Your Balance Sheet Matters. Here’s Why.

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Why Your Balance Sheet Matters

Your balance sheet is a key piece of publicly available financial information.  It provides a snapshot of the financial status of your Company and allows a reader to make certain assumptions on the financial health of your business which means your balance sheet really matters on a business and even personal level.

balance sheet

Credit Worthiness

If you are applying for credit from a supplier or a loan you will be asked to show your  Company Balance Sheet.  As part of the assessment of whether you should receive credit or not, your balance sheet will be used to assess how much debt your business currently has and its ability to meet this existing debt, as well as any further debt.

A potential supplier may look at your balance sheet to gain an feel, for example, of your cash position whether you are in a net asset position to give them comfort that you will be able to pay them in accordance with the credit terms they are considering offering you.

Your Cash Position

Your balance sheet shows how much cash you have at a particular point in time.  Holding huge amount of cash can indicate a business that may be holding itself back by not spending the money it needs to grow and develop.  However having little or no cash can be a worrying sign too indicating an overstretched or badly managed business.

Your Competitors See It

Your balance sheet is publicly available at Companies House as part of your Abbreviated Accounts and your competitors are probably looking at it since it gives them a snapshot of your financial health, an idea of your staying power, how you fund your business, as well as details of who owns the business.

Mortgages

Your business balance sheet impact extends into your personal life.  If you run a Business, some lenders will take into account your business earnings when calculating how much you can borrow.

Demonstrating you have a strong balance sheet will help if you are trying to get business credit, bank loans and funding.  But it also extends to your personal life if you own a Limited Company if you are trying to get a mortgage since some lenders will take into account your shareholder funds when working out how much you can borrow.  So if you are approaching your financial year end your may want to keep in mind 4 simple ways you can strengthen your balance sheet.

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