How many of you have ever asked this question?
Let’s start with the first part. A balance sheet is a financial statement that provides a snapshot of your company’s financial position at a specific point in time. It presents a summary of your company’s assets, liabilities, and shareholders’ (owner’s) equity.

Here are 5 reasons why you should have a balance sheet as part of your financial statement package.

1.  Financial Health: The balance sheet gives you a clear picture of your company’s financial health. It shows what your business owns (assets), what it owes (liabilities), and the net worth of your company (equity). What you own (assets) equals what you owe (liabilities) plus your net worth (equity).

2.  Decision Making: The balance sheet is a valuable tool for making informed business decisions. It can help you determine if you have enough cash to pay your bills or if you need additional financing. The relationships between the components can help assess your liquidity, solvency, and financial health.

3.  Credit Worthiness: Lenders, investors and suppliers will often review your balance sheet. A strong balance sheet, with healthy levels of assets and equity, can enhance your credibility and increase your chances of obtaining loans or attracting investors.

4.  Tracking Financial Performance: By comparing balance sheets from different periods, you can track the financial performance and progress of your business over time. Changes can provide insights into the effectiveness of your business strategies and operations and point out areas that need to be addressed to achieve your financial goals.

5.  Compliance and Reporting: Balance sheets are often required by regulatory bodies, tax authorities, and potential stakeholders. Maintaining an accurate and up to date balance sheet, you can ensure compliance with accounting standards and regulations, and facilitate smoother audit processes.