Top Tips for Tidying Your Balance Sheet
Follow these steps to ensure a clean balance sheet as the New Year dawns
Last time, we talked about the importance of cleaning up your balance sheet at year’s end. Now let’s discuss how you’ll achieve that tidy balance sheet.
While the steps needed to complete a year-end cleaning of a balance sheet aren’t terribly difficult, many company owners don’t tackle them because the owners don’t have the time. The result? The lack of balance sheet analysis nags at owners’ thoughts, preventing them from focusing all energies on the task of growing their businesses.
Balance Sheet Tip: Equipment
Take a tour of your facility, and identify those pieces of equipment long unused and sitting idle. They’re just taking up space, but should be generating income. You must find a way to convert these items into cash, by either selling them or having a service dispose of them. Once those pieces of equipment are gone, they come off the balance sheet. The difference between what you’re carrying on your books, and what you get back in cash for the equipment, goes into your profit and loss statement under “other expenses.”
Balance Sheet Tip: Inventory
Take another facilities tour, and this time look for inventory gathering dust. It could be a product you once manufactured, which didn’t sell as well as expected. Today, it’s filling valuable space and tying up your money. Get rid of it, gaining some cash in return if possible. The difference between its book value and the cash you garner goes into the profit and loss statement as a “other expenses.”
Balance Sheet Tip: Receivables
Many small business people believe they’re going to collect on long overdue receivables out more than 90 days. But if it’s not collectible, let’s write it off. It’s a bad debt, and it goes off of your balance sheet and onto the profit and loss statement as “other expenses.” Down the road, if the entity owing the money is able to forward you the long overdue payment, it will become “other income” in the year in which it’s paid.
Taking these steps will result in you, the business owner, being fully informed about what’s on your balance sheet. Your questions have been answered, and you have a higher degree of comfort than you otherwise would have about the veracity of that balance sheet. If you need help undertaking the process, don’t hesitate to get in touch with me.
I offer a 100 percent guarantee on my interim CFO work. I take on only clients I can help. Call me and let’s talk about your business. My phone number is 630-269-7646.