Businesses, farms should begin balance sheet preparation

“Many business people wait until their lender tells them that they need to have a balance sheet before discussing a loan,” he said in a news release. “Don’t do that.”

“It is a good idea to prepare a balance sheet at least annually to get a handle on the progress of the business as well as personal assets.”

Balance sheets reflect a company’s financial position in terms of assets, liabilities and net worth or owner equity at a specific point in time.

If the balance sheet is prepared annually and book value of the long-term assets is used instead of market value, then the annual difference of the net worth would indicate the net income minus withdrawals for living expenses.

“In simple terms, the balance sheet is an indication of the difference between what you own and what you owe,” Whitson said.

Some small business and farms may prepare consolidated balance sheets, on which the assets and liabilities would include both the items owned in the business as well as all personal belongings.

From a business point of view, however, it’s best to keep balance sheets in order to analyze company growth over the years.

“Once the first balance sheet is prepared, the job is easier and more accurate as the years go by,” Whitson added.