Balance Sheets Explained
If you have been in business for a while, you will have almost certainly heard the term Balance Sheet. If you are new to business however, you may find yourself preparing a Balance Sheet for the first time. Here is a basic overview of a Balance Sheet and when you might need one.
What is a Balance Sheet?
A Balance Sheet is a financial summary and should give an overview of the financial health of your business. Like the name suggests, it essentially balances the what the business owns versus what it owes, leaving the overall value of the business or owner’s equity.
What is a Balance Sheet used for?
For business owners the Balance Sheet gives a snapshot of the financial position of the business. It can help guide their business strategy going forward. In New Zealand, the IRD require a Balance Sheet dated at the end of the financial year as part of completing an IR10 or Financial Statements Summary. Balance Sheets are also used by Finance Providers when considering lending or potential buyers if the business is put up for sale.
Common Balance Sheet Terms Defined
Assets
An asset is something tangible that your business owns. Assets such as brand or reputation would not be considered assets on a balance sheet as they do not have a tangible value.
Assets on a balance sheet are usually grouped into 2 categories – fixed assets and current assets.
Current Assets
These are assets that will generally last less than 12 months. Cash is considered a current asset as are things easily converted to cash such as stock or inventory.
Fixed Assets
These are assets that will remain with the business beyond 12 months. Fixed assets include items like equipment, buildings, machinery and vehicles.
Liabilities
A liability is an amount that you owe. Like assets these are generally grouped into two categories – current liabilities and long-term liabilities
Current Liabilities
This is an amount owed that needs to be paid off within the next 12 months. Taxes and accounts payable fall into this category.
Long term Liabilities
These are longer term loans and liabilities for example mortgages or lease payments for buildings or company vehicles.
Debt Ratio
This is the ratio of total debts compared to total assets. In some industries there is a maximum acceptable debt ratio, this will vary from industry to industry.
Owner’s Equity
The overall value of the business once the total liabilities have been subtracted from the total assets.
Technology and Balance Sheets
In days gone by a Balance Sheet was a document prepared by an accountant once a year. The invention of modern accounting software has made creating Balance Sheets far easier and enables businesses to create a Balance Sheet any time they choose. At Spectrum Accounting Xero is our preferred software for efficiency, accuracy and security of information.
Getting it Right
It is imperative that your Balance Sheet is an accurate reflection of your financial position. Leaving off just one asset or liability can throw out your results significantly. For expert, professional assistance with your Balance Sheet and other financial documentation, talk to the team at Spectrum Accounting.
Holistic Accounting and Bookkeeping
What is Holistic Accounting and is it right for your business?
Holistic is defined in the Cambridge Dictionary as “dealing with or treating the whole of something or someone and not just a part”. It’s a term most often associated with holistic medicine, the practice of improving overall health by going beyond treating just the symptoms and instead considering a person’s entire wellbeing. Likewise, holistic accounting and bookkeeping aims to improve the overall financial health for a business by looking at the big picture. Rather than focusing on a few individual aspects and how they affect the bottom line, a holistic approach takes the wider systems and operations of a business into account to help create a stronger overall business strategy.
Many small businesses scatter financial operations, with different parties handling bookkeeping, payroll and tax obligations. A holistic approach takes all the aspects into account and ensures communication across all parties so that all are working towards the same goal. Good holistic accounting and bookkeeping prioritises the overall growth of a business alongside compliance obligations.
What does the Holistic approach look like with Spectrum Accounting?
Communication and Alignment
Two of the pillars of holistic accounting and bookkeeping are communication and alignment. For Spectrum Accounting, this means taking the time to really understand what your business does and what you want to achieve. We’ll work with you to align all your financial operations to achieve your wider business goals while meeting your compliance obligations along the way. We’ll keep in regular contact with you and any other parties involved in your financial operations to help ensure everyone is working towards the same end results.
Compliance and Knowledge
Compliance can be frustrating, and some might even say ‘boring’ at times, but it is of utmost importance – getting it wrong can be catastrophic for your business and land you in hot water with the authorities. Out team are experts in the bookkeeping field and up to date with all the latest tax information in New Zealand. We’ll share our knowledge and expertise with you and help ensure that all your compliance obligations are met.
Technology
Great tech makes keeping across your financial position easy. At Spectrum Accounting we are entirely cloud- based, using top-rated accounting software that prioritises information security, visibility and efficiency. Our systems and processes are user friendly, and we can provide training to you and your team to get the most out of them.
Tailor-made Service Offering
Every business is different, each with its own unique strengths and challenges. Holistic Accounting recognises that a one-size-fits-all approach is unlikely to give your business the overall results you desire. That’s why at Spectrum Accounting we work with your existing strengths and resources and tailor our bookkeeping services to the level and extent that your unique business requires.
If you think a holistic approach could be a good fit for your business, we’d love to hear from you. Contact us today.
