hi I’m Evan Carmichael welcome to a
special edition of ask Evan today we’re
going to look at what is the role of the
balance sheet and how can you use it to
make important decisions for your
business into a recently ran a survey
which found that the single biggest
reason that most small businesses don’t
succeed is that they lack the financial
literacy skills to navigate the
obstacles in front of them only
51-percent of companies that start up
today will still be around five years
from now in order to change that we’re
creating a new series of posts on
financial literacy to help you make
sense to the information in front of you
today we’re going to look at what the
role the balance sheet is and how it can
be used to help you grow your business
what is the role of the balance sheet at
a very high level the balance she
represents what resources your company
owns the assets versus how much you owe
to others your liabilities the
difference is your owner’s equity in the
company let’s start with the assets
using my quickbooks online account I’m
going to check out a sample balance
sheet for you to have a look at this is
data from a sample company craig’s
designed and landscaping services the
assets are split in the current assets
and fixed assets current assets are cash
and things that can be converted into
cash in a relatively short amount of
time in craigs case he has a few bank
accounts accounts receivable and some
undeposited funds fixed assets are
permanent investments that are used to
run the business but are not actually
for sale by the business in craigs cases
only fixed asset as this truck but it
can also include equipment buildings
lands patents and so on now let’s look
at Craigs liabilities in owner’s equity
liabilities are split in the current
liabilities and long-term liabilities
current liabilities are what your
company owes it has to pay off within a
year from the balance sheet being
created in Craig’s case he has accounts
payable credit cards loans and sales tax
to pay long-term liabilities are
everything else at your company owes
that is due beyond one year for the
balance sheet being created in Craig’s
case his only long-term liability is a
note payable now a balance sheet has to
well balanced so the difference between
your assets and your liabilities is your
equity if we look at cranks complete
balance sheet you’ll see that he has
30,000 $275 in liabilities and only
twenty-six thousand six hundred
eighty-four dollars in assets which
gives him a negative equity of three
thousand five hundred and ninety dollars
so how does this help none of you know
what the numbers mean and their values
you can start making important business
decisions from them here are a few to
consider number one current assets to
current liabilities also known as
working capital you want to have more
current assets compared to current
liabilities this will help ensure that
you have enough money to find your
short-term debts as well as the
day-to-day operations of your business
if your current liabilities are more
than your current assets then you’re
going to feel a major cash crunch within
the next year your options could be to
make more sales sell some inventory
restructure your loans or apply for
short-term financing if we look at
Craigs data he has thirteen thousand two
hundred and thirty-nine dollars in
current assets and only 5275 in current
liabilities so right now he doesn’t have
to worry number two fixed assets to
long-term liabilities you also want to
have more fixed assets than long through
liabilities this will help ensure that
you have enough in the business to find
your longer-term debts ideally you want
your long-term liabilities to be around
fifty to seventy percent of your fixed
assets if your ratio is higher remember
that the value of fixed assets like land
buildings patents and so on often
increase with time and your best bet
would be to try refinance and pitch your
lender that it’s better to have them
keep you around and making payments
rather than force you into liquidity
looking at Craigs data we see he’s in
trouble his fixed assets total 13,000
445 and his long-term liabilities are
$25,000 this means that if you can’t
turn his business around he’s going to
be in serious cash crunch after the year
is up
number three raising capital finally
let’s look at the story about she chose
the potential investors if you want to
raise money any investor or lender will
want to see your balance sheet they’re
going to look at your working capital
see if you can survive in a short run
and they’ll compare your fixed assets to
your long-term liabilities to see if you
can survive in the long run but they’re
also going to look at your equity they
want to see how much you have in the
business if you don’t have much equity
it’s going to make it hard for them to
give you any kind of money because
you’re very high risk looking at Craigs
data again he’s in trouble here’s
negative equity of three thousand five
hundred and ninety dollars he took out a
twenty-five-thousand-dollar loan and
spent thirteen thousand and a half
approximately on a truck where did the
other eleven thousand five hundred
dollars go while Craig’s company has
some positive signs in that it has over
three thousand dollars in net income
which means the company earned more in
revenue than it’s been in expenses it
would be very hard for Craig to convince
someone to give him more money without
proving you can do better or providing a
personal guarantee to wrap up it all
starts with the tools seventy-six
percent of entrepreneurs we use
financial software or solution or
accountant provided feel confident that
they have a strong grasp of financial
management principles if you know where
the problems are ahead of time you can
plan for them so you’re not constantly
putting out fires as they happen here’s
your next step starting the business can
be empowering but it also demands a
level financial understanding to make
sure your business succeeds to help
address this need of financial expertise
into it is offering free one-on-one
consultation for small businesses with
their into it pro advisors entrepreneurs
can go to wwc re com / into a canada to
set up a free consultation today thank
you for joining me for another edition
of ask Evan if you liked this video you
want to see more please give it a thumbs
up below what makes me want to do more
of these videos for you guys I’d also
love to hear what you have to think if
you want to leave a comment under the
video I always read those and I love
seeing them come in so thank you i will
see you on the next episode
I
you
special edition of ask Evan today we’re
going to look at what is the role of the
balance sheet and how can you use it to
make important decisions for your
business into a recently ran a survey
which found that the single biggest
reason that most small businesses don’t
succeed is that they lack the financial
literacy skills to navigate the
obstacles in front of them only
51-percent of companies that start up
today will still be around five years
from now in order to change that we’re
creating a new series of posts on
financial literacy to help you make
sense to the information in front of you
today we’re going to look at what the
role the balance sheet is and how it can
be used to help you grow your business
what is the role of the balance sheet at
a very high level the balance she
represents what resources your company
owns the assets versus how much you owe
to others your liabilities the
difference is your owner’s equity in the
company let’s start with the assets
using my quickbooks online account I’m
going to check out a sample balance
sheet for you to have a look at this is
data from a sample company craig’s
designed and landscaping services the
assets are split in the current assets
and fixed assets current assets are cash
and things that can be converted into
cash in a relatively short amount of
time in craigs case he has a few bank
accounts accounts receivable and some
undeposited funds fixed assets are
permanent investments that are used to
run the business but are not actually
for sale by the business in craigs cases
only fixed asset as this truck but it
can also include equipment buildings
lands patents and so on now let’s look
at Craigs liabilities in owner’s equity
liabilities are split in the current
liabilities and long-term liabilities
current liabilities are what your
company owes it has to pay off within a
year from the balance sheet being
created in Craig’s case he has accounts
payable credit cards loans and sales tax
to pay long-term liabilities are
everything else at your company owes
that is due beyond one year for the
balance sheet being created in Craig’s
case his only long-term liability is a
note payable now a balance sheet has to
well balanced so the difference between
your assets and your liabilities is your
equity if we look at cranks complete
balance sheet you’ll see that he has
30,000 $275 in liabilities and only
twenty-six thousand six hundred
eighty-four dollars in assets which
gives him a negative equity of three
thousand five hundred and ninety dollars
so how does this help none of you know
what the numbers mean and their values
you can start making important business
decisions from them here are a few to
consider number one current assets to
current liabilities also known as
working capital you want to have more
current assets compared to current
liabilities this will help ensure that
you have enough money to find your
short-term debts as well as the
day-to-day operations of your business
if your current liabilities are more
than your current assets then you’re
going to feel a major cash crunch within
the next year your options could be to
make more sales sell some inventory
restructure your loans or apply for
short-term financing if we look at
Craigs data he has thirteen thousand two
hundred and thirty-nine dollars in
current assets and only 5275 in current
liabilities so right now he doesn’t have
to worry number two fixed assets to
long-term liabilities you also want to
have more fixed assets than long through
liabilities this will help ensure that
you have enough in the business to find
your longer-term debts ideally you want
your long-term liabilities to be around
fifty to seventy percent of your fixed
assets if your ratio is higher remember
that the value of fixed assets like land
buildings patents and so on often
increase with time and your best bet
would be to try refinance and pitch your
lender that it’s better to have them
keep you around and making payments
rather than force you into liquidity
looking at Craigs data we see he’s in
trouble his fixed assets total 13,000
445 and his long-term liabilities are
$25,000 this means that if you can’t
turn his business around he’s going to
be in serious cash crunch after the year
is up
number three raising capital finally
let’s look at the story about she chose
the potential investors if you want to
raise money any investor or lender will
want to see your balance sheet they’re
going to look at your working capital
see if you can survive in a short run
and they’ll compare your fixed assets to
your long-term liabilities to see if you
can survive in the long run but they’re
also going to look at your equity they
want to see how much you have in the
business if you don’t have much equity
it’s going to make it hard for them to
give you any kind of money because
you’re very high risk looking at Craigs
data again he’s in trouble here’s
negative equity of three thousand five
hundred and ninety dollars he took out a
twenty-five-thousand-dollar loan and
spent thirteen thousand and a half
approximately on a truck where did the
other eleven thousand five hundred
dollars go while Craig’s company has
some positive signs in that it has over
three thousand dollars in net income
which means the company earned more in
revenue than it’s been in expenses it
would be very hard for Craig to convince
someone to give him more money without
proving you can do better or providing a
personal guarantee to wrap up it all
starts with the tools seventy-six
percent of entrepreneurs we use
financial software or solution or
accountant provided feel confident that
they have a strong grasp of financial
management principles if you know where
the problems are ahead of time you can
plan for them so you’re not constantly
putting out fires as they happen here’s
your next step starting the business can
be empowering but it also demands a
level financial understanding to make
sure your business succeeds to help
address this need of financial expertise
into it is offering free one-on-one
consultation for small businesses with
their into it pro advisors entrepreneurs
can go to wwc re com / into a canada to
set up a free consultation today thank
you for joining me for another edition
of ask Evan if you liked this video you
want to see more please give it a thumbs
up below what makes me want to do more
of these videos for you guys I’d also
love to hear what you have to think if
you want to leave a comment under the
video I always read those and I love
seeing them come in so thank you i will
see you on the next episode
I
you
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