The balance sheet provides a snapshot of your company's overall financial health right now. It lists all of the company’s assets, liabilities and equity in one simple document. We'll cover what these three terms mean in this article.
It can be tempting to look only at the profit and loss (P&L) statement, which measures profitability, as an indicator of your company's current health. But the balance sheet offers a much more comprehensive overview.
The reason this report is called a "balance sheet" is that it represents an equation that always needs to balance. Your total liabilities, added to your total equity, always equals your total assets.
Reading the balance sheet
To locate the balance sheet in LivePlan, click on the Forecast tab and then Balance Sheet:
A standard balance sheet has three sections -- Assets, Liabilities, and Equity, as shown below. Under each of these lines, you'll see all the items that make up that section:
In the balance sheet, assets are everything your company currently owns that has cash value. These might include money in the bank, accounts receivable, inventory, and so on.
Note: The term "assets" can be a little confusing, because you may have also entered some asset entries into your forecast. Just know that those assets are part of your balance sheet assets, along with your cash, inventory, and A/R.
- Current assets are those that you can convert to cash within one year. They typically include cash, stocks, accounts receivable, prepaid expenses, and inventory. If you needed to liquidate some cash for your business quickly, the current assets give you an idea of how much is available.
- Long-term assets are things like equipment, machinery, vehicles, land and buildings, furniture and fixtures, and leasehold improvements -- items you'll use over a longer term. Because these assets depreciate over time, you'll also see an Accumulated Depreciation line in your balance sheet, tracking the decrease of these assets' value.
- Some other assets don’t fit within either of these categories, so the LivePlan balance sheet includes an “Other current assets” category for these items—typically any "Current Asset" entries you've created in your forecast.
In the balance sheet, liabilities are everything your company owes, such as accounts payable, credit card balances, loan repayments, and so on.
- Current liabilities are items you owe that are due within one year. These typically include things like lines of credit and short-term loans, or the portion of any longer-term loan you'll need to pay within one year. Current liabilities also include accounts payable and taxes payable.
- Long-term liabilities are business obligations that are due outside of one year, such as any bank debt or longer-term shareholder loans.
- Some balance sheets will have a Prepaid Revenue line as well. If you've set your forecast to spread out multi-month charges, and you are using recurring revenue (subscription) streams in your forecast, this line will appear. It basically represents the future value of a large subscription payment.
Equity is a measure of your company's net worth. It's the result you get when you subtract your liabilities from your assets. It's also defined as the total of all the money invested in your company, plus your accumulated profits. Owner’s equity includes common stock, retained earnings, and paid-in-capital (described below).
- Paid In Capital is the amount of money that's been invested in your business, either by yourself or by investors.
- Retained Earnings are the funds you have left at the end of the year. Essentially, retained earnings are your profits minus any dividends you've paid out to investors. These earnings are then re-invested into the company in the following year. If your retained earnings are in the negative, then your company is losing money.
- Earnings are the same as your company's profits. If your company is profitable, then your earnings will accumulate month by month in the balance sheet.
In LivePlan, the balance sheet is labeled “projected." This means that the numbers are estimates for future planning, not a record of your actual business performance. For a more detailed understanding of the balance sheet, we recommend reading the following articles:
Adding financing from the balance sheet
To add funding sources from the balance sheet, click the Add Asset, Add Loan, or Add Investment buttons:
Clicking the Add Asset button opens the same asset overlay accessible from the Assets step in the forecast.
Likewise, clicking either of the other buttons (Add Loan, Add Investment) opens the appropriate overlay from the Financing step in the forecast.
Entering starting balances
To enter starting balances for an existing company, click the Set Starting Balances button:
Then, follow the instructions in Entering starting balances.