hi I’m Evan Carmichael and today I
wanted to talk about a topic that a lot
of entrepreneurs are scared about but
shouldn’t be and that’s your balance
sheet many entrepreneurs no balance
sheet is something their accountant
gives them at the end of the year but
they don’t really know how to use it to
make important business decisions so in
this video I wanted to quickly talk
about what about sheet is what the
elements are and then give you some tips
and strategies and how you can use the
information in your balance sheet to run
your business potentially raise money
for your business and also sell your
business here we go to quickly explain
what a balance sheet is I’ve loaded my
simply accounting enterprise software
and you can go to reports click on
financials over to balance sheet and
this will help me prepare a balance
sheet for the company this is a
construction company here and there is
the balance sheet so the balance sheet
will basically tell you what your
business owns what it owes to other
people and then what you as a business
owner actually have in the business
that’s left over so if you look at the
assets here assets is what your company
will own the liabilities are going to be
what you owe to other people and then
the equity is going to be what you as
the entrepreneur will own in the actual
business so the formula is always assets
equals liabilities plus equity or if you
think about another way the assets what
your company owns minus the liability is
what you owe is what you end up with as
your equity in the company hopefully
that’s a lot of money so I want to
quickly just touch base on what each
category is so you have an understanding
under assets you can look at the first
category here is total current assets
and this these are assets that are
either cash or could be converted into
cash really quickly so you can see here
cash is here and then you to the biggest
one in the current assets are
receivables so accounts receivables are
money that’s basically owed to you you
we’ve either invoice them and they’re
you’re waiting on payment could be 30
days or 60 days or 90 days and you’re
waiting to get paid so hopefully that’ll
be converted pretty quickly inventory
assets is the second category and these
are items that you have that hopefully
can be converted quickly into cash if
you need it so if we look at what they
have here we’ve got drywall hardware
lumber roofing other so it’s a
construction company that would make
sense if they really needed to generate
cash they could probably sell this and
and make some money from it the next
category are capital assets and these
are items that you cannot convert into
cash very easily but are still worth a
lot of money so you can see on this
balance sheet here that they’ve got a
lot of capital assets so if you look at
that you’ll see things like furniture
equipment vehicles computers building
land so all things that have value but
it’s hard to convert into money if they
really need to do it quickly and in the
last category are other non-current
assets and these are things like
goodwill or if you have a patent that’s
potentially worth a lot of money you
would filter it here under non
current assets the next side is
liabilities and so this is going to be
what you owe as a company again it’s
going to be divided into current
liabilities and long-term liabilities so
for current liabilities this is money
that you basically will Oh within the
next year so it could be accounts
payable so something that you’ve bought
that you haven’t paid off yet credit
card debt bank loans bank advances
corporate taxes basically things that
you need to pay off within the next year
long term liabilities are is money that
you owe to other people or other
companies but that aren’t due until
beyond a year so it could be a bank loan
or mortgage or a loan from a shareholder
things that you have to pay off but you
don’t have to pay off within the next
year
so that’s how much liabilities you’ll
have and then the remainder is going to
be the equity and that’s going to be how
much you will own as the entrepreneur in
the business so again the key thing to
look at assets is what you own your
company owns liabilities what your
company owes to other people are
companies and if you subtract those two
you’ll end up with the equity which is
how much you have actually left in the
business so that’s what a balance she is
let me now show you how you can use the
information in your balance sheet to run
your business raise capital for your
business and then potentially sell your
business as well
two important numbers that we can get
from our balance sheet to help us run
our businesses our working capital and
turnover an accounts receivable so we’ll
start with working capital working
capital you may have heard before it is
basically your current assets minus your
current liabilities so if we look at our
current assets its 350,000 almost minus
our current liabilities of two hundred
twenty thousand dollars so we’ve got
some some good working capital of about
130,000 dollars what that basically
means is this company can survive in the
short term so if creditors come and say
hey we need our money now or if there’s
a crunch that no sales dry up and the
company needs to pay off you know those
liabilities they have the money to do it
if you owe a lot of money on your
liabilities and you don’t have money
coming in if there’s a big crunch if
sales drop off then it’s going to be
hard for you to raise the money to be
able to pay people off also being able
to pay things like salaries and
day-to-day expenses are a lot easier if
you have good working capital so you
want to make sure that your current
assets are greater than your current
liabilities and that will help ensure
that your company can survive in a short
term the second thing you look at is
your accounts receivable and a big part
of your current assets here you can see
is our accounts receivable so for this
company you know we have three hundred
and forty-six thousand current assets
accounts receivable is a big chunk of
that 236,000 this could be I’m getting
money right away or could mean I’m not
getting money for a long time so you
want to look at how frequently that
money comes in so is it you know 30 days
payable is it 60 days payables at 90
days payable because if you have a lot
of liabilities if you owe people money
that’s coming up the bank needs their
money regardless then you have to make
sure that that money is going to come in
on time the other thing you want to make
sure of is that people actually pay your
accounts receivable and that you’re
working with companies who will pay on
time so companies that you know don’t go
bankrupt or refuse to pay you you’re
still showing it here as hey you know
I’m over
two hundred thousand dollars but if they
don’t actually end up paying you the
money then it’s going to be hard time
for you to be able to run your business
so those two key numbers are really
important to look at for growing your
business again you want to look at your
working capital so your current assets
minus current liabilities and that will
tell you if you’re able to survive in
the short term with your business and
then look at your accounts receivable
and see when they’re due if the money is
going to be coming in on time for you to
pay off what you owe other companies and
if it’s likely that that money will come
in based on the types of clientele that
you’re working with
you
next up is raising capital if you’re
trying to raise capital from bankers or
from investors they want to definitely
take a look at your balance sheet so you
can make it as strong as you can by
first making sure that there’s assets to
lend against so they won’t care so much
about your current assets but they want
to look at your capital assets to see if
there’s anything that they can lend
against so especially bankers want to
see that you have a lot of assets so if
you have land or if you have a building
or if you have any furniture equipment
that has some significant value then
they’re thinking well they don’t pay off
this debt I can take away that building
or could take away that land and sell it
and I can make my money back they want
to have that security that you have an
asset there that they can take away from
you if you don’t make your payments so
they want to make sure that you have
those capital assets available the other
thing that they’re going to want to look
at is how much debt do you already have
so we’re going to look at your
liabilities especially the long-term
liabilities and see do you already have
bank loans you already have a mortgage
you have lonesome shareholders if you
already have a lot of liabilities and
you’re owning people a lot of money is
going to be a lot harder for you to be
able to raise capital because even
though you have great assets you’re
already maxed out and it’s harder to
leverage those assets even more
if you’re trying to sell your business
the potential buyer is definitely going
to want to look at your balance sheet so
I want to talk about a couple things are
going to want to look at if we’re
looking at assets they’re going to
definitely check out your current assets
and look at your receivables so your
accounts receivables they’re going to
want to see how big is it and do your
clients have a history of pain like yes
well we have two hundred thirty six
thousand dollars in accounts receivable
but you know our clients don’t often pay
us on time or don’t pay us at all then
you’re going to get that number knocked
back significantly the other thing here
is inventory assets if you carry a lot
of inventory to go on and see what is
the likelihood that you’re actually
going to use all of this stuff in your
business and if they had to sell it for
cash if something happened and you had
to get rid of you know your hardware for
example could you actually sell it for
ninety eight thousand dollars is it
worth that much or is it worth a lot
less if you’re going to sell the actual
hardware itself so they’re going to look
at every single number on your balance
sheet and start asking you questions to
see if your company is actually worth
the amount that you say it’s worth one
last thing you look at here we had the
other non-current assets this again is
patents Goodwill’s here it’s also called
intangible assets they’re called
intangible because it’s really hard to
get an actual value on it how do you
value what a patent is worth so you
might think it’s worth a lot often
buyers will say you know zero dollars
i’m not giving any value assigned to
that so something to be prepared for the
other thing if I just close this up that
a potential investor is going to look at
is do you have a track record of success
so you can create a balance sheet for
every year that you’ve been in business
and hopefully you’ve been around for a
little bit and they’re going to want to
see that you’ve grown the business so
that you’ve you’ve gained assets and
that you’ve gained in your equity so
they can see that your business is
growing you’re acquiring more assets it
could be land and buildings and that
kind of stuff more equipment to grow the
business and also it’s great that you’ve
acquired more assets but they want to
see that you’re reducing your
liabilities or at least your equity is
growing faster than your liabilities so
if your assets are going up then either
your liabilities or your equity have to
be going up so hopefully it’s the equity
side and that’s what you’re your own
value in the business is instead of you
financing the growth by taking on tons
of debt a new a new owner doesn’t want
to come into a business and have to pay
off huge amounts of debt so they’re
typically going to look at three years
or five years growth if you have that if
you don’t have that then as much as you
can but definitely be prepared with your
balance sheets because it makes you look
a lot more professional makes you look
like a serious business person and it
increases the chances that you’ll be
able to sell your business and hopefully
get a good price for it thank you for
joining me for this video I hope you
enjoy and it gave you some more
information about what a balance sheet
is and how you can use it to make
important decisions for your business if
you did enjoy the video please give it a
thumbs up below I’d also love to hear
thoughts and feedback if you want to
leave a comment and stay tuned for the
next episode
you
wanted to talk about a topic that a lot
of entrepreneurs are scared about but
shouldn’t be and that’s your balance
sheet many entrepreneurs no balance
sheet is something their accountant
gives them at the end of the year but
they don’t really know how to use it to
make important business decisions so in
this video I wanted to quickly talk
about what about sheet is what the
elements are and then give you some tips
and strategies and how you can use the
information in your balance sheet to run
your business potentially raise money
for your business and also sell your
business here we go to quickly explain
what a balance sheet is I’ve loaded my
simply accounting enterprise software
and you can go to reports click on
financials over to balance sheet and
this will help me prepare a balance
sheet for the company this is a
construction company here and there is
the balance sheet so the balance sheet
will basically tell you what your
business owns what it owes to other
people and then what you as a business
owner actually have in the business
that’s left over so if you look at the
assets here assets is what your company
will own the liabilities are going to be
what you owe to other people and then
the equity is going to be what you as
the entrepreneur will own in the actual
business so the formula is always assets
equals liabilities plus equity or if you
think about another way the assets what
your company owns minus the liability is
what you owe is what you end up with as
your equity in the company hopefully
that’s a lot of money so I want to
quickly just touch base on what each
category is so you have an understanding
under assets you can look at the first
category here is total current assets
and this these are assets that are
either cash or could be converted into
cash really quickly so you can see here
cash is here and then you to the biggest
one in the current assets are
receivables so accounts receivables are
money that’s basically owed to you you
we’ve either invoice them and they’re
you’re waiting on payment could be 30
days or 60 days or 90 days and you’re
waiting to get paid so hopefully that’ll
be converted pretty quickly inventory
assets is the second category and these
are items that you have that hopefully
can be converted quickly into cash if
you need it so if we look at what they
have here we’ve got drywall hardware
lumber roofing other so it’s a
construction company that would make
sense if they really needed to generate
cash they could probably sell this and
and make some money from it the next
category are capital assets and these
are items that you cannot convert into
cash very easily but are still worth a
lot of money so you can see on this
balance sheet here that they’ve got a
lot of capital assets so if you look at
that you’ll see things like furniture
equipment vehicles computers building
land so all things that have value but
it’s hard to convert into money if they
really need to do it quickly and in the
last category are other non-current
assets and these are things like
goodwill or if you have a patent that’s
potentially worth a lot of money you
would filter it here under non
current assets the next side is
liabilities and so this is going to be
what you owe as a company again it’s
going to be divided into current
liabilities and long-term liabilities so
for current liabilities this is money
that you basically will Oh within the
next year so it could be accounts
payable so something that you’ve bought
that you haven’t paid off yet credit
card debt bank loans bank advances
corporate taxes basically things that
you need to pay off within the next year
long term liabilities are is money that
you owe to other people or other
companies but that aren’t due until
beyond a year so it could be a bank loan
or mortgage or a loan from a shareholder
things that you have to pay off but you
don’t have to pay off within the next
year
so that’s how much liabilities you’ll
have and then the remainder is going to
be the equity and that’s going to be how
much you will own as the entrepreneur in
the business so again the key thing to
look at assets is what you own your
company owns liabilities what your
company owes to other people are
companies and if you subtract those two
you’ll end up with the equity which is
how much you have actually left in the
business so that’s what a balance she is
let me now show you how you can use the
information in your balance sheet to run
your business raise capital for your
business and then potentially sell your
business as well
two important numbers that we can get
from our balance sheet to help us run
our businesses our working capital and
turnover an accounts receivable so we’ll
start with working capital working
capital you may have heard before it is
basically your current assets minus your
current liabilities so if we look at our
current assets its 350,000 almost minus
our current liabilities of two hundred
twenty thousand dollars so we’ve got
some some good working capital of about
130,000 dollars what that basically
means is this company can survive in the
short term so if creditors come and say
hey we need our money now or if there’s
a crunch that no sales dry up and the
company needs to pay off you know those
liabilities they have the money to do it
if you owe a lot of money on your
liabilities and you don’t have money
coming in if there’s a big crunch if
sales drop off then it’s going to be
hard for you to raise the money to be
able to pay people off also being able
to pay things like salaries and
day-to-day expenses are a lot easier if
you have good working capital so you
want to make sure that your current
assets are greater than your current
liabilities and that will help ensure
that your company can survive in a short
term the second thing you look at is
your accounts receivable and a big part
of your current assets here you can see
is our accounts receivable so for this
company you know we have three hundred
and forty-six thousand current assets
accounts receivable is a big chunk of
that 236,000 this could be I’m getting
money right away or could mean I’m not
getting money for a long time so you
want to look at how frequently that
money comes in so is it you know 30 days
payable is it 60 days payables at 90
days payable because if you have a lot
of liabilities if you owe people money
that’s coming up the bank needs their
money regardless then you have to make
sure that that money is going to come in
on time the other thing you want to make
sure of is that people actually pay your
accounts receivable and that you’re
working with companies who will pay on
time so companies that you know don’t go
bankrupt or refuse to pay you you’re
still showing it here as hey you know
I’m over
two hundred thousand dollars but if they
don’t actually end up paying you the
money then it’s going to be hard time
for you to be able to run your business
so those two key numbers are really
important to look at for growing your
business again you want to look at your
working capital so your current assets
minus current liabilities and that will
tell you if you’re able to survive in
the short term with your business and
then look at your accounts receivable
and see when they’re due if the money is
going to be coming in on time for you to
pay off what you owe other companies and
if it’s likely that that money will come
in based on the types of clientele that
you’re working with
you
next up is raising capital if you’re
trying to raise capital from bankers or
from investors they want to definitely
take a look at your balance sheet so you
can make it as strong as you can by
first making sure that there’s assets to
lend against so they won’t care so much
about your current assets but they want
to look at your capital assets to see if
there’s anything that they can lend
against so especially bankers want to
see that you have a lot of assets so if
you have land or if you have a building
or if you have any furniture equipment
that has some significant value then
they’re thinking well they don’t pay off
this debt I can take away that building
or could take away that land and sell it
and I can make my money back they want
to have that security that you have an
asset there that they can take away from
you if you don’t make your payments so
they want to make sure that you have
those capital assets available the other
thing that they’re going to want to look
at is how much debt do you already have
so we’re going to look at your
liabilities especially the long-term
liabilities and see do you already have
bank loans you already have a mortgage
you have lonesome shareholders if you
already have a lot of liabilities and
you’re owning people a lot of money is
going to be a lot harder for you to be
able to raise capital because even
though you have great assets you’re
already maxed out and it’s harder to
leverage those assets even more
if you’re trying to sell your business
the potential buyer is definitely going
to want to look at your balance sheet so
I want to talk about a couple things are
going to want to look at if we’re
looking at assets they’re going to
definitely check out your current assets
and look at your receivables so your
accounts receivables they’re going to
want to see how big is it and do your
clients have a history of pain like yes
well we have two hundred thirty six
thousand dollars in accounts receivable
but you know our clients don’t often pay
us on time or don’t pay us at all then
you’re going to get that number knocked
back significantly the other thing here
is inventory assets if you carry a lot
of inventory to go on and see what is
the likelihood that you’re actually
going to use all of this stuff in your
business and if they had to sell it for
cash if something happened and you had
to get rid of you know your hardware for
example could you actually sell it for
ninety eight thousand dollars is it
worth that much or is it worth a lot
less if you’re going to sell the actual
hardware itself so they’re going to look
at every single number on your balance
sheet and start asking you questions to
see if your company is actually worth
the amount that you say it’s worth one
last thing you look at here we had the
other non-current assets this again is
patents Goodwill’s here it’s also called
intangible assets they’re called
intangible because it’s really hard to
get an actual value on it how do you
value what a patent is worth so you
might think it’s worth a lot often
buyers will say you know zero dollars
i’m not giving any value assigned to
that so something to be prepared for the
other thing if I just close this up that
a potential investor is going to look at
is do you have a track record of success
so you can create a balance sheet for
every year that you’ve been in business
and hopefully you’ve been around for a
little bit and they’re going to want to
see that you’ve grown the business so
that you’ve you’ve gained assets and
that you’ve gained in your equity so
they can see that your business is
growing you’re acquiring more assets it
could be land and buildings and that
kind of stuff more equipment to grow the
business and also it’s great that you’ve
acquired more assets but they want to
see that you’re reducing your
liabilities or at least your equity is
growing faster than your liabilities so
if your assets are going up then either
your liabilities or your equity have to
be going up so hopefully it’s the equity
side and that’s what you’re your own
value in the business is instead of you
financing the growth by taking on tons
of debt a new a new owner doesn’t want
to come into a business and have to pay
off huge amounts of debt so they’re
typically going to look at three years
or five years growth if you have that if
you don’t have that then as much as you
can but definitely be prepared with your
balance sheets because it makes you look
a lot more professional makes you look
like a serious business person and it
increases the chances that you’ll be
able to sell your business and hopefully
get a good price for it thank you for
joining me for this video I hope you
enjoy and it gave you some more
information about what a balance sheet
is and how you can use it to make
important decisions for your business if
you did enjoy the video please give it a
thumbs up below I’d also love to hear
thoughts and feedback if you want to
leave a comment and stay tuned for the
next episode
you
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