🧾 Understanding Your Balance Sheet: A Quick Guide for Small Business Owners

A balance sheet can feel like a mysterious financial document—but it doesn’t have to be. In this quick guide, we’ll break it down into plain language so you can see how it helps you run your business better. Don’t miss the video at the bottom to put it all together in a real-world example.

Whether you're preparing for tax season, applying for a loan, or just trying to get a better handle on your company’s financial health, the balance sheet is a key tool.

🏛️ What Is a Balance Sheet?

A balance sheet is a snapshot of your business’s financial position at a specific point in time. It shows:

• What you own (assets)

• What you owe (liabilities)

• What’s left over for you (equity)

The basic formula is:

Assets = Liabilities + Owner’s Equity

💰 Assets: What You Own

These are the resources your business uses to operate and grow. They might include:

• Cash in the bank

• Accounts receivable (what clients owe you)

• Equipment and tools

• Inventory

👉 Assets show the strength and stability of your business.

🧾 Liabilities: What You Owe

This section includes all the debts and obligations your business has, such as:

• Credit card balances

• Unpaid vendor bills

• Loans

• Payroll liabilities

👉 Liabilities tell you where your money is committed.

👩‍💼 Owner’s Equity: What Belongs to You

Equity is what’s left after liabilities are subtracted from assets. It includes:

• Your initial investment

• Retained earnings (profits that stay in the business)

• Any additional contributions you’ve made

👉 Equity is your stake in the business.

🧠 Why It Matters

Understanding your balance sheet can help you:

• Make smarter financial decisions

• Spot cash flow problems before they escalate

• Understand how much your business is really worth

• Know when you can afford to grow—or when you need to slow down

Even if your bookkeeper prepares the balance sheet, you should know how to read it. This helps you lead your business with more confidence.

🎥 Watch the Video

We created a short video to walk you through a real-life balance sheet and explain each section in simple terms.

➡️ Watch now: Understanding Your Balance Sheet
Length: About 5 minutes

💬 Need Help?

At A&L Bookkeeping and Accounting, we specialize in helping small business owners understand their numbers—not just record them.

If you have questions or want us to review your balance sheet together, reach out to our team. We’re here to help you feel confident in your business finances.