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WillowOlder
Level 5

Money Matters: Your Balance Sheet Is a Truth Serum For How You Run Your Business

Stocksy_see saw balance sheet (1).jpg

 

 

Imagine if managing your precious dollars was straightforward, painless and fun. Dawn Fotopulos, CEO of DF Consulting, Inc. and author of Accounting for the Numberphobic: A Survival Guide for Small Business Owners is on a mission to turn that dream into a reality. A seasoned pro when it comes to sharing financial advice with small business owners, Dawn is dedicated to helping people who work for themselves feel confident and informed about money matters. Here, Dawn explains why your balance sheet serves as a truth serum by painting an accurate picture of your business.

 

Do you know your numbers?

 

Are you financially literate? If you’re like the majority of people who work for themselves, the answer, sadly, is no. Dawn says this shortcoming has lead to an epidemic of entrepreneurial failures. It also explains why Brad Smith, CEO of Intuit, believes “if we could improve the survival rates of small businesses by only 5%, we could eliminate the unemployment problem in the U.S.” Question is, how can you contribute to this lofty goal?

 

According to Dawn, it doesn’t take a degree in rocket science to keep up with, and get ahead of, the math. She thinks understanding “all this numbers stuff” might be akin to “Toto pushing the curtain aside and revealing a grey-haired man from Kansas.” Dawn says entrepreneurs should focus on three key documents to chart a course for financial success: your net income statement, your cash flow statement and the topic of this post, your balance sheet.

 

Is your balance sheet simply irresistible?

What makes your balance sheet so important? Essentially, it gives anyone who’s looking – including potential “suitors” like a loan officer or an investor – answers to important questions like these:

 

  • Are you managing debt responsibly or putting the business at risk?
  • Do you invoice customers regularly and on-time?
  • Are you spending or investing money you haven’t yet earned?

 

If you think about your balance sheet as your online-dating profile, social media page, modeling headshot and professional resume all wrapped into one, you’ll get a glimmer of how important this document is – and how much it reveals about you and your approach to running a business.

 

Your balance sheet is divided up into three sections:

 

  • Assets are what you own. This includes cash and accounts receivable, which you should monitor on a weekly basis. (We love assets!)
  • Liabilities are what you owe. (Less fun, but critical to know.
  • Equity is what’s left after you subtract liabilities from assets.

 

Here’s the rule of thumb for a winning (and, frankly, irresistible!) balance sheet: Grow your assets faster than your liabilities. When this happens, one day your owner’s equity could become so robust that you’ll choose to sell your business for vast sums of money. Nice!

 

In the meantime, Dawn has one more tip for staying solvent: Take 10% of what you earn and put it away in a rainy day fund. Consider that money untouchable except during a true financial emergency. That rainy day will always come, says Dawn – even if the forecast calls for clear blue skies.

 

What’s on your mind?

 

Here’s what other folks who work for themselves are thinking about when it comes to keeping their money matters straight. We hope you’ll chime in by clicking the Reply box below!

 

“I decided to figure out how much I was spending on vanilla lattes each month. I was so embarrassed by what I found that I bought my own machine and got a mug. I decided that was an “asset” worth investing in. (It made me want to open a coffee house, too!) It continually amazes me how small expenses and liabilities add up.”—Leslie Barber, QB Community Leader

 

“So many of us think about cash when we look backwards. My secret is in planning ahead. I know what bills are coming due in the next 30 and 60 days and can anticipate the cash I need to generate to pay them. Preparation helps me sleep at night." —Victoria Cameron, QuickBooks ProAdvisor

 

“I sought out organizations that give grants and interest free loans and applied. I actually got some funding!” —Victoria Beadz, Jewelry Designer

 

“So many businesses go under due to ‘Death from 1000 Cuts.’ In other words, no one goes out of business in one day. Bankruptcy happens when we don’t manage the daily inflection points. Chances are, we don’t even notice the “cuts” that are happening every single day.” —Dawn Fotopulos, CEO, DF Consulting Inc.

 

Before you go

 

QB Community members, tell us your secret to tracking all your money matters and creating a balance sheet that’s accurate – and completely honest! We can’t wait to see your comments below.

 

More learning, right this way!

 

Here are some more helpful articles about money matters, from Dawn and other QB Community experts:

 

 

6 Comments 6
AudreyPratt
Level 7

Money Matters: Your Balance Sheet Is a Truth Serum For How You Run Your Business

Such a wealth of knowledge in one article! This is super helpful info I have certainly been needing. Thank you so much @WillowOlder!

Adam_Fenner
Level 5

Money Matters: Your Balance Sheet Is a Truth Serum For How You Run Your Business

Great article. It is nice to see the BS, simplified. 

Rustler
Level 15

Money Matters: Your Balance Sheet Is a Truth Serum For How You Run Your Business

Ok, I am confused, and that is probably because of my lack of accounting training.  I have had one course, 3101 intro to accounting in the fall semester of 1966.

Let's take the aricles bullet points about the benfits of the balance sheet.

    Are you managing debt responsibly or putting the business at risk?  Nothing in the article tells you how to arrive at this conclusion.  Debt, the amount of debt vs income vs liquid assets, vs equity is not metioned, or that what is considered acceptable debt is often industry dependent


    Do you invoice customers regularly and on-time?  I don't see this being shown anywhere on a balance sheet, all A/R does is show how much you are owed - there isn't even data on the balance sheet on aging.


    Are you spending or investing money you haven’t yet earned?  How is this different than the first bullet, managing debt responsibly?

QB is business software, the data is there, yet trying to get it out of QB for any kind of typical business analysis is almost always limited to exporting simple reports and then having to manually massage data, often using more than one report to get what you need.

Geb300
Level 1

Money Matters: Your Balance Sheet Is a Truth Serum For How You Run Your Business

I enjoyed that explaination

of a balance sheet in action

I am wanting to do all my own bookeeping for my business.

I took a bookkeeping course online but still do get it all.

 

I just aquired a second service van and had to sell it a at a loss.

When I was forced to buy it back from a member of my LLC 

We had the asset on our asset list

But the company had not paid for it. (Members contribution) member left  and now we need to account for its loss.

The total cost was 26000.00

We paid reinbursment settlement of 5600.00 to departing member for asset.

Sold asset 17000.00

had a 1800 deficit to the loan. Paid via credit line.

Paid off loan 18800 from checking what do I do?

 

 

 

Rustler
Level 15

Money Matters: Your Balance Sheet Is a Truth Serum For How You Run Your Business


@Geb300 wrote:

 

 

I just aquired a second service van and had to sell it a at a loss.

When I was forced to buy it back from a member of my LLC 

We had the asset on our asset list

But the company had not paid for it. (Members contribution) member left  and now we need to account for its loss.

The company did pay for it, the company asset value went up and members contribution went up.  Members contribution is the value the company owes the member, his share of total assets less total liability.

 

The total cost was 26000.00

So that is the value in the fixed asset account - van-2, correct?

 

We paid reinbursment settlement of 5600.00 to departing member for asset.

Well no, the departing member should have been paid his full share of equity, that value is more than just the van

 

Sold asset 17000.00

 

had a 1800 deficit to the loan. Paid via credit line.

What loan?  Your scenario is all about the member giving the van to the business in return for member equity.

 

Paid off loan 18800 from checking what do I do?

 

 

 How long have you had the van in service in the business?  Have you calculated and posted depreciation?


 

Vitan
Level 3

Money Matters: Your Balance Sheet Is a Truth Serum For How You Run Your Business

What if your equity (at the starting of quickbooks 01/2018) is negative? Are you doomed to always have that huge negative number on your balance sheet?

 

 

 

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