Buffing Balances Brings Benefits
The passage from an old to a new year is the right time to focus on cleaning up your company’s balance sheet. Doing so can yield a broad variety of benefits.
On the asset side of the balance sheet, the number one benefit is eliminating the “dead wood” of non-yielding assets. Any assets that no longer produce income, and may in fact be obsolete, should be removed from your balance sheet at this time.
On the liability side, you want to ensure your liabilities are properly stated on your balance sheet as you enter a new year. You want all accruals for taxes, and all other liabilities in which you owe a third-party payment, stated on the balance sheet. Waiting until next year forces you to go back and correct the prior year.
A clean balance sheet helps your banker and tax preparer
Cleaning up your balance sheet at year’s end should meet with the approval of two figures important to your company: your banker and your tax preparer.
If your lender knows he’s looking at reasonably “clean” numbers on your balance sheet, he won’t have to ask as many questions when you seek a loan. If you have an existing loan, and he has requested to review your most recent financial statements, he will be inclined to ask fewer questions, be more trusting of information you provide, be more likely to extend the loan and, conversely, less likely to call in the loan.
Your tax preparer is likely to report to the IRS the numbers you provide her. So if you fail to clean up your balance sheet, you’re essentially reporting “dirty” numbers to the IRS, which could lead to additional, and unwelcome, scrutiny.
A clean balance sheet helps plan your company’s financial future
Having a clean balance sheet lets you undertake some “on the money” forward financial planning. In other words, that cleaned-up balance sheet makes it easier to facilitate your future-looking financial planning process. It also makes you more inclined and more highly motivated to get into crucial forward planning.
When you analyze each account to see what comprises the balance on that account, you are able to create carry-forward schedules that can answer any and all questions about what’s in that account. That’s a way to document what’s in the balance sheet, and very few companies have that luxury, because they’re just so damn busy. That may, in fact, be you.
I offer a 100 percent guarantee on my work as an interim CFO. I take on only clients I can help. If you are having issues, call me and let’s talk about your business. My phone number is 630-269-7646.