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How Business Plans Work

Financials: Balance Sheet

Your balance sheet gives a bird's eye view of your financial situation (or projection) at a given date in time. You'll typically create a balance sheet for the last day of your fiscal year. It includes your assets and liabilities and tells you your business's net worth. As a startup, this will of course be speculative and based on your own assumptions. Unlike the other financial statements, the balance sheet should follow a strict format and include standard information in a specific order because it is used for analysis and comparison. You can define your categories to more closely fit your business, but don't stray from the order.

Start with your Assets. These should include:

  • Current assets - such as cash from all accounts and accessible sources (stocks, bonds, CDs, etc.), and resources that you can convert to cash within one year, all accounts receivables, all inventories (include any materials used for production), and any prepaid expenses such as insurance premiums, and supplies. (NOTE: To come up with a realistic estimate of your accounts receivable, you might estimate that you'll still be waiting to receive payment for 30% of sales two months prior to that date, 60% of sales one month prior, and all of sales of the given month of your balance sheet.)
  • Fixed assets - items that have an expected useful business life that can be measured in longer periods of time such as land, equipment, buildings, vehicles, and furniture.
  • Long-term investments and other assets - these include intangible assets such as copyrights, patents, and stocks or bonds that the company intends to keep for more than one year.

Liabilities should include:

  • Current liabilities - all of your payables including accounts payable, notes payable, taxes, payroll expenses, interest on borrowed capital, and any other payment obligations for the current year.
  • Long-term liabilities - include all notes payable such as mortgages, contract payments, etc. that are due over a period greater than one year.

Next comes Net Worth which is the owner's equity and is simply the total liabilities subtracted from the total assets.

Finally, add the total liabilities to the net worth to get to your bottom line. (See sample Balance Sheet.)

Again, it would be wise to have an accountant either prepare or review these statements to ensure that they are prepared correctly and accurately.

View Financials for PDAware.