Analysing Performance Of The Balance Sheet

The balance sheet for your business gives you a 'snapshot'
view of what the business is worth, its assets and liabilities, at
one particular moment in time. Usually this is at the end of the
financial year and allows you to compare the situation of the
business from one year to the next but you can also draw up
quarterly or even monthly balance sheets. The balance sheet
should be produced once your trading profit and loss account
has been drawn up.

The Balance Sheet

A balance sheet shows:

-The financial situation of the
organisation at a particular time

-The change from one period
(usually a year) to the next

-How much money is in the business

-The balance of assets Vs liabilities
and fixed assets Vs liquid assets

A balance sheet is concerned with 3 things:

Assets

Liabilities

Capital

What Can The Balance Sheet Tell You?

A balance sheet can tell you how much the business or organisation is worth. For
community-based organisations it also can tell you how much the community has
increased the assets under its control and therefore how powerful or healthy it is.
This can only ever be a ’general’ figure, showing the underlying value of the funds
in the organisation at that particular time. No-one can safely predict the future. But
compared with previous years it is a simple measure of performance.

Profit and Loss Accounts - Accounting Basics Every Business Owner Should Know

There is absolutely no doubt that business owners, especially those who attached with small businesses should have a firm understanding of the basics of accountancy and bookkeeping. This is not to suggest of course, that they should be able to set themselves up as accountants in their own right, or indeed that they should be attempting to take the place that should rightly be filled by an accountant in their own business, but far too many business owners totally abdicate all responsibility for their business finances and hand it all over to their accountant, without the slightest idea what he will do with it.

This state of affairs is a very dangerous way to run a business of any size; a good business owner should be able to sit down with his accountant and discuss things, and understand what he is being told. The same goes for bookkeeping; there is nothing wrong with hiring a professional to keep your books, but there is no excuse for not knowing how they are kept.

Take for instance P&L or 'Profit and Loss', for some business owners the very thought of looking at something that sounds so accountancy is terrifying, and yet this particular job is so incredibly simple as to be almost child's play. It is also an incredibly important tool in business, as it allows the business owner to check how well or otherwise their business is doing.

A P&L account, although only needed on a formal basis if you are a Limited Company, in which case a full account will need to be submitted to HMRC each year to enable them to assess for Corporation Tax, is essentially, as the name suggests, a report of the profit and any losses made by your firm usually over a 12 month period. To prepare a P&L account, simply take a summary of all your business' expenditure and sales and deduct your expenditure from your sales and you will have your profit (or loss).

If you are looking for any sort of future funding for your business, an accurate P&L will be vital, as most lenders won't move without one, but it will also help you to know whether or not your business is moving in the right direction; making a continually loss will set alarm bells ringing.

In order to make your P&L as accurate as it should be, your records will need to be properly kept, without omissions or missing information. The figure that comes out at the end will only be as accurate as the figures you have used to produce it, so ensure that you are careful.

Like so much of the rest of the rather complex sounding business terminology P&L is actually very simple, and nothing more or less than the answer to a subtraction sum.

So, the next time that an accountant wants to talk profit and loss over tea and crumpets, tell them you'd be happy to and perhaps take a little more control over other aspects of your business' finance; the rewards you reap may be more than simply financial.