Balance Sheet Basics
You have 5,000 in the bank. You own inventory worth ,000. You owe a supplier ,500. How healthy is your business?
A balance sheet is a snapshot of your business's financial position. It shows everything you own and owe.
Assets = Liabilities + Owner's Equity
The Three Components
1. Assets (What You Own)
Cash, inventory, equipment, vehicles, accounts receivable.
2. Liabilities (What You Owe)
Loans, credit cards, accounts payable, taxes owed.
3. Owner's Equity (Your Net Worth)
Owner's Equity = Assets − Liabilities
Real Example: Sarah's Pottery
Sarah has been making pottery for 3 years. Her balance sheet shows:
Key Metrics
Current Ratio: Current Assets ÷ Current Liabilities = 3.71 (healthy above 2.0)
Debt-to-Equity: Liabilities ÷ Equity = 0.42 (healthy below 1.0)
Resources
SBA Accounting & Bookkeeping Guide - Federal Small Business Administration's comprehensive resource on financial management for small businesses.
IRS Publication 587: Business Use of Your Home - IRS guidance on tracking business assets and maintaining accurate financial records.
AICPA Small Business Resources - American Institute of Certified Public Accountants' resources for small business accounting standards.
SCORE Mentoring - Free business mentoring, including one-on-one guidance on financial statement interpretation.
Know Your Financial Position
A balance sheet reveals your true net worth. Track it annually.
Start Tracking