The basic equation
A balance sheet represents the financial state of your business in an easy-to-digest format. It's often used as a report card of your company's value to help attract investors.
"The best way for [investors] to know how you’re going to treat their money is how you treat your money," says Emily Chase Smith, Esq., author of The Financially Savvy Entrepreneur. "It’s similar to the way a traditional mortgage lender looks at a credit report. An investor looks at your financial statements, including your balance sheet and your income statement, to see what's going on historically and what's going on right now."
The structure of a balance sheet is built around a basic financial accounting equation:
Assets minus Liabilities = Owner’s Equity
Here’s a breakdown of those terms as well as valuable tips, resources, and examples to help you create a snapshot of your business financials.