How to Create a Business Plan Balance Sheet - dummies

How to Create a Business Plan Balance Sheet

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

Your balance sheet gives you a snapshot of what your business is worth at a particular moment in time. To make the calculation, tally up the monetary value of everything your company owns and then subtract the money you owe to others.

What you own are your assets and what you owe are your liabilities. The difference between the two is what your company is worth, usually referred to as the equity in your business.

You can represent your balance sheet in a really straightforward equation:

Equity = Assets – Liabilities

In a bizarre attempt to ensure job security, however, accountants rewrote the equation as follows:

Assets = Liabilities + Equity

This equation is the very same as the other — it’s just harder to grasp. Go figure. Anyway, the layout of your company’s balance sheet follows this second equation. The top half of the balance sheet lists your business assets, divided into a number of basic categories. The bottom half lists your liabilities by category and then tacks on your equity in the business.

The total value of assets must be equal to the value of liabilities plus equity. In other words, the top half has to balance out the bottom half. How they balance each other tells you a lot about your company’s financial health.

At the very least, put together a balance sheet on the last day of each year. Include the numbers for the end of the previous year as well so you can compare how your assets, liabilities, and equity have changed over the year.