Tag Archives: income

The Balance Sheet: The Unappreciated Statement

The Balance Sheet: The Unappreciated Statement

I have prepared financial statements for business owners throughout my entire career. A standard set of financial statements can be a wealth of information when it comes to operating a successful business. Too often the value of these tools is unappreciated by the business owner. Many times, their attention goes straight to the bottom line of the Profit and Loss statement to see how much profit was made. The other statement, The Balance Sheet, gets ignored.

The Balance Sheet is in many ways the most important statement. It is here that the financial strength of the business can be determined with a little analysis. It is the statement the banks scrutinize the most to determine how credit worthy a business may be. To look at a Profit and Loss statement and ignore the Balance sheet can lead a business owner to make unsound decisions based upon an incomplete financial picture.

For example: suppose you borrowed $50,000 to start your business. In your first year you have $125,000 of income and $100,000 in expenses. If you only looked at the Profit and Loss statement, you would think the business is doing very well and would be credit worthy since it did so much business and was profitable. However, your opinion may be different if you were to look at the Balance Sheet and see that the checking account only had $2,000 in it, the owner only invested $5,000 of their own money into the business and the business was $45,000 in debt! This business does not appear to have the financial resources to pay too many bills.

Conversely, a business could experience a $25,000 loss in their first year. Simply based upon the Profit and Loss Statement they would not appear to be credit worthy at all. But if you looked at the Balance Sheet and saw that there was $15,000 in the checking account and the customers owed the business another $35,000 your opinion may be different.

If, like many others, you’ve been operating based only on your Profit & Loss Statement, feel free to give my office a call. We can help you uncover the valuable information you’ve been missing, and learn the true strength of your business.

Don’t be Afraid to Raise your Prices!

Don’t be Afraid to Raise your Prices!

This morning I met with a small contractor to review his year to date results of operations and compute the income tax he should submit by Sept. 15th. During the meeting he mentioned how busy he has been and that he is turning down offers to look at more work because he is already scheduled… Continue Reading

New Tax Warning to Employees

New Tax Warning to Employees

Employees beware! The new withholding tax tables that have been published may cause your employers to under withhold the federal tax from your paychecks. If your employer utilizes these new tables, they are doing nothing wrong. However, the tables incorporate the tax cuts under the new law by lowering the withholding amounts. While this gives… Continue Reading

Can you afford to retire?

Can you afford to retire?

Since the end of tax season, I have met with two new clients who are considering starting their own businesses. We discussed the benefits and disadvantages of many aspects of self-employment. I found it interesting that neither considered having a pension to be of high importance. More and more people seem to be retiring early… Continue Reading