Recall that your P&L, or income statement, is like a movie in that it covers a period of time within your business. Your balance sheet is more like a snapshot in time since it is taken on a particular date in time (for example, December 31, 2019).
The balance sheet is a record of the things you own and what you owe. Like the P&L, it is a very useful tool to compare with the same date in time for previous years to determine how your business is performing year to year.
An important note about the balance sheet is that if you are using cash-based accounting, your accounts receivables and inventory will not show up on your balance sheet. This can make a significant difference in the wealth within your business and your financial statements. Your banker will typically refer to your balance sheet to determine your retained earnings (wealth) in the business.
A common error I see business owners making is taking too much cash out of the business rather than building wealth. When you do this, you are putting your business at greater risk in the event something goes wrong.
If you would like to have a better understanding of your financials and how to increase top-line revenue and bottom-line profit, give us a call. We are experts in business. 503-312-3145