We covered looking at your balance sheet some time ago, and wanted to refresh you on why it is so important.
Building up your balance sheet can help you with your future with the business, if you were ever to sell your company on to a potential buyer, this is an important area that the buyer will be looking at.
Its not just about profitability and turnover, the balance sheet is an indication that you are growing your branding, a business that has thought about strengthing and building up the balance sheet is worth considerably more than one that focuses just in the present. ie turnover and profit.
The example we have below, is fine for a small business and will probably have a good credit score as its positive in both the net current assets (Working Capital) and the overal value.
But if youre talking about a business thats worth selling you are going to need a plan, this could be a 5-10 year plan, its certainly not short term.
Will need to be assets in both the fixed assets sections and current assets, this could be by buying equipment or machinery to make yourself more efficient and do a higher volume, buying a company with skills or equipment that brings Goodwill into the assets section, quite a lot of larger companies do this, they purchase mailing lists, and client lists, from smaller companies, to rapidly increase their net worth, and increase turnover.
Current assets would be building up your turnover, and therefore your debtors increasing. Keeping an all important eye on the costs, and keeping the creditors to a reasonable level.
Long term liabilities are usually loans that are paid more than one year ahead, and maybe the director loans, if the owner hasnt taken back all of their investment.
The balance sheet value needs to increase tenfold, and self sacrifice for the owner is a must for this kind of exercise. Its not all about your current year anymore, but your long term future, and future sales opportunity. Think of it as a potential pension plan? Investment for the house by the sea, whatever your dream future this is your opportunity to make it a reality.
This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own. It is not intended to be used to make all of your business decisions but as a guide only.