Many business owners look at their Profit and Loss Statement regularly.
The balance sheet often gets ignored.
That’s a mistake.
Your balance sheet provides a snapshot of your business at a specific point in time.
It shows:
- What you own
- What you owe
- What remains after liabilities are paid
When something is wrong in your books, the balance sheet is often one of the first places it appears.
Ask yourself:
When was the last time you reviewed your balance sheet?
If you can’t remember, now is a good time to start.
What Is a Balance Sheet?
A balance sheet has three main sections:
Assets
Assets are things your business owns.
Examples include:
- Cash
- Bank accounts
- Accounts receivable
- Equipment
- Inventory
Liabilities
Liabilities are things your business owes.
Examples include:
- Credit card balances
- Loans
- Payroll liabilities
- Sales tax payable
Equity
Equity represents the remaining value of the business after liabilities are subtracted from assets.
Together, these three sections provide a snapshot of your financial position.
Why Balance Sheets Matter
A balance sheet helps answer important questions.
Questions such as:
- Do I have enough cash available?
- Am I carrying too much debt?
- Are customers paying me on time?
- Do my numbers make sense?
Without reviewing this report, errors can sit unnoticed for months.
Red Flag #1: Accounts Receivable Keeps Growing
A growing accounts receivable balance can indicate:
- Late-paying customers
- Invoices that need follow-up
- Collection issues
Review your receivables regularly.
Ask yourself:
How much of this balance should already have been collected?
If cash flow feels tighter than expected, this may be the reason.
Red Flag #2: Negative Cash Balances
A negative cash balance on a balance sheet usually signals a problem.
Possible causes include:
- Missing transactions
- Incorrect account setup
- Reconciliation issues
Your cash accounts should match your actual bank balances.
If they don’t, investigate immediately.
Red Flag #3: Old Liabilities That Never Change
Liabilities should move over time.
If you notice the same balance month after month, review it closely.
Common examples include:
- Old credit card balances
- Payroll liabilities
- Tax liabilities
Sometimes these accounts contain transactions that were never properly cleared.
Red Flag #4: Loan Balances That Look Wrong
Many business owners record loan payments incorrectly.
A payment often contains:
- Principal
- Interest
If everything gets recorded as an expense, your balance sheet may show inaccurate loan balances.
Review loan accounts periodically to make sure they reflect reality.
Red Flag #5: Unusual Equity Changes
Large swings in equity deserve attention.
They may indicate:
- Incorrect journal entries
- Missing transactions
- Owner draws entered incorrectly
When equity changes unexpectedly, investigate the source.
Reconciliation Makes Everything Easier
One of the best ways to prevent balance sheet errors is regular reconciliation.
Monthly reconciliation helps you:
- Verify balances
- Catch missing transactions
- Identify duplicate entries
- Maintain accurate reports
Even a small error can affect multiple reports.
Finding it early saves time later.
Build a Monthly Balance Sheet Review Habit
You don’t need to spend hours reviewing reports.
Start with 15 to 20 minutes each month.
Look for:
- Unexpected balances
- Large changes
- Negative amounts
- Accounts that don’t make sense
If something looks unusual, ask questions.
Financial reports should support decisions, not create confusion.
Small Problems Are Easier to Fix
Most bookkeeping issues start small.
A missing transaction.
An uncategorized expense.
A loan payment entered incorrectly.
Left unchecked, those small issues grow.
Regular balance sheet reviews help you catch them before they become larger problems.
If you’d like help reviewing your financial reports or keeping your books accurate throughout the year, learn more about Cheryl’s services:
Or contact Cheryl directly:
The sooner you spot an error, the easier it is to fix.
