A clean balance sheet enables proactive decision-making

Are you planning to review your profit and loss statement from your accounting software this financial year?

Then you better make sure you have a clean balance sheet.

Most business owners judge the performance of their business during the year by looking at their profit and loss statement. They will look at their sales and their profit, and then take action based on that information.

Does that sound like you? Well if it does then join the club.

It’s better than doing nothing – but if the balance sheet isn’t clean and reconciled then you’re wasting your time, or even worse you could be making decisions based on incorrect information that could potentially damage your business.

While most business owners look at the profit and loss statement, many don’t look at the balance sheet. In fact, not many business owners understand their balance sheet at all. Does that sound like you too?

Though the balance sheet is often misunderstood, it’s actually the most important piece of financial data to look at when making decisions for your business.

But firstly, you need to ensure you balance sheet is clean and reconciled.

Is your balance sheet clean and reconciled?

If your balance sheet isn’t clean and reconciled, then by default your profit and loss statement will be incorrect. That’s because any errors on your balance sheet will directly affect the numbers on your profit and loss statement.

So what does a clean and reconciled balance sheet mean?

It means that all your accounts on your balance sheet have been verified and are correct, and that any figures that aren’t correct have been cleaned up.

Take the bank account for example – most bookkeepers will reconcile the bank.

To do that, they check the bank account and bank statement to make sure all transactions have been included and that the balance on the bank statement matches the balance on the balance sheet.

This same process needs to be applied to all other balances on the balance sheet like your trade debtors, trade creditors, stock, work in progress, fixed assets, depreciation, loans and hire purchase balances.

It’s key to go through your balance sheet line by line to ensure that each balance is checked and verified.

You will then have a clean and reconciled balance sheet, which means by default that your profit and loss statement will be correct.

This enables you to make better decisions about your business to improve your results even further.

If you want some help on understanding and ‘cleaning up’ your balance sheet so you can start making informed decisions about your business, talk to us about the KickStart program.

Through the KickStart program we can train you on all aspects of your business financials and work with you on how to improve them.

Call us today on 07 5596 9070.


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