Purpose of a Balance Sheet

The balance sheet boldly declares where a business stands at a given moment in time.  From the balance sheet, a financially sophisticated reader can learn an immense amount of valuable information about a business and its viability.  That is why potential investors and lenders will almost always ask you for a copy of your financial statements, including the balance sheet, income statement, statement of retained earnings, and statement of cash flows.  This is also why you, as a savvy entrepreneur, need to understand the information presented on them.

Why It Is Important

The principal reason your business’s balance sheet is so important to you and to any potential investors or lenders is that it is like a photograph of your business.  It tells how the business is put together, what its principal resources are and where any potential dangers lie.  Like any portrait it is incomplete, in that it only shows one fleeting moment in time, and therefore is most useful in conjunction with the income statement and by comparing several balance sheets over a period of time.  Ahh, this is where the real story begins to unfold!  The clever entrepreneur becomes the Sherlock Holmes of the balance sheet and astutely looks for trends over time and checks ratios and balances to see which direction the company is headed in and to look for any potential to cut costs or perform more efficiently.

To read the rest of this article by Tyler from WebBizFinance.com, please go to http://bit.ly/a1BLQs

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