balance sheet easily by downloading our Balance Sheet Template , and check out our full guide to write your financial plan.

Trevor is the CFO of Palo Alto Software, where he is responsible for leading the company’s accounting and finance efforts.

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Balance Sheet: Explanation, Components, and Examples

What you need to know about these financial statements

What Is a Balance Sheet?

The term balance sheet refers to a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis for computing rates of return for investors and evaluating a company's capital structure .

In short, the balance sheet is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. Balance sheets can be used with other important financial statements to conduct fundamental analysis or calculate financial ratios.

Key Takeaways

• A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholder equity.
• The balance sheet is one of the three core financial statements that are used to evaluate a business.
• It provides a snapshot of a company's finances (what it owns and owes) as of the date of publication.
• The balance sheet adheres to an equation that equates assets with the sum of liabilities and shareholder equity.
• Fundamental analysts use balance sheets to calculate financial ratios.

Investopedia / Katie Kerpel

How Balance Sheets Work

The balance sheet provides an overview of the state of a company's finances at a moment in time. It cannot give a sense of the trends playing out over a longer period on its own. For this reason, the balance sheet should be compared with those of previous periods.

Investors can get a sense of a company's financial well-being by using a number of ratios that can be derived from a balance sheet, including the debt-to-equity ratio and the acid-test ratio , along with many others. The income statement and statement of cash flows also provide valuable context for assessing a company's finances, as do any notes or addenda in an earnings report that might refer back to the balance sheet.

The balance sheet adheres to the following accounting equation, with assets on one side, and liabilities plus shareholder equity on the other, balance out:

Assets = Liabilities + Shareholders’ Equity \text{Assets} = \text{Liabilities} + \text{Shareholders' Equity} Assets = Liabilities + Shareholders’ Equity

This formula is intuitive. That's because a company has to pay for all the things it owns (assets) by either borrowing money (taking on liabilities) or taking it from investors (issuing shareholder equity).

If a company takes out a five-year, $4,000 loan from a bank, its assets (specifically, the cash account) will increase by $4,000. Its liabilities (specifically, the long-term debt account ) will also increase by $4,000, balancing the two sides of the equation. If the company takes $8,000 from investors, its assets will increase by that amount, as will its shareholder equity. All revenues the company generates in excess of its expenses will go into the shareholder equity account. These revenues will be balanced on the assets side, appearing as cash, investments, inventory, or other assets.

Balance sheets should also be compared with those of other businesses in the same industry since different industries have unique approaches to financing.

Special Considerations

As noted above, you can find information about assets, liabilities, and shareholder equity on a company's balance sheet. The assets should always equal the liabilities and shareholder equity. This means that the balance sheet should always balance , hence the name. If they don't balance, there may be some problems, including incorrect or misplaced data, inventory or exchange rate errors, or miscalculations.

Each category consists of several smaller accounts that break down the specifics of a company's finances. These accounts vary widely by industry, and the same terms can have different implications depending on the nature of the business. But there are a few common components that investors are likely to come across.

 Theresa Chiechi {Copyright} Investopedia, 2019.

Components of a Balance Sheet

Accounts within this segment are listed from top to bottom in order of their liquidity . This is the ease with which they can be converted into cash. They are divided into current assets, which can be converted to cash in one year or less; and non-current or long-term assets, which cannot.

Here is the general order of accounts within current assets:

• Cash and cash equivalents are the most liquid assets and can include Treasury bills and short-term certificates of deposit, as well as hard currency.
• Marketable securities are equity and debt securities for which there is a liquid market.
• Accounts receivable (AR) refer to money that customers owe the company. This may include an allowance for doubtful accounts as some customers may not pay what they owe.
• Inventory refers to any goods available for sale, valued at the lower of the cost or market price.
• Prepaid expenses represent the value that has already been paid for, such as insurance, advertising contracts, or rent.

Long-term assets include the following:

• Long-term investments are securities that will not or cannot be liquidated in the next year.
• Fixed assets include land, machinery, equipment, buildings, and other durable, generally capital-intensive assets.
• Intangible assets include non-physical (but still valuable) assets such as intellectual property and goodwill. These assets are generally only listed on the balance sheet if they are acquired, rather than developed in-house. Their value may thus be wildly understated (by not including a globally recognized logo, for example) or just as wildly overstated.

Liabilities

A liability is any money that a company owes to outside parties, from bills it has to pay to suppliers to interest on bonds issued to creditors to rent, utilities and salaries. Current liabilities are due within one year and are listed in order of their due date. Long-term liabilities, on the other hand, are due at any point after one year.

Current liabilities accounts might include:

• Current portion of long-term debt is the portion of a long-term debt due within the next 12 months. For example, if a company has a 10 years left on a loan to pay for its warehouse, 1 year is a current liability and 9 years is a long-term liability.
• Interest payable is accumulated interest owed, often due as part of a past-due obligation such as late remittance on property taxes.
• Wages payable is salaries, wages, and benefits to employees, often for the most recent pay period.
• Customer prepayments is money received by a customer before the service has been provided or product delivered. The company has an obligation to (a) provide that good or service or (b) return the customer's money.
• Dividends payable is dividends that have been authorized for payment but have not yet been issued.
• Earned and unearned premiums is similar to prepayments in that a company has received money upfront, has not yet executed on their portion of an agreement, and must return unearned cash if they fail to execute.
• Accounts payable is often the most common current liability. Accounts payable is debt obligations on invoices processed as part of the operation of a business that are often due within 30 days of receipt.

Long-term liabilities can include:

• Long-term debt includes any interest and principal on bonds issued
• Pension fund liability refers to the money a company is required to pay into its employees' retirement accounts
• Deferred tax liability is the amount of taxes that accrued but will not be paid for another year. Besides timing, this figure reconciles differences between requirements for financial reporting and the way tax is assessed, such as depreciation calculations.

Some liabilities are considered off the balance sheet, meaning they do not appear on the balance sheet.

Shareholder Equity

Shareholder equity is the money attributable to the owners of a business or its shareholders. It is also known as net assets since it is equivalent to the total assets of a company minus its liabilities or the debt it owes to non-shareholders.

Retained earnings are the net earnings a company either reinvests in the business or uses to pay off debt. The remaining amount is distributed to shareholders in the form of dividends.

Treasury stock is the stock a company has repurchased. It can be sold at a later date to raise cash or reserved to repel a hostile takeover .

Some companies issue preferred stock , which will be listed separately from common stock under this section. Preferred stock is assigned an arbitrary par value (as is common stock, in some cases) that has no bearing on the market value of the shares. The common stock and preferred stock accounts are calculated by multiplying the par value by the number of shares issued.

Additional paid-in capital or capital surplus represents the amount shareholders have invested in excess of the common or preferred stock accounts, which are based on par value rather than market price. Shareholder equity is not directly related to a company's market capitalization . The latter is based on the current price of a stock, while paid-in capital is the sum of the equity that has been purchased at any price.

Par value is often just a very small amount, such as $0.01.

Importance of a Balance Sheet

Regardless of the size of a company or industry in which it operates, there are many benefits of reading, analyzing, and understanding its balance sheet.

First, balance sheets help to determine risk. This financial statement lists everything a company owns and all of its debt. A company will be able to quickly assess whether it has borrowed too much money, whether the assets it owns are not liquid enough, or whether it has enough cash on hand to meet current demands.

Balance sheets are also used to secure capital. A company usually must provide a balance sheet to a lender in order to secure a business loan. A company must also usually provide a balance sheet to private investors when attempting to secure private equity funding. In both cases, the external party wants to assess the financial health of a company, the creditworthiness of the business, and whether the company will be able to repay its short-term debts.

Managers can opt to use financial ratios to measure the liquidity, profitability, solvency, and cadence (turnover) of a company using financial ratios, and some financial ratios need numbers taken from the balance sheet. When analyzed over time or comparatively against competing companies, managers can better understand ways to improve the financial health of a company.

Last, balance sheets can lure and retain talent. Employees usually prefer knowing their jobs are secure and that the company they are working for is in good health. For public companies that must disclose their balance sheet, this requirement gives employees a chance to review how much cash the company has on hand, whether the company is making smart decisions when managing debt, and whether they feel the company's financial health is in line with what they expect from their employer.

Limitations of a Balance Sheet

Although the balance sheet is an invaluable piece of information for investors and analysts, there are some drawbacks. Because it is static, many financial ratios draw on data included in both the balance sheet and the more dynamic income statement and statement of cash flows to paint a fuller picture of what's going on with a company's business. For this reason, a balance alone may not paint the full picture of a company's financial health.

A balance sheet is limited due its narrow scope of timing. The financial statement only captures the financial position of a company on a specific day. Looking at a single balance sheet by itself may make it difficult to extract whether a company is performing well. For example, imagine a company reports $1,000,000 of cash on hand at the end of the month. Without context, a comparative point, knowledge of its previous cash balance, and an understanding of industry operating demands, knowing how much cash on hand a company has yields limited value.

Different accounting systems and ways of dealing with depreciation and inventories will also change the figures posted to a balance sheet. Because of this, managers have some ability to game the numbers to look more favorable. Pay attention to the balance sheet's footnotes in order to determine which systems are being used in their accounting and to look out for red flags .

Last, a balance sheet is subject to several areas of professional judgement that may materially impact the report. For example, accounts receivable must be continually assessed for impairment and adjusted to reflect potential uncollectible accounts. Without knowing which receivables a company is likely to actually receive, a company must make estimates and reflect their best guess as part of the balance sheet.

Example of a Balance Sheet

The image below is an example of a comparative balance sheet of Apple, Inc . This balance sheet compares the financial position of the company as of September 2020 to the financial position of the company from the year prior.

In this example, Apple's total assets of $323.8 billion is segregated towards the top of the report. This asset section is broken into current assets and non-current assets, and each of these categories is broken into more specific accounts. A brief review of Apple's assets shows that their cash on hand decreased, yet their non-current assets increased.

This balance sheet also reports Apple's liabilities and equity, each with its own section in the lower half of the report. The liabilities section is broken out similarly as the assets section, with current liabilities and non-current liabilities reporting balances by account. The total shareholder's equity section reports common stock value, retained earnings, and accumulated other comprehensive income. Apple's total liabilities increased, total equity decreased, and the combination of the two reconcile to the company's total assets.

Why Is a Balance Sheet Important?

The balance sheet is an essential tool used by executives, investors, analysts, and regulators to understand the current financial health of a business. It is generally used alongside the two other types of financial statements: the income statement and the cash flow statement.

Balance sheets allow the user to get an at-a-glance view of the assets and liabilities of the company. The balance sheet can help users answer questions such as whether the company has a positive net worth, whether it has enough cash and short-term assets to cover its obligations, and whether the company is highly indebted relative to its peers.

What Is Included in the Balance Sheet?

The balance sheet includes information about a company’s assets and liabilities. Depending on the company, this might include short-term assets, such as cash and accounts receivable , or long-term assets such as property, plant, and equipment (PP&E). Likewise, its liabilities may include short-term obligations such as accounts payable and wages payable, or long-term liabilities such as bank loans and other debt obligations.

Who Prepares the Balance Sheet?

Depending on the company, different parties may be responsible for preparing the balance sheet. For small privately-held businesses , the balance sheet might be prepared by the owner or by a company bookkeeper. For mid-size private firms, they might be prepared internally and then looked over by an external accountant.

Public companies, on the other hand, are required to obtain external audits by public accountants, and must also ensure that their books are kept to a much higher standard. The balance sheets and other financial statements of these companies must be prepared in accordance with Generally Accepted Accounting Principles (GAAP) and must be filed regularly with the Securities and Exchange Commission (SEC).

What Are the Uses of a Balance Sheet?

A balance sheet explains the financial position of a company at a specific point in time. As opposed to an income statement which reports financial information over a period of time, a balance sheet is used to determine the health of a company on a specific day.

A bank statement is often used by parties outside of a company to gauge the company's health. Banks, lenders, and other institutions may calculate financial ratios off of the balance sheet balances to gauge how much risk a company carries, how liquid its assets are, and how likely the company will remain solvent.

A company can use its balance sheet to craft internal decisions, though the information presented is usually not as helpful as an income statement. A company may look at its balance sheet to measure risk, make sure it has enough cash on hand, and evaluate how it wants to raise more capital (through debt or equity).

What Is the Balance Sheet Formula?

In accounting, the footing is the final balance obtained by adding all the debits and credits. A balance sheet, an important financial tool, calculates a company's assets with its liabilities and equity. Total assets are calculated as the sum of all short-term, long-term, and other assets. Total liabilities are calculated as the sum of all short-term, long-term, and other liabilities. Total equity is calculated as the sum of net income, retained earnings, owner contributions, and shares of stock issued. The formula is: total assets = total liabilities + total equity.

Harvard Business School Online. " How to Prepare a Balance Sheet: 5 Steps for Beginners ."

Cambridge Dictionary. " Par Value ."

U.S. Securities and Exchange Commission. " Standard Taxonomies ."

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• Financial Statements: List of Types and How to Read Them 4 of 37
• Balance Sheet: Explanation, Components, and Examples 5 of 37
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• 5 Must-Have Metrics for Value Investors 8 of 37
• Earnings Per Share (EPS): What It Means and How to Calculate It 9 of 37
• P/E Ratio Definition: Price-to-Earnings Ratio Formula and Examples 10 of 37
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Understanding a Balance Sheet (With Examples and Video)

Frances McInnis

Reviewed by

May 3, 2024

This article is Tax Professional approved

Balance sheets can help you see the big picture: the net worth of your small business, how much money you have, and where it’s kept. They’re also essential for getting investors, securing a loan , or selling your business.

So you definitely need to know your way around one. That’s where this guide comes in. We’ll walk you through balance sheets, one step at a time.

I am the text that will be copied.

What is a balance sheet?

The balance sheet is one of the three main financial statements , along with the income statement and cash flow statement .

While income statements and cash flow statements show your business’s activity over a period of time, a balance sheet gives a snapshot of your financials at a particular moment. It incorporates every journal entry since your company launched. Your balance sheet shows what your business owns (assets), what it owes (liabilities) , and what money is left over for the owners ( owner’s equity ).

Because it summarizes a business’s finances, the balance sheet is also sometimes called the statement of financial position. Companies usually prepare one at the end of a reporting period, such as a month, quarter, or year.

The purpose of a balance sheet

Because the balance sheet reflects every transaction since your company started, it reveals your business’s overall financial health. Investors, business owners, and accountants can use this information to give a book value to the business, but it can be used for so much more.

At a glance, you’ll know exactly how much money you’ve put in, or how much debt you’ve accumulated. Or you might compare current assets to current liabilities to make sure you’re able to meet upcoming payments.

The information in your company’s balance sheet can help you calculate key financial ratios, such as the debt-to-equity ratio, a metric which shows the ability of a business to pay for its debts with equity (should the need arise). Even more immediately applicable is the current ratio : current assets / current liabilities. This will tell you whether you have the ability to pay all your debts in the next 12 months.

You can also compare your latest balance sheet to previous ones to examine how your finances have changed over time. You’ll be able to see just how far you’ve come since day one.

Further reading: How to Read a Balance Sheet

A simple balance sheet template

You can download a simple balance sheet template here . You record the account name on the left side of the balance sheet and the cash value on the right.

What goes on a balance sheet

At a high level, a balance sheet works the same way across all business types. They are organized into three categories: assets, liabilities, and owner’s equity.

Let’s start with assets—the things your business owns that have a dollar value.

List your assets in order of liquidity , or how easily they can be turned into cash, sold or consumed. Bank accounts and other cash accounts should come first followed by fixed assets or tangible assets like buildings or equipment with a useful life longer than a year. Even intangible assets like intellectual properties, trademarks, and copyrights should be included. Anything you expect to convert into cash within a year are called current assets.

Current assets include:

• Money in a checking account
• Money in transit (money being transferred from another account)
• Accounts receivable (money owed to you by customers)
• Short-term investments
• Prepaid expenses
• Cash equivalents (currency, stocks, and bonds)

Long-term assets (or non-current assets), on the other hand, are things you don’t plan to convert to cash within a year.

Long-term assets include:

• Buildings and land
• Machinery and equipment (less accumulated depreciation )
• Intangible assets like patents, trademarks, copyrights, and goodwill (you would list the market value of what fair price a buyer might purchase these for)
• Long-term investments

Let’s say you own a vegan catering business called “Where’s the Beef”. As of December 31, your company assets are: money in a checking account, an unpaid invoice for a wedding you just catered, and cookware, dishes and utensils worth $900. Here’s how you’d list your assets on your balance sheet:

Liabilities

Next come your liabilities—your business’s financial obligations and debts.

List your liabilities by their due date. Just like assets, you’ll classify them as current liabilities (due within a year) and non-current liabilities (the due date is more than a year away). These are also known as short-term liabilities and long-term liabilities.

Your current liabilities might include:

• Accounts payable (what you owe suppliers for items you bought on credit)
• Wages you owe to employees for hours they’ve already worked
• Loans that you have to pay back within a year
• Credit card debt

And here are some non-current liabilities:

• Loans that you don’t have to pay back within a year
• Bonds your company has issued

Returning to our catering example, let’s say you haven’t yet paid the latest invoice from your tofu supplier. You also have a business loan, which isn’t due for another 18 months.

Here are Where’s the Beef’s liabilities:

Equity is money currently held by your company. This category is usually called “owner’s equity” for sole proprietorships and “stockholders’ equity” or “shareholders’ equity” for corporations. It shows what belongs to the business owners and the book value of their investments (like common stock, preferred stock, or bonds).

Owners’ equity includes:

• Capital (the amount of money invested into the business by the owners)
• Private or public stock
• Retained earnings (all your revenue minus all your expenses and distributions since launch)

Equity can also drop when an owner draws money out of the company to pay themself, or when a corporation issues dividends to shareholders.

For Where’s the Beef, let’s say you invested $2,500 to launch the business last year, and another $2,500 this year. You’ve also taken $9,000 out of the business to pay yourself and you’ve left some profit in the bank.

Here’s a summary of Where’s the Beef’s equity:

The balance sheet equation

This accounting equation is the key to the balance sheet:

Assets = Liabilities + Owner’s Equity

Assets go on one side, liabilities plus equity go on the other. The two sides must balance—hence the name “balance sheet.”

It makes sense: you pay for your company’s assets by either borrowing money (i.e. increasing your liabilities) or getting money from the owners (equity).

A sample balance sheet

We’re ready to put everything into a standard template ( you can download one here ). Here’s what a sample balance sheet looks like, in a proper balance sheet format:

Nice. Your balance sheet is ready for action.

Great. Now what do I do with it?

Because the balance sheet reflects every transaction since your company started, it reveals your business’s overall financial health. At a glance, you’ll know exactly how much money you’ve put in, or how much debt you’ve accumulated. Or you might compare current assets to current liabilities to make sure you’re able to meet upcoming payments.

You can also compare your latest balance sheet to previous ones to examine how your finances have changed over time. You’ll be able to see just how far you’ve come since day one. If you need help understanding your balance sheet or need help putting together a balance sheet, consider hiring a bookkeeper .

Here’s some metrics you can calculate using your balance sheet:

• Debt-to-equity ratio (D/E ratio): Investors and shareholders are interested in the D/E ratio of a company to understand whether they raise money through investment or debt. A high D/E ratio shows a business relies heavily on loans and financing to raise money.
• Working capital : This metric shows how much cash you would hold if you paid off all your debts. It signals to investors and lenders how capable you are to pay down your current liabilities.
• Return on Assets: A formula for calculating how much net income is being earned relative to the assets owned. The more income earned relative to the amount of assets, the higher performing a business is considered to be.

Next, we’ll cover the three most important ratios that you can calculate using your balance sheet: the current ratio, the debt-to-equity ratio, and the quick ratio.  

The current ratio

Can your company pay its debts? The current ratio measures the liquidity of your company—how much of it can be converted to cash, and used to pay down liabilities. The higher the ratio, the better your financial health in terms of liquidity .

The ratio for finding your current ratio looks like this:

Current Ratio = Current Assets / Current Liabilities

You should aim to maintain a current ratio of 2:1 or higher. Meaning, your company holds twice as much value in assets as it does in liabilities. If you had to, you could pay off all the money you owe two times over.

Once you drop below a current ratio of 2:1, your liquidity isn’t looking so good. And if you dip below 1:1, you’re entering hot water. That means you don’t have enough liquidity to pay off your debts.

You can improve your current ratio by either increasing your assets or decreasing your liabilities.

The quick ratio

Also called the acid test ratio, the quick ratio describes how capable your business is of paying off all its short-term liabilities with cash and near-cash assets. In this case, you don’t include assets like real estate or other long-term investments. You also don’t include current assets that are harder to liquidate, like inventory. The focus is on assets you can easily liquidate.

Here’s how you get the quick ratio:

Quick Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities

If your ratio is 1:1 or better, you’re sitting pretty. That means you’ve got enough quick-to-liquidate assets to cover all your short term liabilities in a pinch.

The debt-to-equity ratio

Similar to the current ratio and quick ratio, the debt-to-equity ratio measures your company’s relationship to debt. Only, in this case, the key value is your total equity.

This ratio tells you how much your company depends upon equity to keep running versus how much it depends on outside lenders. It’s calculated like this:

Debt to Equity Ratio = Total Outside Liabilities / Owner or Shareholders’ Equity

Generally speaking, a 2:1 ratio is considered acceptable. If the ratio gets bigger, you start running into trouble. It means your business relies heavily on debt to keep running, which turns off investors. The higher the ratio, the higher the chance that, in the event you need to pay off your debt, you’ll use up all your earnings and cash flows—and investors will end up empty-handed.

Examples of balance sheet analysis

We’ll do a quick, simple analysis of two balance sheets, so you can get a good idea of how to put financial ratios into play and measure your company’s performance.

Annie’s Pottery Palace, a large pottery studio, holds a lot of its current assets in the form of equipment—wheels and kilns for making pottery. Accounts receivable play a relatively minor role.

Liabilities are few—a small loan to pay off within the year, some wages owed to employees, and a couple thousand dollars to pay suppliers.

Annie’s is a single-member LLC—there are no shareholders, so her equity includes only her initial investment, retained earnings, and Annie’s draw($4,000).

Ratio analysis:

Current ratio: 22,000 / 7,000 = 3.14:1

Annie’s current ratio is very healthy. If necessary, her current assets could pay off her current liabilities more than three times over.

Quick ratio: 6,000 / 7,000 = 0.85:1

Her quick ratio isn’t looking so hot, though. Annie’s currently sitting just below 1:1, meaning she wouldn’t be able to quickly pay off debt.

Debt-to-equity ratio: 7,000 / 15,000 = 0.46:1

Annie’s debt-to-equity looks good. She’s got more than twice as much owner’s equity than she does outside liabilities, meaning she’s able to easily pay off all her external debt.

Final analysis:

Annie is able to cover all of her liabilities comfortably—until we take her equipment assets out of the picture. Most of her assets are sunk in equipment, rather than quick-to-cash assets. With this in mind, she might aim to grow her easily liquidated assets by keeping more cash on hand in the business checking account.

That being said, her owner’s equity is more than capable of covering her debt, so this problem shouldn’t be difficult to fix. It would be wise for Annie to take care of it before applying for loans or bringing on investors.

Example balance sheet analysis: Bill’s Book Barn LTD.

A lot of Bill’s assets are tied up in inventory—his large collection of books. The rest mostly consists of long-term investments and intangible assets. (Bill’s Book Barn is famous among collectors of rare fly-tying manuals; a business consultant valued his list of dedicated returning customers at $10,000.)

He doesn’t have a lot of liabilities compared to his assets, and all of them are short-term liabilities. Meaning, he’ll need to pay off that $17,000 within a year.

Finally, since Bill is incorporated, he has issued shares of his business to his brother Garth. Currently, Garth holds a $12,000 share in the business, a little shy of half its total equity.

Ratio analysis

Current ratio: 30,000 / 17,000 = 1.76:1

Since long-term investments and intangible assets are tough to liquidate, they’re not included in current assets—meaning Bill has $30,000 in assets he can more or less easily use to cover his liabilities. His ratio of 1.76:1 isn’t great—it doesn’t leave much wiggle room if he wants to pay off his liabilities. But it isn’t terrible, either—he’s just shy of a healthy 2:1 ratio.

Quick ratio: 7,000 / 17,000 = 0.41:1

Bill’s quick ratio is pretty dire—he’s well short of paying off his liabilities with cash and cash equivalents, leaving him in a bind if he needs to take care of that debt ASAP.

Debt-to-equity ratio: 17,000 / 15,000 = 1.13:1

Once we take into account his $13,000 owner’s draw, Bill’s owner’s equity comes to just $15,000, shy of his $17,000 in debt. Remember, an acceptable debt-to-equity ratio is 2:1. Bill is falling short of acceptable; if he had to pay off all his debts quickly, his equity wouldn’t cover it, and he’d need to dip into his company’s income. That makes his business unattractive to potential investors. Unless he changes course, Bill will have trouble getting financing for his business in the future.

Summary Analysis

Bill’s ratios don’t look great, but there’s hope. If he starts liquidating some of his long-term investments now, he can bump his current ratio up to 2:1, meaning he’d be in a healthy position to pay off liabilities with his current assets.

His quick ratio will take more work to improve. A lot of Bill’s assets are tied up in inventory. If he could convert some of that inventory to cash, he could improve his ability to pay of debt quickly in an emergency. He may want to take a look at his inventory, and see what he can liquidate. Maybe he’s got shelves full of books that have been gathering dust for years. If he can sell them off to another bookseller as a lot, maybe he can raise the $10,000 cash to become more financially stable.

Finally, unless he improves his debt-to-equity ratio, Bill’s brother Garth is the only person who will ever invest in his business. The situation could be improved considerably if Bill reduced his $13,000 owner’s draw. Unfortunately, he’s addicted to collecting extremely rare 18th century guides to bookkeeping. Until he can get his bibliophilia under control, his equity will continue to suffer.

Balance sheets can tell you a lot of information about your business, and help you plan strategically to make it more liquid, financially stable, and appealing to investors. But unless you use them in tandem with income statements and cash flow statements, you’re only getting part of the picture. Learn how they work together with our complete guide to financial statements .

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Balance Sheets 101: What Goes On a Balance Sheet?

• 09 Jun 2016

A balance sheet is one of the primary statements used to determine the net worth of a company and get a quick overview of its financial health. The ability to read and understand a balance sheet is a crucial skill for anyone involved in business, but it’s one that many people lack.

What Is a Balance Sheet?

A balance sheet provides a snapshot of a company’s financial performance at a given point in time. This financial statement is used both internally and externally to determine the so-called “book value” of the company, or its overall worth.

Balance sheets are typically prepared and distributed monthly or quarterly depending on the governing laws and company policies. Additionally, the balance sheet may be prepared according to GAAP or IFRS standards based on the region in which the company is located.

The balance sheet is just a more detailed version of the fundamental accounting equation—also known as the balance sheet formula—which includes assets , liabilities , and shareholders’ equity .

The Balance Sheet Equation

Balance sheets are typically organized according to the following formula:

Assets = Liabilities + Owners’ Equity

The formula can also be rearranged like so:

Owners’ Equity = Assets - Liabilities or Liabilities = Assets - Owners’ Equity

A balance sheet must always balance; therefore, this equation should always be true.

You’ve probably heard at least some of these terms before. But what do they actually mean and include? Let’s break it down. Below, we’ll explore what exactly goes on a balance sheet.

What Goes on a Balance Sheet?

The assets are the operational side of the company. Basically, a list of what the company owns . Everything listed is an item that the company has control over and can use to run the business.

The left side of the balance sheet is the business itself, including the buildings, inventory for sale, and cash from selling goods. If you were to take a clipboard and record everything you found in a company, you would end up with a list that looks remarkably like the left side of the balance sheet. The assets are what allow the company to run.

Assets can be further categorized as either current assets or fixed (non-current) assets. Some of the most common current assets include:

• Cash and cash equivalents
• Accounts receivable
• Short-term marketable securities

Common fixed or non-current assets include:

• Property and equipment
• Long-term marketable securities
• Intangible assets such as patents, licenses, and goodwill

Assets will typically be presented as individual line items, such as the examples above. Then, current and fixed assets are subtotaled and finally totaled together.

2. Liabilities

Liabilities and equity make up the right side of the balance sheet and cover the financial side of the company. This is a list of what the company owes. With liabilities, this is obvious—you owe loans to a bank, or repayment of bonds to holders of debt. The interest rates are fixed and the amounts owed are clear. Liabilities are listed at the top of the balance sheet because, in case of bankruptcy, they are paid back first before any other funds are given out.

Similar to assets, liabilities are categorized as current and non-current liabilities. Common current liabilities include:

• Accounts payable
• Salaries and wages payable
• Deferred revenue
• Commercial paper
• Accrued expenses
• Short-term debt

Non-current liabilities include:

• Long-term debt
• Long-term lease obligations

Liabilities are presented as line items, subtotaled, and totaled on the balance sheet.

Below liabilities on the balance sheet is equity, or the amount owed to the owners of the company. Since they own the company, this amount is intuitively based on the accounting equation—whatever assets are left over after the liabilities have been accounted for must be owned by the owners, by equity. These are listed at the bottom of the balance sheet because the owners are paid back after all liabilities have been paid.

Unlike liabilities, equity is not a fixed amount with a fixed interest rate. Any time the value of assets change—perhaps you receive more in cash from a sale than the value of the inventory you sold, or you were forced to write down a truck that was involved in a collision and no longer works—the value of equity changes.

Because the value of liabilities is constant, all changes to assets must be reflected with a change in equity. This is also why all revenue and expense accounts are equity accounts, because they represent changes to the value of assets.

Common line items in the equity section of the balance sheet include:

• Common stock
• Preferred stock
• Treasury stock
• Retained earnings

Together, these line items make up total shareholders’ equity.

To recap, you’ll find the assets (what’s owned) on the left of the balance sheet, liabilities (what’s owed) and equity (the owners’ share) on the right, and the two sides remain balanced by adjusting the value of equity.

The Language of Business

It’s commonly held that accounting is the language of business. Understanding and analyzing key financial statements like the balance sheet , income statement, and cash flow statement is critical to painting a clear picture of a business’s past, present, and future performance. Knowing what goes into preparing these documents can also be insightful.

On a more granular level, the fundamentals of financial accounting can shed light on the performance of individual departments, teams, and projects. Whether you’re looking to understand your company’s balance sheet or create one yourself, the information you’ll glean from doing so can help you make better business decisions in the long run.

Want to learn more about what’s behind the numbers on financial statements? Explore our eight-week online course Financial Accounting —one of our online finance and accounting courses —to learn the key financial concepts you need to understand business performance and potential.

(This post was updated on January 31, 2023. It was originally published on June 9, 2016.)

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Business Plan Balance Sheet: Everything You Need to Know

Preparing a business plan balance sheet is an important part of starting your own business. 3 min read updated on February 01, 2023

Preparing a business plan balance sheet is an important part of starting your own business. The balance sheet serves as one of three crucial parts of the company's financials along with cash flow and the income statement. The basics of the balance sheet include a few straightforward parts:

• Company assets.
• Liabilities.
• Owner's equity.

The balance sheet will also include income and spending that isn't represented in the profit and loss statement. For example, it will show loan repayments and the purchase of new assets. Additionally, the money that is taken in as a new loan will not show up on the P & L either.

Accounts receivable, or the money you are waiting to receive from your customers, will show up as an asset on your balance sheet and as it is not yet reported as income on your P & L statement. A balance sheet is your business's representation of why your profits are not yet considered cash. It creates the broad financial picture of your business while the profit and loss statement will show the company's financial performance over a set length of time.

A balance sheet always has to balance. It will have assets on one side and liabilities and equity on the other. The basic formula that a balance sheet follows is Assets = Liabilities + Equity. In the end, it is the balance sheet that will show a company's net worth. To determine net worth at any given time, all you need to do is subtract the liabilities from the assets.

Balance sheets are used for planning and not accounting which is one of the principles of lean business planning. To get a useful cash flow projection, you will need to summarize the aggregate of the rows on the balance sheet. It is always important to look at a balance sheet as a tool to forecast your cash.

Components of a Balance Sheet

Just as one business will differ from another, so will the assets and liabilities of the business. Even though the titles will vary, the equation and goal remains the same. You will need to have your business assets equal your liabilities and equity .

The assets on your balance sheet will often be in order from the top to the bottom with how easy they can be converted to cash. This is called liquidity . Your most liquid assets will be on top and your least liquid on the bottom. Typically assets will be listed as follows:

• Cash — This is money currently on hands such as in checking and savings accounts. It can also include money market accounts that can be converted to cash quickly.
• Accounts Receivable — This represents money that is owed to you but has not actually been received yet. This is often credit that is extended to customers through invoicing.
• Inventory — This includes all the finished goods and materials that are ready at your place of business but has yet to be sold.
• Current Assets — These are assets that can be considered able to be converted into cash within a year or less. This includes all your cash, accounts receivable, and inventory which will all be grouped together as current assets.
• Long-Term Assets — These are fixed assets that have a long-standing value such as land and equipment. They cannot be converted to cash as quickly.
• Accumulated Depreciation — This is the value that your assets will be reduced over time due to depreciation.
• Long-Term Assets — This is the total of long-term assets plus depreciation.

Liabilities

Liabilities will be ordered for time it would take to pay them off, with current liabilities needing to be paid in a year or less and long-term liabilities longer than a year.

• Accounts Payable — This is the amount of money that your business will owe to vendors or for regular bills.
• Sales Tax Payable — If your sales tax is not paid right away, it will accrue in this account until payment is made.
• Short-Term Debt — This is usually short-term loans that will be repaid in less than a year.
• Total Current Liabilities — The total amount of debt that the business will need to pay back in a year.
• Long-Term Debt — This amount includes the financial responsibilities that will take more than a year to pay back.

If you need help with a business plan balance sheet, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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What Is a Balance Sheet, and How Do You Read It?

Posted january 31, 2019 by noah parsons.

Every business plan should include three key financial statements: a profit and loss statement, a cash flow statement, and a balance sheet.

The balance sheet is the statement that is most often misunderstood, which is problematic because it is also the most useful of the three statements. If you’re building or running a business, you’ll need to know how to read and understand your balance sheet.

What is a balance sheet?

Your balance sheet is a financial statement that summarizes your company’s assets (what you own), your liabilities (what you owe), and equity (money invested into the business, plus profits).

The balance sheet doesn’t show trends, but instead shows the financial state of a company at a specific point in time.

The balance sheet always follows this formula:

Assets = Liabilities + Equity

Reading and understanding your balance sheet

Balance sheets get their name from the fact that they always have to balance out, based on the formula above.

Assets must always equal liabilities plus equity. This might sound complicated at first, but it’s actually pretty straightforward: A company needs to pay for the things it owns (assets) by either borrowing money (liabilities) or getting money from investors and profits (equity).

Let’s look at an example so you can see how this works. If your business gets a $10,000 loan from the bank, you now have $10,000 in cash in your business bank account. This is your asset.

But, you also now owe the bank $10,000 which is your liability. The two sides of the equation balance out because the money you owe equals the amount of money that you have added to your bank account.

$10,000 cash (asset) = $10,000 loan (liability)

If you also get a $5,000 investment, your assets will increase as you add that cash to your bank account, but equity will also increase because investors now own a piece of the company.

$15,000 cash (asset) = $10,000 loan (liability) + $5,000 investment (equity)

Equity will also include all revenues the company generates in excess of its liabilities. These revenues will also show up on the assets side, appearing as cash, investments, inventory, or some other asset.

The three categories here (assets, liabilities, and equity) are each made up of various sub-accounts. Depending on your industry, there can be different accounts in each section. Below, we’ll define some of the most common things you’ll see in each section.

What’s included in assets?

Assets are divided into two primary groups: current assets and long-term assets .

Current assets can be converted into cash in a year or less. They typically include cash, stocks, accounts receivable , prepaid expenses, and inventory.

Fixed assets are tangible assets that are for long-term use, such as equipment, machinery, vehicles, land and buildings, furniture and fixtures, and leasehold improvements.

What’s included in liabilities?

Liabilities are the money that a business owes to other people or businesses. These could be bills, loans, deferred taxes, and so on. Just like assets, liabilities are divided into current and long-term groups.

Current liabilities are business obligations due within one year. These typically include short-term loans (including lines of credit), current maturities of long-term debt, accounts payable , accrued payroll and other expenses, and taxes payable.

Long-term liabilities are business obligations that are due outside of one year, such as any bank debt or shareholder loans with maturities longer than one year.

What’s included in equity?

The  equity section of the balance sheet is the sum of all shareholder/owner money invested in the business plus accumulated business profits.

Example of a balance sheet

What does a balance sheet typically look like? Check out this example from LivePlan.

How to use the balance sheet

Find your net worth. Your balance sheet can provide a wealth of useful information to help improve your financial management. For example, you can determine your company’s net worth by subtracting your balance sheet liabilities from your assets.

Spot potential cash issues . Perhaps the most useful aspect of your balance sheet is its ability to alert you to potential cash shortages. You can look at the amount of cash you have in the bank and quickly see how much you owe your vendors (accounts payable). If your accounts payable number is greater than the amount of cash you have on hand, you’ll need to have a plan for either increasing the amount of cash you have or paying your bills more slowly over time.

There are two easy-to-figure-out ratios that can be computed from the balance sheet to help determine whether your company will have sufficient cash to meet current financial obligations:

Current ratio

The current ratio measures liquidity to show whether your company has enough current (i.e., liquid) assets on hand to pay bills on-time and run operations effectively. It is expressed as the number of times current assets exceed current liabilities.

The higher the current ratio, the better. A current ratio of 2:1 is generally considered acceptable for inventory-carrying businesses, although industry standards can vary widely. The acceptable current ratio for a retail business, for example, is different from that of a manufacturer.

Current Assets / Current Liabilities

Quick ratio

Quick ratio is similar to the current ratio but excludes inventory. A quick ratio of 1.5:1 is generally desirable for non-inventory-carrying businesses, but—just as with current ratios—desirable quick ratios differ from industry to industry.

Current Assets – Inventory / Current Liabilities

You can use industry benchmark tools, such as the ones found in LivePlan, to determine if your balance sheet ratios are in-line with your industry averages.

When you’re creating a forecast for your business, it’s generally much easier to use a tool like LivePlan to create your balance sheet for you; You can also download our free Balance Sheet Template and build one on your own.

If you have any questions, please feel free to reach me on Twitter @noahparsons.

For more business concepts made simple, check out these articles on direct costs , cash burn rate , net profit , operating margin , accounts payable , accounts receivable , cash flow , profit and loss statement , and expense budgeting .

Editor’s note: This article originally published in 2016. It was updated in 2019. 

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Original text

Creating a balance sheet can be a challenging task for small business owners. Especially if you’re not schooled in finance and do not fully understand the in’s and out’s of financial statements, you may feel uncertain at first.

In this post, I’ll cover what a balance sheet is, how it benefits your business, and the important sections you need to include.

What is a balance sheet.

A balance sheet is one of the three primary financial statements used to monitor the health of your business, along with your cash flow statement and the income statement. 

Your balance sheet should be included as part of your business plan.  Think of it as a snapshot of your company’s financial position — what you own and what you owe — at a singular point in time, like at the end of a month, quarter or year.

The things you own are called assets , such as cash in the bank, inventory, vehicles, equipment, buildings, and accounts receivable, which is money customers owe you for sales made but not yet paid for.

The items you owe are called liabilities , such as accounts payable, which are purchases you have made but not yet paid for; taxes you owe, including sales, payroll, general purpose loans; and mortgages.

The difference between what you own (assets) and what you owe (liabilities) is called net worth or owner’s equity. In other words, after all the bills have been paid and all obligations have been satisfied, any value remaining belongs to the owners.

What is the benefit of having a balance sheet for your business?

At a glance, the balance sheet will give you an idea if your business has the financial resources to expand and manage the normal swings in receiving and spending cash or if it needs immediate attention to bolster cash reserves.

In terms of operational management, the balance sheet provides insights where cash needs to be collected, inventory managed and bills paid.

How can you use a balance sheet to manage your business?

To use a balance sheet to manage your business, first look at your current and fixed assets.

Current assets can be converted into cash within the next 12 months:

• Cash in the bank: Keeping track of cash and projecting what it will be in one to four weeks lets you know if you have sufficient funds to make payroll, pay your bills, and pay yourself.  
• Accounts receivable (A/R): You made the sale and incurred the cost of providing the product or service and are now waiting to be paid. Use your balance sheet to track if customers are paying on time or if you need to call and remind them payment is due. If you know that customers are late on payments, you might consider holding off on subsequent sales. Some companies encourage prompt payment by offering a discount. The listing of when payments are due is called an accounts receivable aging statement. A financial ratio to help manage A/R is called days’ sales outstanding.  
• Inventory: If your business has inventory, you need to ensure you can meet projected sales and not have too much left over. A manufacturing business might have three levels of inventory, each of which needs to be managed — raw material, in-process, and finished product — while a retail clothing business needs to track inventory by style and size. A financial ratio to help manage inventory is called inventory turnover.

Fixed assets will be around for more than 12 months:

• Vehicles, equipment, and buildings: You need to track these for insurance purposes and probably depreciate the expense for tax purposes.  

Now let’s look at your liability accounts.

The first three types of liabilities are known as current liabilities , as they are usually due within the next 12 months.

• Accounts payable (A/P): Having vendors that allow you to pay on credit is wonderful. Track these obligations, and make sure you pay on time. If that’s not possible, contact the vendor, and let them know when you will make payment. Vendors often provide discounts for prompt payment, so if you have the funds, do not miss the payment date. Purchases charged to your credit card are included in this section.
• Taxes: Keep track of sales tax collected from customers. This is not your money; you are the tax collecting agent for the government. Payroll taxes withheld from employee paychecks are also not your money. If you are using a payroll service (highly recommended), they should be handling this for you. Some jurisdictions collect personal property and real property taxes, and depending on your form of legal organization (e.g., sole proprietorship, LLC, corporation), you may also have company state and federal income tax obligations.
• Loans: If you have any loans in which payments are due within the next 12 months, they are listed here. Do not miss any payment dates, as in some cases, this might cause your loan to go into default.
• Long-term loans : This includes mortgages where payment is due in more than 12 months.

A financial ratio that combines current assets and current liabilities is called current ratio (current assets divided by current liabilities). The ratio should be greater than 1, which demonstrates you have the financial resources to pay your bills.

The third section of the balance sheet shows your net worth .

Besides the personal satisfaction of knowing you are worth more each year, bank loans often have stipulations that net worth must be kept at a certain level, so you need to track your net worth to ensure you’re not in default.

Sample Balance Sheet

Here’s an example of a simplified balance sheet that shows a snapshot of a business on March 31, 2016:  

Current Assets                                                                      Current Liabilities

Cash                                        $  75,000         Accounts Payable                             $ 50,000

Accounts Receivable              $125,000         Taxes Owing                                     $ 20,000

Inventory                                $  50,000

Total Current Assets             $250,000         Total Current Liabilities               $ 70,000

Fixed Assets                                                   Long-Term Liabilities

Vehicles, Equipment              $100,000         Loans and Mortgage                       $100,000

                                                                  Net Worth                                     $180,000

Total Assets                           $350,000          Total Liabilities and Net Worth $350,000

Note that at $350,000, total assets equal total liabilities, plus net worth. From this example, we see that the $350,000 in assets has been financed with $170,000 from others and $180,000 from the owners.

Key Lessons

• The balance sheet is one of the primary financial statements that can be used to manage your business on both a long-term and daily basis.
• While you may delegate the preparation of the balance sheet to an accountant or bookkeeper, it represents your business, so you should understand how to read it and use it.

Financial Statement Facts for Business Owners If you ever need bank financing, angel investors, venture capital or even a loan from friends and family, these are things you should know about financial statements.

Balance Sheet Projection Template Projecting your balance sheet can be quite a complex accounting problem, but that does not mean you need to be a professional accountant to do it or to benefit from the exercise. The desired result is not a perfect forecast, but rather a thoughtful plan detailing what additional resources will be needed by the company, where they will be needed, and how they will be financed.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

Balance Sheet

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on March 17, 2023

Get Any Financial Question Answered

Table of contents, what is a balance sheet.

A balance sheet is a financial statement that shows the relationship between assets , liabilities , and shareholders’ equity of a company at a specific point in time.

Measuring a company’s net worth, a balance sheet shows what a company owns and how these assets are financed, either through debt or equity .

Balance sheets are useful tools for individual and institutional investors, as well as key stakeholders within an organization, as they show the general financial status of the company.

It is also possible to grasp the information found in a balance sheet to calculate important company metrics, such as profitability, liquidity, and debt-to-equity ratio.

However, it is crucial to remember that balance sheets communicate information as of a specific date. Naturally, a balance sheet is always based upon past data.

While stakeholders and investors may use a balance sheet to predict future performance, past performance does not guarantee future results.

In order to see the direction of a company, you will need to look at balance sheets over a time period of months or years.

How Balance Sheets Work

A balance sheet is guided by the accounting equation:

Both parts should be equal to each other or balance each other out. This means that the assets of a company should equal its liabilities plus any shareholders’ equity that has been issued. Hence, a balance sheet should always balance.

For instance, if a company takes out a ten-year, $8,000 loan from a bank, the assets of the company will increase by $8,000. Its liabilities will also increase by $8,000, balancing the two sides of the accounting equation .

If the company takes $10,000 from its investors, its assets and stockholders’ equity will also increase by that amount.

The revenues of the company in excess of its expenses will go into the shareholder equity account.

These revenues will be balanced on the asset side of the equation, appearing as inventory, cash , investments , or other assets.

Components of a Balance Sheet

A balance sheet has three primary components: assets, liabilities, and shareholders’ equity.

Assets are anything the company owns that holds some quantifiable value, which means that they could be liquidated and turned into cash.

These can include cash, investments, and tangible objects.

Companies divide their assets into two categories: current assets and noncurrent (long-term) assets.

Current Assets

Current assets are typically those that a company expects to convert easily into cash within a year.

These assets include cash and cash equivalents, prepaid expenses, accounts receivable, marketable securities, and inventory.

Non-Current Assets

Noncurrent assets are long-term investments that the company does not expect to convert into cash within a year or have a lifespan of more than one year.

Noncurrent assets include tangible assets , such as land, buildings, machinery, and equipment.

They can also be intangible assets, such as trademarks, patents, goodwill, copyright , or intellectual property.

Liabilities

Liabilities are anything a company owes. These are loans, accounts payable, bonds payable, or taxes.

Like assets, liabilities can be classified as either current or noncurrent liabilities.

Current Liabilities

Current liabilities refer to the liabilities of the company that are due or must be paid within one year.

This may include accounts payables, rent and utility payments, current debts or notes payables, current portion of long-term debt, and other accrued expenses.

Noncurrent Liabilities

Noncurrent or long-term liabilities are debts and other non-debt financial obligations that a company does not expect to repay within one year from the date of the balance sheet.

This may include long-term loans, bonds payable, leases, and deferred tax liabilities.

Shareholder’s Equity

Shareholder’s equity is the net worth of the company and reflects the amount of money left over if all liabilities are paid, and all assets are sold.

Shareholders’ equity belongs to the shareholders, whether public or private owners.

Retained Earnings

Shareholders’ equity reflects how much a company has left after paying its liabilities.

If the company wanted to, it could pay out all of that money to its shareholders through dividends . However, the company typically reinvests the money into the company.

Retained earnings are the money that the company keeps.

Share Capital

Share capital is the value of what investors have invested in the company.

For instance, if someone invests $200,000 to help you start a company, you would count that $200,000 in your balance sheet as your cash assets and as part of your share capital.

Stocks can be common or preferred stocks .

Common stock is those that people get when they buy stock through the stock market . Preferred stock, on the other hand, provides the shareholder with a greater claim on the company’s assets and earnings.

You can also see treasury stock on a balance sheet. This stock is a previously outstanding stock that is purchased from stockholders by the issuing company.

Example of a Balance Sheet

Below is an example of a balance sheet of Tesla for 2021 taken from the U.S. Securities and Exchange Commission .

As you can see, it starts with current assets, then the noncurrent, and the total of both.

Below the assets are the liabilities and stockholders’ equity, which include current liabilities, noncurrent liabilities, and shareholders’ equity.

For example, this balance sheet tells you:

• The reporting period ends December 31, 2021, and compares against a similar reporting period from the year prior.
• The assets of the company total $62,131, including $27,100 in current assets and $35,031 in noncurrent assets.
• The liabilities of the company total $30,548, including $19,705 in current liabilities and $10,843 in noncurrent liabilities.
• The company retained $331 in earnings during the reporting period, greatly less than the same period a year prior.
• Adhering to the accounting equation, a balance is obtained by the total assets of $62,131 and the combined total liabilities and stockholders’ equity which is $62,131.

It is crucial to note that how a balance sheet is formatted differs depending on where the company or organization is based.

How to Prepare a Balance Sheet

The balance sheet is prepared using the following steps:

Step 1: Determine the Reporting Date and Period

The balance sheet previews the total assets, liabilities, and shareholders’ equity of a company on a specific date, referred to as the reporting date.

Often, the reporting date will be the final day of the reporting period. Companies that report annually, like Tesla, often use December 31st as their reporting date, though they can choose any date.

There are also companies, like publicly traded ones, that will report quarterly. For this case, the reporting date will usually fall on the last day of the quarter:

• Q1: March 31
• Q2: June 30
• Q3: September 30
• Q4: December 31

However, it is common for a balance sheet to take a few days or weeks to prepare after the reporting period has ended.

Step 2: Identify Your Assets

You will need to tally up all your assets of the company on the balance sheet as of that date. This will include both current and noncurrent assets.

Assets are typically listed as individual line items and then as total assets in a balance sheet.

This will make it easier for analysts to comprehend exactly what your assets are and where they came from. Tallying the assets together will be required for final analysis.

Step 3: Identify Your Liabilities

Like assets, you need to identify your liabilities which will include both current and long-term liabilities.

Again, these should be organized into both line items and total liabilities. They should also be both subtotaled and then totaled together.

Step 4: Calculate Shareholders’ Equity

After you have assets and liabilities, calculating shareholders’ equity is done by taking the total value of assets and subtracting the total value of liabilities.

Shareholders’ equity will be straightforward for companies or organizations that a single owner privately holds.

The calculation may be complicated for publicly held companies depending on the various types of stock issued.

Line items in this section include common stocks, preferred stocks, share capital, treasury stocks, and retained earnings.

Step 5: Add Total Liabilities to Total Shareholders’ Equity and Compare to Assets

Adding total liabilities to shareholders’ equity should give you the same sum as your assets. If not, then there may be an error in your calculations.

Causes of a balance sheet not truly balancing may be:

• Errors in inventory
• Incorrectly entered transactions
• Incomplete or misplaced data
• Miscalculated loan amortization or depreciation
• Errors in currency exchange rates
• Miscalculated equity calculations

How to Analyze a Balance Sheet

Financial ratio analysis is the main technique to analyze the information contained within a balance sheet.

It uses formulas to obtain insights into a company and its operations.

Using financial ratios in analyzing a balance sheet, like the debt-to-equity ratio, can produce a good sense of the financial condition of the company and its operational efficiency.

It is crucial to remember that some ratios will require information from more than one financial statement, such as from the income statement and the balance sheet.

There are two types of ratios that use data from a balance sheet. These are:

Financial Strength Ratios

Financial strength ratios can provide investors with ideas of how financially stable the company is and whether it finances itself.

It also yields information on how well a company can meet its obligations and how these obligations are leveraged.

Financial strength ratios can include the working capital and debt-to-equity ratios.

Activity Ratios

Activity ratios mainly focus on current accounts to reveal how well the company manages its operating cycle .

These operating cycles can include receivables, payables, and inventory.

Examples of activity ratios are inventory turnover ratio, total assets turnover ratio, fixed assets turnover ratio, and accounts receivables turnover ratio.

These ratios can yield insights into the operational efficiency of the company.

Importance of a Balance Sheet

There are a few key reasons why a balance sheet is important. Here are a few of them:

Balance Sheets Examine Risk

A balance sheet lists all assets and liabilities of a company.

With this information, a company can quickly assess whether it has borrowed a large amount of money, whether the assets are not liquid enough, or whether it has enough current cash to fulfill current demands.

Balance Sheets Secure Capital

A lender will usually require a balance sheet of the company in order to secure a business plan.

Additionally, a company must usually provide a balance sheet to private investors when planning to secure private equity funding.

These are some of the cases in which external parties want to assess and check a company’s financial stability and health, its creditworthiness, and whether the company will be able to settle its short-term debts.

Balance Sheets are Needed for Financial Ratios

Business owners use these financial ratios to assess the profitability, solvency, liquidity , and turnover of a company and establish ways to improve the financial health of the company.

Some financial ratios need data and information from the balance sheet.

Balance Sheets Lure and Retain Talents

Good and talented employees are always looking for stable and secure companies to work in.

Balance sheets that are disclosed from public companies allow employees a chance to review how much the company has on hand and whether the financial health of the company is in accordance with their expectations from their employers.

Limitations of a Balance Sheet

Although balance sheets are important financial statements, they do have their limitations. Here are some of them:

Balance Sheets are Static

It may not provide a full snapshot of the financial health of a company without data from other financial statements.

In order to get a complete understanding of the company, business owners and investors should review other financial statements, such as the income statement and cash flow statement.

Balance Sheets Have a Narrow Scope of Timing

The balance sheet only reports the financial position of a company at a specific point in time.

This may not provide an accurate portrayal of the financial health of a company if the market conditions rapidly change or without knowledge of previous cash balance and understanding of industry operating demands.

Balance Sheets May Be Susceptible to Errors and Fraud

The data and information included in a balance sheet can sometimes be manipulated by management in order to present a more favorable financial position for the company.

Businesses should be wary of companies that have large discrepancies between their balance sheets and other financial statements.

It is also helpful to pay attention to the footnotes in the balance sheets to check what accounting systems are being used and to look out for red flags.

Balance Sheets Are Subject to Several Professional Judgment Areas That Could Impact the Report

For instance, accounts receivable should be continually assessed for impairment and adjusted to reveal potential uncollectible accounts.

A company should make estimates and reflect their best guess as a part of the balance sheet if they do not know which receivables a company is likely actually to receive.

Balance Sheets vs. Income Statements

Here are some key differences between balance sheets and income statements:

The Bottom Line

Balance sheets are important financial statements that provide insights into the assets, liabilities, and shareholders’ equity of a company.

It is helpful for business owners to prepare and review balance sheets in order to assess the financial health of their companies.

Balance sheets also play an important role in securing funding from lenders and investors. Additionally, it helps businesses to retain talents.

Although balance sheets are important, they do have their limitations, and business owners must be aware of them.

Some of its limitations are that it is static, has a narrow scope of timing, and is subject to errors and frauds.

A balance sheet is also different from an income statement in several ways, most notably the time frame it covers and the items included.

It is important to understand that balance sheets only provide a snapshot of the financial position of a company at a specific point in time.

In order to get a more accurate understanding of the company, business owners and investors should review other financial statements, such as the income statement and cash flow statement.

Balance Sheet FAQs

What is included in the balance sheet.

Balance sheets include assets, liabilities, and shareholders' equity. Assets are what the company owns, while liabilities are what the company owes. Shareholders' equity is the portion of the business that is owned by the shareholders.

Who prepares the balance sheet?

The balance sheet is prepared by the management of the company. The auditor of the company then subjects balance sheets to an audit. Balance sheets of small privately-held businesses might be prepared by the owner of the company or its bookkeeper. On the other hand, balance sheets for mid-size private firms might be prepared internally and then reviewed over by an external accountant.

What is the balance sheet formula?

The balance sheet equation is: Assets = Liabilities + Shareholders' Equity

What is the purpose of the balance sheet?

The balance sheet is used to assess the financial health of a company. Investors and lenders also use it to assess creditworthiness and the availability of assets for collateral.

How often are balance sheets required?

Balance sheets are typically prepared at the end of set periods (e.g., annually, every quarter). Public companies are required to have a periodic financial statement available to the public. On the other hand, private companies do not need to appeal to shareholders. That is why there is no need to have their financial statements published to the public.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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How To Prepare a Balance Sheet for a Small Business

A business balance sheet can help you secure a startup loan

What Is a Balance Sheet for a Small Business?

Balance sheet vs. profit and loss statement, why does a business need a balance sheet.

• Preparing a Business Startup Balance Sheet
• Balance Sheet: Before & After a Loan
• Startup Balance Sheet vs P&L

You'll be asked for several specific startup financial statements when you begin a new business. A business balance sheet is one of the most important. Creating one may seem pointless because you don't yet have an ongoing business at this point, but it's still important to state your estimates in writing. A balance sheet achieves this, and it can guide you as well as potential lenders when you apply for a startup loan.

Key Takeaways

• A balance sheet is a clear explanation of what a business owns and what it owns at various points in time.
• A balance sheet includes two sections, one for assets and one for liabilities.
• A balance sheet gives potential lenders a picture of the position of a business as of the startup date so it can be a valuable component in being approved for startup funding.

A balance sheet is a business statement that shows what the business owns, what it owes, and the value of the owner's investment in the business. It's calculated at specific points in time, such as when your business is in the startup phase then at the end of each month, quarter, year, and at the end of the business.

What Are the Parts of a Balance Sheet?

A balance sheet is organized into two sections. The left-hand side typically lists all the company's assets. The second section on the right lists the firm's liabilities as well as owner's equity for a small business or retained earnings for a corporation.

The Accounting Equation

The company's total assets must equal the sum of its total liabilities and total owners' equity. The totals must balance. The accounting equation format is the basis for the layout of a balance sheet: Assets = Liabilities + Owner's Equity. This is referred to as the accounting equation.

A profit and loss statement , sometimes called an income statement, shows the sales and profit activity in a business over time. What was the income and what were the expenses over a certain period of time?

A balance sheet is a snapshot of the business financially at a specific point in time, such as the end of a quarter or year.

The financial picture of a business is ever-changing, so both statements are necessary to give a complete picture of its financial status.

The balance sheet is an important document that provides information for potential lenders who will look for specific information about the business to use in consideration for a startup loan . It's also important to you as the business owner because it gives you a snapshot of the business at various points in time.

The balance sheet shows the financial position of the business as of the startup date for a business startup that doesn't yet have a history. This includes what has actually happened at the current stage of the startup and what will happen before the date the business starts.

Steps To Create a Business Balance Sheet

All the calculations in this spreadsheet are done as of the date of startup.

Value of Assets

First list the value of all the assets in the business as of the startup date. This includes cash, equipment, vehicles, supplies, inventory, prepaid items such as insurance, and the value of any buildings or land owned.

Accounts receivable are typically included as an asset, but there should be no amounts owed to the business because the business hasn't started yet.

Liabilities and Amounts Owed

Next list all liabilities: amounts owed by the business to others. These will include business credit cards, any loans to the business at startup, and any amounts owed to vendors at startup. Add up the total liabilities.

Assets vs. Liabilities

The difference between assets and liabilities is shown on the balance sheet as " Owner's Equity " for an unincorporated business or " Retained Earnings " for a corporation. This amount is your investment in the business.

A Balance Sheet Example: Before and After a Loan

One way to present your balance sheet to a lender is to create two versions: one to show the financial position of your new business before the loan you're requesting and one to show your position after the loan.

The first balance sheet shows that the owner has already invested $13,500 into the business in the form of cash, prepaid insurance, furniture and fixtures. 

Simple Startup Balance Sheet: Before the Loan

 simple startup balance sheet: after the loan.

The second balance shows a $50,000 loan, which is being used to buy an  inventory of products to sell and to add more furniture and fixtures. 

A review of the balance sheet shows that the owner has contributed $13,500 in equity to the startup of the business, mostly in cash, furniture and fixtures.

Offsetting the assets are the liabilities and owner's equity. The current short-term liabilities of $1,000 might be small debts owed to vendors for some of the office furniture. The long-term liabilities and loans would more likely be for product inventory and structures.  

Frequently Asked Questions (FAQs)

Which types of inventories does a manufacturing business report on the balance sheet.

A manufacturing business will typically report four types of inventories on its balance sheets: raw materials, work in progress, finished products, and obsolete inventory .

Where do startup costs go on a balance sheet?

These costs would normally appear as either capital or retained earnings in the equity section of your balance sheet, depending upon whether you're operating as a small business or a corporation .

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Small Business Administration. " 5 Things To Know About Your Balance Sheet ."

Harvard Business School. " How To Read & Understand an Income Statement ."

Profitable Venture Magazine Ltd. " 4 Types of Inventory a Manufacturing Business Report on a Balance Sheet ."

What is a Balance Sheet and why is it important in your Business Plan?

• EntrepreneursGateway.com Team
• November 3, 2018

If you are starting a business or thinking about writing a business plan , you might have heard the term ‘balance sheet’ .

This section will help you understand the basics of the balance sheet and why it’s so important to include it within your business plan.

This article is part of the Business Planning Hub , where you’ll find lots of guides and resources to help you create the perfect business plan!

Table of Contents

Once you understand the basic idea of a balance sheet, it’s pretty easy.

Basically, it shows your company’s:

Liabilities

• Owners’ equity (at a particular time)

A company’s balance sheet shows what that company owns (which is defined as ‘assets’) and what the company owes (also known as ‘liabilities’), as well as how much both the owner and shareholders have invested (which is known as ‘equity’).

And just like it sounds…

A balance sheet will always need to balance!

Assets are shown on one side and both the liabilities and equity are shown on the other side.

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If you think about it logically…

A business needs to pay for all it owns (its assets).

It can do this by either borrowing money (liabilities) or by having the business owners or investor put money into the business (equity).

A balance sheet also gives you an indication of what the company’s net worth is.

To determine what your company’s net worth is, you subtract your liabilities from your assets.

But let’s look deeper into what information should be included in a balance sheet…

And while you’re at it….why not download our FREE Balance Sheet Template?

Below, we will cover:

• The different components of a balance sheet
• Why it’s important to include a balance sheet when you create your business plan
• Examples of a Balance Sheet

#1 Breakdown of a Balance Sheet:

Assets and liabilities differ from business to business – because each one is different. Although titles and item lines may change, the equation won’t .

The assets of a business are reflected by the liabilities plus equity . 

For the purpose of the balance sheet, this means money that is currently available to hand .

In business planning, however, the term ‘cash’ refers to the bank or checking account of the business, also known as ‘Cash and Cash Equivalents’ (CCE). What a cash equivalent is, is basially an asset that is easily converted from liquid to cash.

Accounts Receivable:

This refers to the amount of money that is owing but hasn’t been paid (the ‘receivables’). Typically, this is sales on credit, usually from businesses to business sales.  

Included in this is the value of all-ready materials and finished goods that the business has to hand but isn’t using.

Current Assets:

Inventory, cash, and accounts receivable are all deemed current assets, and often these amounts accumulated are referred to on balance sheets as “Total Current Assets”.

Long-term Assets:

These are also known as “fixed assets” and included are items that have a long-standing value, like equipment or land.

Accumulated Depreciation:

This is where the value of the asset depreciates over time.

An example of this could be a company vehicle; with time, the car becomes less valuable.

Total Long-Term Assets:

On a balance sheet, this usually refers to depreciation or to describe long-term assets.

Accounts Payable:

This is the flip side to ‘accounts receivable’ – in other words, money that the business owes. The accounts payable figure is made up of the regular bills that the business is expected to pay. 

Sales Taxes Payable:

This is only applicable to businesses that don’t immediately pay sales tax. An example could be a business that pays it on a quarterly basis.

Short-Term Debt:

This is usually short-term loans or any debt that needs to be repaid within a year. This is also referred to as current liabilities or short-term loans on balance sheets. 

Total Current Liabilities:

The current liabilities are the above numbers which are added together and which the business must settle within one year.

Long-Term Debt:

These are the financial responsibilities that take over a year to repay. Usually, this is a larger number and won’t include interest. An example could be a long-term loan.

Total Liabilities:

This includes everything outlined above that needs to be paid out or repaid.  

This is money that is paid back into the company as equity investments via the owners.

Retained Earnings:

This covers earnings or losses that have not been paid out as dividends to the owners, and that have been re-invested into the company. If the retained earnings are negative, then this means that the company has accumulated losses.

Net Earnings:

This number is really important. The bigger it is, the more profitable the company is. It is sometimes also referred to as net profit or income. 

Total Owner’s Equity:

This is also referred to as capital as means business ownership. Equity itself can be calculated as being the difference between liabilities and assets. 

Total Liabilities and Equity:

This is what was outlined at the beginning of this article:

assets = liabilities + equity

#2 How to use a Balance Sheet

The importance of a balance sheet in your business plan.

It is vital to include a balance sheet within any business plan, as it is a really important part of the financials. 

The three indispensable aspects of business financials are the cash flow statement , the income statement , and the balance sheet. 

These enable anyone looking at the numbers to get a solid overview of how the business is functioning financially.

The balance sheet will also illustrate how much assets are worth and whether the company is in debt – all being information which is critical in creating a business plan and managing a business. 

One of the key powers your balance sheet has is to flag up if you have any cash flow issues.

There are two ratios that can be calculated from the balance sheet which are easy to understand. These ratios will show whether or not your business will have enough cash flow for meeting any current financial obligations. These are:

Current Ratio

Quick ratio.

Current ratio is also known as a liquidity ratio . What this means is whether or not your business has enough current assets (liquid) available to pay for expenses such as bills and operational costs. It’s used to measure your short-term health of the business.

We express this as being the number of times the current assets exceed the current liabilities.

Stick with me…

So, the higher the current ratio is, the better for the business!

The Formula:

Current ratio = current assets / current liabilities.

The best current ratio is considered to be between 1.2 to 2.

What does this mean?

Basically, if you have a business whose current ratio is below 1, you won’t have enough current assets to be able to cover its short-term liabilities.

If you have a current ratio that is equal to 1, this indicates that both current assets and current liabilities are equal, resulting in the business just being able to cover any obligations, short-term.

The Importance of the Current Ratio

The current ratio gives an overview of the short-term health of your business and will give you an early warning as to whether the businesses is working efficiently or not.

You can also attract more favourable credit terms if you were to require financing, as investors will be able to see how you are going to run the business whilst also keeping afloat with any current obligations.

This ratio is also referred to as the ‘acid test’ ratio. It excludes any inventory.

This is used to determine your businesses ability to meet short-term obligations with liquid assets that are easily and quickly converted to cash, which are normally 90 days (or in the short-term).

Current Assets – Inventory / Current Liabilities

A quick ratio of 1.5 to 1 is the average.

The Importance of the Quick Ratio

The quick ratio shows a conservative overview of your businesses financial standing. It determines whether or not your business has the resources to be able to meet its operating expenses, accounts payable, and other obligations short-term.

Knowing your industry’s standards is an important part of evaluating your business’s balance sheet effectively.

#3 Balance Sheet Examples:

Example of a Balance Sheet Forecast

Review & update your balance sheet

It is recommended that you update your balance sheet every quarter, as it’s a useful tool, if used properly.

Why not have a go at creating your own balance sheet?….why not download our FREE Balance Sheet Template?

Additional Resources:

To help you even further in creating your business plan, why not check out the following articles to help you in writing the perfect plan to impress:

• 5 Financial Plan Must Haves and How to Write one
• How to Do a Sales Forecast
• How to Build a Profit and Loss Statement (Income Statement)
• How to Forecast Cash Flow
• The Difference Between Cash and Profits
• Balance Sheet Template [Free Download]
• Cash Flow Template [Free Download]
• Profit and Loss Template [Free Download]

Now, over to you...

Now I’d love to hear from you:

Are you still unsure of which business plan you need?

Maybe you have written a business plan and would like us to review it?

Leave any comments below and I will be sure to answer as soon as they come in!

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Free Balance Sheet Templates

By Andy Marker | January 7, 2019 (updated May 10, 2024)

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We’ve compiled free, printable, customizable balance sheet templates for project managers, analysts, executives, regulators, and investors. Use these balance sheet templates as financial statements to keep tabs on your assets (what you own) and liabilities (what you owe) to determine your equity. 

Included on this page, you'll find many helpful balance sheet templates, such as a basic balance sheet template , a pro forma balance sheet template , a monthly balance sheet template , an investment property balance sheet template , and a daily balance sheet template , among others. Plus, find tips on how to use balance sheet templates .

Basic Balance Sheet Template

Download a Basic Balance Sheet Template for  Excel | Google Sheets | Smartsheet

Use this simple, easy-to-complete balance sheet template to determine your overall financial outlook. Enter the details of your current fixed and long-term assets and your current and long-term liabilities. The template will then calculate your resulting balance or net worth. Save this printable template as a year-by-year balance sheet, or easily customize it to be a day-by-day or month-by-month balance sheet. Enter projected figures to see your financial position compared to your financial goals. 

For an easy-to-use online balance sheet template, see this basic balance sheet template .

Pro Forma Balance Sheet Template

Download a Sample Pro Forma Balance Sheet Template for  Excel | Adobe PDF | Google Sheets | Smartsheet

Download a Blank Pro Forma Balance Sheet Template for  Excel | Adobe PDF | Google Sheets 

Use this balance sheet for your existing businesses, or enter projected data for your business plan. Annual columns provide year-by-year comparisons of current and fixed assets, as well as current short-term and long-term liabilities. By reviewing this information, you can easily determine your company’s equity. This balance sheet template includes tallies of your net assets — or net worth — and your working capital. Download the sample template for additional guidance, or fill out the blank version to provide a financial statement to investors or executives. 

Download one of these free small business balance sheet templates to help ensure that your small business is on track financially.

Monthly Balance Sheet Template

Download a Monthly Balance Sheet Template for  Excel | Google Sheets 

Ensure that you meet your financial obligations and solvency goals with this easy-to-use monthly balance sheet template. Enter your assets — including cash, value of inventory, and short-term and long-term investments — as well as liabilities and owner’s equity. Completing the form will provide you with an accurate picture of your finances. This template also includes a Common Financial Ratio section, which calculates month-by-month debt ratio, working capital assets-to-equity ratio, and debt-to-equity ratio so that you can accurately evaluate your company’s financial health. 

For additional tips and resources for your organization’s financial planning, see our comprehensive collection of free financial templates for business plans .

Investment Property Balance Sheet Template

Download an Investment Property Balance Sheet Template for  ‌Excel | Google Sheets  

Designed with secondary or investment properties in mind, this comprehensive balance sheet template allows you to factor in all details relating to your investment property’s growth in value. You can easily factor in property costs, expenses, rental and taxable income, selling costs, and capital gains. Also factor in assumptions, such as years you plan to stay invested in the property, and actual or projected value increase. You can also edit the template to include whatever details you need to provide for renting, refinancing, home-equity lines, and possible eventual sale of your investment property.

Daily Balance Sheet Template

Download a Daily Balance Sheet Template for  ‌Excel | Google Sheets 

Keep day-to-day tabs on your assets, liabilities, equity, and balance with this easy-to-use, daily balance sheet template. Enter your total current, fixed, and other assets, total current and long-term liabilities, and total owner’s equity, and the template will automatically calculate your up-to-the-minute balance. You can save this daily balance sheet template as individual files — with customized entries — for each day requiring balance insights for any 24-hour period.

Find more balance sheets and accounting templates in this collection of the top Excel templates for accounting .

Quarterly Balance Sheet Template

Download a Quarterly Balance Sheet Template for  Excel | Google Sheets  

Track your quarterly financial position by entering each month’s assets and liabilities and reviewing the monthly and quarterly perspectives of your owner’s equity. Monthly columns provide you with assets, liabilities, and equity tallies, and also reflect three-month figures for each quarter. This is the perfect template for short-term analysis of fiscal health but can be used for year-over-year monthly and quarterly comparisons.

What Is a Balance Sheet Template?

A balance sheet template is a tool for tallying your assets and liabilities so that you can calculate your equity. Use a balance sheet template to ensure you have sufficient funds to meet and exceed your financial obligations.

Companies, organizations, and individuals use balance sheets to easily calculate their equity, profits, or net worth by subtracting their liabilities from their assets. By doing so, they can get an overall picture of their financial health. A balance sheet also serves as a company or organization’s financial position over specified time, such as daily, monthly, quarterly, or yearly. 

Regardless of the type of balance sheet (simple, business-related, or calendar-specific), they all use the same simple formula:

Whereas a simple balance sheet template allows you to easily fill in the basic assets and liabilities information for a quick glimpse at your financial outlook, a more robust template, such as a pro forma business balance sheet , is useful for entering current assets details, such as accounts receivable and inventory details. 

Regardless of your line of business, all balance sheet templates have standard, pre-set formulas that factor in the following details to keep your financial details balanced and accurate:

• Current Assets: Current assets can be converted to cash within a short period of time and include checking and savings account balances, accounts receivable, inventory, prepaid expenses, short-term investments, and other liquid assets.
• Fixed Assets: Fixed assets , such as property, cars, equipment, stocks and bonds, and intangible assets, take time and effort to convert into liquid cash.
• Total Assets: Your total assets include all of your current and fixed assets.

Liabilities:

• Current Liabilities: Current liabilities , such as accounts payable, short-term loans, income taxes, salaries and wages, and unearned revenue, are debts or obligations that are usually due within a year.
• Long-Term Liabilities: Long-term liabilities , such as loans, debt, and deferred income tax, are financial obligations you pay over time.
• Total Liabilities: Your total liabilities include all of your current and long-term liabilities.
• Owner’s Equity:  Owner’s equity is the value of your company once your liabilities are subtracted from your assets. This is also called net worth.

Additionally, balance sheet templates allow you to enter projected figures so that you can compare your current financial standing with your projected or target finances. For example, you can use a balance sheet to determine what your quarterly figures must be in order to beat your previous year’s profits. Balance sheet templates, such as this Investment Property Balance Sheet , allow you to factor in details such as property costs, expenses, rental and taxable income, selling costs, and capital gains.

Gain Insight into Your Company’s Financial Position with Balance Sheets in Smartsheet

Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

Discover why over 90% of Fortune 100 companies trust Smartsheet to get work done.

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4 Ways to Boost Your Balance Sheet

Table of Contents

A savvy investor or banker can glance at a balance sheet and quickly tell how well the business is doing. Numbers don’t lie. That’s why you need to have your balance sheet in good shape if you want to take out a business loan or attract investors. This article will walk you through how to construct a fortress balance sheet — one that stands strong against sudden financial crises. A strong balance sheet can make your business an attractive investment for growth and secure your future.

What makes a strong balance sheet?

A balance sheet provides a snapshot of your business’s total assets, debts and shareholder equity at a moment in time. It plays a crucial role in your ability to secure funding through a loan or investor. These are the main attributes of a strong balance sheet:

• More assets than liabilities. A cornerstone of a strong balance sheet is having more assets than liabilities. To run a business successfully, you need more money coming in than going out.
• Positive net assets. Net assets are the value of your assets after you pay your obligations. If you have plenty of assets after everything is paid off, your balance sheet is in a strong position. Businesses with positive net assets tend to do better in economic downturns than businesses with low net-asset positions. Net assets are calculated using the following formula: (total fixed assets + total current assets) — (total current liabilities + total long-term liabilities) = net assets.
• Strong assets. Assets alone won’t make your balance sheet healthy. Your assets must be active and valuable to count as positive contributions. Even if your inventory is valuable on paper, it’s not worth that much if you aren’t moving it. A strong balance sheet often has assets that provide value now rather than potential value later.
• Healthy receivables. You can have all the sales in the world, but if you don’t set up an accounts receivable process , your business can still struggle to get paid. Debtors who are slow to pay their bills can do real harm to a business. Healthy receivables reflect positively on your balance sheet.

3 ways to analyze a balance sheet

Before you analyze your balance sheet, you need to learn a few key accounting ratios. These include the current ratio, the debt-to-equity ratio and the working capital ratio.

1. Current ratio. 

Your business’s current ratio, calculated by dividing current assets by current liabilities, shows how much cash you have to run operations. Strive for a current ratio of 1.5 or higher.

2. Debt-to-equity ratio. 

This ratio measures the amount of shareholder equity available to cover the business’s debts. The lower the ratio, the better a company is positioned to weather an economic downturn. Your debt-to-equity ratio is calculated by dividing total liabilities by total shareholder equity. The statement of shareholder equity , also known as owners’ equity, is the amount of money the business owner would receive if the business assets were liquidated and all the debts were paid off. Keep this ratio as low as possible for a strong balance sheet.

3. Working capital ratio. 

This is calculated by dividing current assets by current liabilities. Most small businesses want a positive working capital ratio. Negative working capital means you don’t have enough cash to bankroll operations and could signal that you need to cut operational costs or unload assets.

4 ways to strengthen your balance sheet

Thinking about balance sheets isn’t the most exciting part of being a small business owner. However, if you want to position your business for growth or increase cash flow , building a fortress balance sheet should be a serious goal. 

“A lot of small businesses just look at cash in and cash out,” Ben Richmond, country manager at Xero, told us. “The balance sheet is important because it gives you the full preview of your business.”

Every business is different, so there is no one-size-fits-all solution for strengthening your finances. Consider using some or all of these strategies to improve your cash flow statement and balance sheet. 

1. Boost your debt-to-equity ratio.

It’s common sense that a business is generally better off with less debt and more cash on the balance sheet. 

“If you get to a really low debt-to-equity ratio, you can use it to raise capital,” Richmond said.

To improve that part of your business’s assets, you need to bring in more sales that you can use to pay down debt. You may also have to unload assets, such as office equipment or real estate property. Boosting your debt-to-equity ratio will strengthen your balance sheet, improve cash flow and put you in a position to pursue growth.

2. Reduce the money going out.

A cash-flow deficit will quickly spell a small business’s demise, which is why reducing the money going out is an effective way to improve your balance sheet and bottom line. To optimize cash flow, Richmond advised mapping out different scenarios for the cash going out of the business, including the worst-case, best-case and likely scenarios. If your likely scenario looks a lot like the worst-case scenario, find ways to drastically cut business costs , Richmond said.

3. Build up a cash reserve.

In addition to managing the cash going in and out, monitoring the amount of cash held in your business savings account is crucial, said Val Steed, director of accountants at Zoho . You can use that pot of money for emergencies or to take advantage of an unexpected opportunity. Without cash in reserve, you might need to scramble to secure financing quickly.

“My general rule of thumb is, until you build up your hold or protective balance, one-third goes back into operations, one-third is invested back into the business to improve growth, and one-third is the hold,” Steed said.

4. Manage accounts receivable.

Getting paid is a big challenge for all small business owners. The longer bills go unpaid, the more pressure it puts on cash flow. Steed said to improve the balance sheet and cash flow, focus on managing receivables. That doesn’t mean sending out a bill reminder email and leaving it at that. Nor does it mean asking your salesperson to try collecting the amount owed. Rather, it requires you to put someone in charge of collecting overdue bills using persistence, patience and politeness.

“Never put a salesperson back on a bad account,” Steed said. “The salesperson stays in the good-guy role at all times.”

Simplify your business’s accounting 

You should strongly consider using top small business accounting software to fine-tune your business’s finances. Accounting programs can generate balance sheets and cash flow statements automatically, as opposed to creating them by hand. Software also reduces human error and eliminates inefficient manual data entry. 

The best accounting software is easy to use and able to integrate with your bank and other business apps. If you implement small business accounting software, you can significantly simplify your finances and put yourself on the path to building a solid balance sheet. 

Mike Berner contributed to this article. Some source interviews were conducted for a previous version of the article.

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Example balance sheet.

A balance sheet is a snapshot of what a business owns (assets) and owes (liabilities) at a specific point in time.

It is made up of the following three sections:

• assets – including cash, stock, equipment, money owed to business, goodwill
• liabilities – including loans, credit card debts, tax liabilities, money owed to suppliers
• owner’s equity – the amount left after liabilities are deducted from assets

Example of a balance sheet

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10 Free Business Plan Templates in Word, Excel, & ClickUp

Praburam Srinivasan

Growth Marketing Manager

February 13, 2024

Turning your vision into a clear and coherent business plan can be confusing and tough. 

Hours of brainstorming and facing an intimidating blank page can raise more questions than answers. Are you covering everything? What should go where? How do you keep each section thorough but brief?

If these questions have kept you up at night and slowed your progress, know you’re not alone. That’s why we’ve put together the top 10 business plan templates in Word, Excel, and ClickUp—to provide answers, clarity, and a structured framework to work with. This way, you’re sure to capture all the relevant information without wasting time. 

And the best part? Business planning becomes a little less “ugh!” and a lot more “aha!” 🤩

What is a Business Plan Template?

What makes a good business plan template, 1. clickup business plan template, 2. clickup sales plan template, 3. clickup business development action plan template, 4. clickup business roadmap template, 5. clickup business continuity plan template, 6. clickup lean business plan template, 7. clickup small business action plan template, 8. clickup strategic business roadmap template , 9. microsoft word business plan template by microsoft, 10. excel business plan template by vertex42.

A business plan template is a structured framework for entrepreneurs and business executives who want to create business plans. It comes with pre-arranged sections and headings that cover key elements like the executive summary , business overview, target customers, unique value proposition, marketing plans, and financial statements.  

A good business plan template helps with thorough planning, clear documentation, and practical implementation. Here’s what to look for:

• Comprehensive structure: A good template comes with all the relevant sections to outline a business strategy, such as executive summary, market research and analysis, and financial projections 
• Clarity and guidance: A good template is easy to follow. It has brief instructions or prompts for each section, guiding you to think deeply about your business and ensuring you don’t skip important details
• Clean design: Aesthetics matter. Choose a template that’s not just functional but also professionally designed. This ensures your plan is presentable to stakeholders, partners, and potential investors
• Flexibility : Your template should easily accommodate changes without hassle, like adding or removing sections, changing content and style, and rearranging parts 🛠️ 

While a template provides the structure, it’s the information you feed it that brings it to life. These pointers will help you pick a template that aligns with your business needs and clearly showcases your vision.

10 Business Plan Templates to Use in 2024

Preparing for business success in 2024 (and beyond) requires a comprehensive and organized business plan. We’ve handpicked the best templates to help you guide your team, attract investors, and secure funding. Let’s check them out.

If you’re looking to replace a traditional business plan document, then ClickUp’s Business Plan Template is for you!

This one-page business plan template, designed in ClickUp Docs , is neatly broken down into the following sections:

• Company description : Overview, mission, vision, and team
• Market analysis : Problem, solution, target market, competition, and competitive advantage
• Sales and marketing strategy : Products/services and marketing channels
• Operational plan : Location and facilities, equipment and tools, manpower, and financial forecasts
• Milestones and metrics: Targets and KPIs

Customize the template with your company logo and contact details, and easily navigate to different sections using the collapsible table of contents. The mini prompts under each section guide you on what to include—with suggestions on how to present the data (e.g., bullet lists, pictures, charts, and tables). 

You can share the document with anyone via URL and collaborate in real time. And when the business plan is ready, you have the option to print it or export it to PDF, HTML, or Markdown.

But that’s not all. This template is equipped with basic and enterprise project management features to streamline the business plan creation process . The Topics List view has a list of all the different sections and subsections of the template and allows you to assign it to a team member, set a due date, and attach relevant documents and references.

Switch from List to Board view to track and update task statuses according to the following: To Do, In Progress, Needs Revision, and Complete. 

This template is a comprehensive toolkit for documenting the different sections of your business plan and streamlining the creation process to ensure it’s completed on time. 🗓️

If you’re looking for a tool to kickstart or update your sales plan, ClickUp’s Sales Plan Template has got you covered. This sales plan template features a project summary list with tasks to help you craft a comprehensive and effective sales strategy. Some of these tasks include:

• Determine sales objectives and goals
• Draft positioning statement
• Perform competitive analysis
• Draft ideal customer persona
• Create a lead generation strategy

Assign each task to a specific individual or team, set priority levels , and add due dates. Specify what section of the sales plan each task belongs to (e.g., executive summary, revenue goals, team structure, etc.), deliverable type (such as document, task, or meeting), and approval state (like pending, needs revisions, and approved).

And in ClickUp style, you can switch to multiple views: List for a list of all tasks, Board for visual task management, Timeline for an overview of task durations, and Gantt to get a view of task dependencies. 

This simple business plan template is perfect for any type of business looking to create a winning sales strategy while clarifying team roles and keeping tasks organized. ✨

Thinking about scaling your business’s reach and operations but unsure where or how to start? It can be overwhelming, no doubt—you need a clear vision, measurable goals, and an actionable plan that every member of your team can rally behind. 

Thankfully, ClickUp’s Business Development Action Plan Template is designed to use automations to simplify this process so every step toward your business growth is clear, trackable, and actionable.

Start by assessing your current situation and deciding on your main growth goal. Are you aiming to increase revenue, tap into new markets, or introduce new products or services? With ClickUp Whiteboards or Docs, brainstorm and collaborate with your team on this decision.

Set and track your short- and long-term growth goals with ClickUp’s Goals , break them down into smaller targets, and assign these targets to team members, complete with due dates. Add these targets to a new ClickUp Dashboard to track real-time progress and celebrate small wins. 🎉

Whether you’re a startup or small business owner looking to hit your next major milestone or an established business exploring new avenues, this template keeps your team aligned, engaged, and informed every step of the way.

ClickUp’s Business Roadmap Template is your go-to for mapping out major strategies and initiatives in areas like revenue growth, brand awareness, community engagement, and customer satisfaction. 

Use the List view to populate tasks under each initiative. With Custom Fields, you can capture which business category (e.g., Product, Operations, Sales & Marketing, etc.) tasks fall under and which quarter they’re slated for. You can also link to relevant documents and resources and evaluate tasks by effort and impact to ensure the most critical tasks get the attention they deserve. 👀

Depending on your focus, this template provides different views to show just what you need. For example, the All Initiatives per Quarter view lets you focus on what’s ahead by seeing tasks that need completion within a specific quarter. This ensures timely execution and helps in aligning resources effectively for the short term.

This template is ideal for business executives and management teams who need to coordinate multiple short- and long-term initiatives and business strategies.

In business, unexpected threats to operations can arise at any moment. Whether it’s economic turbulence, a global health crisis, or supply chain interruptions, every company needs to be ready. ClickUp’s Business Continuity Plan Template lets you prepare proactively for these unforeseen challenges.

The template organizes tasks into three main categories:

• Priorities: Tasks that need immediate attention
• Continuity coverage: Tasks that must continue despite challenges
• Guiding principles: Resources and protocols to ensure smooth operations

The Board view makes it easy to visualize all the tasks under each of these categories. And the Priorities List sorts tasks by those that are overdue, the upcoming ones, and then the ones due later.

In times of uncertainty, being prepared is your best strategy. This template helps your business not just survive but thrive in challenging situations, keeping your customers, employees, and investors satisfied. 🤝

Looking to execute your business plan the “lean” way? Use ClickUp’s Lean Business Plan Template . It’s designed to help you optimize resource usage and cut unnecessary steps—giving you better results with less effort.

In the Plan Summary List view, list all the tasks that need to get done. Add specific details like who’s doing each task, when it’s due, and which part of the Business Model Canvas (BMC) it falls under. The By Priority view sorts this list based on priorities like Urgent, High, Normal, and Low. This makes it easy to spot the most important tasks and tackle them first.

Additionally, the Board view gives you an overview of task progression from start to finish. And the BMC view rearranges these tasks based on the various BMC components. 

Each task can further be broken down into subtasks and multiple checklists to ensure all related action items are executed. ✔️

This template is an invaluable resource for startups and large enterprises looking to maximize process efficiencies and results in a streamlined and cost-effective way.

The Small Business Action Plan Template by ClickUp is tailor-made for small businesses looking to transform their business ideas and goals into actionable steps and, eventually, into reality. 

It provides a simple and organized framework for creating, assigning, prioritizing, and tracking tasks. And in effect, it ensures that goals are not just set but achieved. Through the native dashboard and goal-setting features, you can monitor task progress and how they move you closer to achieving your goals.

Thanks to ClickUp’s robust communication features like chat, comments, and @mentions, it’s easy to get every team member on the same page and quickly address questions or concerns.

Use this action plan template to hit your business goals by streamlining your internal processes and aligning team efforts.

For larger businesses and scaling enterprises, getting different departments to work together toward a big goal can be challenging. The ClickUp Strategic Business Roadmap Template makes it easier by giving you a clear plan to follow.

This template is packaged in a folder and split into different lists for each department in your business, like Sales, Product, Marketing, and Enablement. This way, every team can focus on their tasks while collectively contributing to the bigger goal.

There are multiple viewing options available for team members. These include:

• Progress Board: Visualize tasks that are on track, those at risk, and those behind
• Gantt view: Get an overview of project timelines and dependencies
• Team view: See what each team member is working on so you can balance workloads for maximum productivity

While this template may feel overwhelming at first, the getting started guide offers a step-by-step breakdown to help you navigate it with ease. And like all ClickUp templates, you can easily customize it to suit your business needs and preferences.

Microsoft’s 20-page traditional business plan template simplifies the process of drafting comprehensive business plans. It’s made up of different sections, including:

• Executive summary : Highlights, objectives, mission statement, and keys to success
• Description of business: Company ownership and legal structure, hours of operation, products and services, suppliers, financial plans, etc.
• Marketing: Market analysis, market segmentation, competition, and pricing
• Appendix: Start-up expenses, cash flow statements, income statements, sales forecast, milestones, break-even analysis, etc.

The table of contents makes it easy to move to different sections of the document. And the text placeholders under each section provide clarity on the specific details required—making the process easier for users who may not be familiar with certain business terminology.

No business template roundup is complete without an Excel template. This business plan template lets you work on your business financials in Excel. It comes with customizable tables, formulas, and charts to help you look at the following areas:

• Highlight charts
• Market analysis
• Start-up assets and expenses
• Sales forecasts
• Profit and loss
• Balance sheet
• Cash flow projections
• Break-even analysis

This Excel template is especially useful when you want to create a clear and visual financial section for your business plan document—an essential element for attracting investors and lenders. However, there might be a steep learning curve to using this template if you’re not familiar with business financial planning and using Excel.

Try a Free Business Plan Template in ClickUp

Launching and running a successful business requires a well-thought-out and carefully crafted business plan. However, the business planning process doesn’t have to be complicated, boring, or take up too much time. Use any of the above 10 free business plan formats to simplify and speed up the process.

ClickUp templates go beyond offering a solid foundation to build your business plans. They come with extensive project management features to turn your vision into reality. And that’s not all— ClickUp’s template library offers over 1,000 additional templates to help manage various aspects of your business, from decision-making to product development to resource management .

Sign up for ClickUp’s Free Forever Plan today to fast-track your business’s growth! 🏆

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Sample Balance Sheet Template for Excel

You can calculate total equity by subtracting liabilities from your company’s total assets. When investors ask for a balance sheet, they want to make sure it’s accurate to the current time period. It’s important to keep accurate balance sheets regularly for this reason. According to the equation, a company pays for what it owns (assets) by borrowing money as a service (liabilities) or taking from the shareholders or investors (equity).

Shareholder Equity

Also called the acid test ratio, the quick ratio describes how capable your business is of paying off all its short-term liabilities with cash and near-cash assets. In this case, you don’t include assets like real estate or other long-term investments. You also don’t include current assets that are harder to liquidate, like inventory. The current ratio measures the liquidity of your company—how much of it can be converted to cash, and used to pay down liabilities. The higher the ratio, the better your financial health in terms of liquidity. The left side of the balance sheet outlines all of a company’s assets.

Ask Any Financial Question

• Public companies, on the other hand, are required to obtain external audits by public accountants, and must also ensure that their books are kept to a much higher standard.
• Your income statement and balance sheet are two of the most important documents you will create as a business owner.
• Balance sheet accounts are permanent or real accounts and are used to organize, record, and sort transactions.
• There are two formats of presenting assets, liabilities and owners’ equity in the balance sheet – account format and report format.

Finally, unless he improves his debt-to-equity ratio, Bill’s brother Garth is the only person who will ever invest in his business. The situation could be improved considerably if Bill reduced his $13,000 owner’s draw. Unfortunately, he’s addicted to collecting extremely rare 18th century guides to bookkeeping. Until he can get his bibliophilia under control, his equity will continue to suffer.

Simple Balance Sheet Template & Example:

Guidelines for balance sheets of public business entities are given by the International Accounting Standards Board and numerous country-specific organizations/companies. When a balance sheet is reviewed externally by someone interested in a company, it’s designed to give insight into what resources are available to a business and how they were financed. Based on this information, potential investors can decide whether it would be wise to invest in a company. Similarly, it’s possible to leverage the information in a balance sheet to calculate important metrics, such as liquidity, profitability, and debt-to-equity ratio. Balance sheets are one of the most critical financial statements, offering a quick snapshot of the financial health of a company. Learning how to generate them and troubleshoot issues when they don’t balance is an invaluable financial accounting skill that can help you become an indispensable member of your organization.

Despite the increase in liabilities, the company’s shareholders’ equity also increased from $150,000 in 2021 to $180,000 in 2022. This suggests that the company’s financial position improved over the year, even though it took on additional liabilities. This was primarily driven by an increase in both current and non-current assets. Meanwhile, the company’s total liabilities also increased from $150,000 in 2021 to $190,000 in 2022, primarily due to an increase in both current and non-current liabilities. At the very bottom of the balance sheet, you will see totals for assets and liabilities plus equity. Verifying that these numbers match allows you to confirm that the data in your balance sheet is correct.

The interpretation of the current ratio is similar to working capital. The balance sheet is one of the three primary financial statements that a business uses to evaluate its financial health. This can be a very valuable tool in evaluating financial performance and making financial business decisions. The balance sheet informs company owners about the net worth of the company at a specific point in time. This is done by subtracting the total liabilities from the total assets to calculate the owner’s equity, also known as shareholder’s equity (for corporations) or simply the net worth.

This fourth and final financial statement lists the cash inflows and cash outflows for the business for a period of time. It was created to fill in some informational gaps that existed in the other three statements (income statement, owner’s equity/retained earnings statement, and the balance sheet). A full demonstration of the creation of the statement of cash flows is presented in Statement of Cash Flows. The starting point for understanding liquidity ratios is to define working capital—current assets minus current liabilities.

Assume the Equipment listed on the balance sheet is a noncurrent asset. This is a reasonable assumption as this is the first month of operation and the equipment is expected to last several years. We also assume the Accounts Payable and Wages Payable will be paid within one year and are, therefore, classified as current liabilities. At this stage, remember that since we are working with a sole proprietorship to help simplify the examples, we have addressed the owner’s value in the firm as capital or owner’s equity.

By analysing balance sheet, company owners can keep their business on a good financial footing. In other words, it is the amount that can be handed over to shareholders https://www.bookkeeping-reviews.com/ after the debts have been paid and the assets have been liquidated. Equity is one of the most common ways to represent the net value of the company.

The owner of Captain Caramel’s shares that his store has a current ratio of 4.25. While it is still better than Cheesy Chuck’s, Chuck is encouraged to learn that his store is performing at a more competitive level than he previously thought by comparing the dollar amounts of working capital. The third financial statement created is the balance sheet, which shows the company’s financial position on a given date. The accumulated depreciation account should go on the asset side of the balance sheet.

Not only can they can show you how your business is doing financially, they can even help you project how it may perform in the future. Wondering what information you should include on an income statement or balance sheet? Keep reading for suggestions about the types of data you can include on each of these financial statements. A balance sheet is an important reference document for investors and stakeholders for assessing a company’s financial status. This document gives detailed information about the assets and liabilities for a given time.

However, there are several “buckets” and line items that are almost always included in common balance sheets. We briefly go through commonly found line items under Current Assets, Long-Term Assets, Current Liabilities, Long-term Liabilities, and Equity. If a company takes out a five-year, $4,000 loan from a bank, its assets (specifically, the cash account) will increase by $4,000. Its liabilities (specifically, the long-term debt account) will also increase by $4,000, balancing the two sides of the equation. If the company takes $8,000 from investors, its assets will increase by that amount, as will its shareholder equity.

In both formats, assets are categorized into current and long-term assets. Current assets consist of resources that will be used in the current year, while long-term assets are resources lasting longer than one year. This form is more of a traditional report that is issued by companies. Includes non-AP obligations top 10 free accounts receivable excel template download 2022 wps office academy that are due within one year’s time or within one operating cycle for the company (whichever is longest). Notes payable may also have a long-term version, which includes notes with a maturity of more than one year. Depending on the company, different parties may be responsible for preparing the balance sheet.

When setting up a balance sheet, you should order assets from current assets to long-term assets. They’re important to include, but they can’t immediately be converted into liquid capital. The income statement and statement of cash flows also provide valuable context for assessing a company’s finances, as do any notes or addenda in an earnings report that might refer back to the balance sheet. Let’s create the statement of owner’s equity for Cheesy Chuck’s for the month of June. Since Cheesy Chuck’s is a brand-new business, there is no beginning balance of Owner’s Equity. The first items to account for are the increases in value/equity, which are investments by owners and net income.

She is a former Google Tech Entrepreneur and she holds an MSc in International Marketing from Edinburgh Napier University. For Where’s the Beef, let’s say you invested $2,500 to launch the business last year, and another $2,500 this year. You’ve also taken $9,000 out of the business to pay yourself and you’ve left some profit in the bank. Returning to our catering example, let’s say you haven’t yet paid the latest invoice from your tofu supplier. It can be sold at a later date to raise cash or reserved to repel a hostile takeover. These three core statements are intricately linked to each other and this guide will explain how they all fit together.

Additionally, a company must usually provide a balance sheet to private investors when planning to secure private equity funding. Financial strength ratios can provide investors with ideas of how financially stable the company is and whether it finances itself. However, it is common for a balance sheet to take a few days or weeks to prepare after the reporting period has ended. If the company takes $10,000 from its investors, its assets and stockholders’ equity will also increase by that amount.

Plus, this report form fits better on a standard sized piece of paper. This account includes the amortized amount of any bonds the company has issued. Some liabilities are considered off the balance sheet, meaning they do not appear on the balance sheet. For the year ended December 31, 2016, McDonald’s had sales of $24.6 billion.11 The amount of sales is often used by the business as the starting point for planning the next year.

The equity section contains the information that records the resources that owners invested and invested into the entity with the recording of gain or loss accumulation. Instead of struggling with Excel, use our free balance sheet template to simplify the process. However, there are instances where it might not because a mistake has been made in the process.

It could be cash on hand, petty cash, cash deposit in the bank, or other financial note that are equivalent to cash. Use this small business guide to gain a better understanding of what a balance sheet is and how to use it. We’ll cover how to prepare a balance sheet and how it can help you understand your business’s financial situation. If this balance sheet were from a US company, it would adhere to Generally Accepted Accounting Principles (GAAP), and the order of accounts would be reversed (most liquid to least liquid). By looking at the sample balance sheet below, you can extract vital information about the health of the company being reported on. Here’s everything you need to know about understanding a balance sheet, including what it is, the information it contains, why it’s so important, and the underlying mechanics of how it works.

They typically signify less financial risk than short-term debt and liabilities. A balance sheet depicts many accounts, categorized under assets and liabilities. Like any other financial statement, a balance sheet will have minor variations in structure depending on the organization. Following is a sample balance sheet, which shows all the basic accounts classified under assets and liabilities so that both sides of the sheet are equal.

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