Natural Entrepreneur: Financial Snapshot

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Finance

Financial Snapshot

Read Between the Lines of Your Balance Sheet

-- Ask SCORE c/o Dick Kuhl, Bedford, NH

For newcomers to business, a balance sheet may appear at first to be a complex and confusing collection of numbers. However, this financial statement contains valuable information for assessing the health of your company and make decisions on which direction to take.

A balance sheet is like a snapshot of your company at a single moment in time. The balance sheet shows how the capital within your business is distributed over the various accounts. A surplus of assets over liabilities indicates profitability. If the statement shows more liabilities than assets, however, your company is at a loss position--not necessarily cause for alarm, depending on the longer trend. For example, a business may have a month with high expenses and a net lost that may be more than offset by five months of profitability. On the other hand, three consecutive losing months should prompt the owner to make serious decisions about how to overcome the negative cash position.

Compare balance sheets over a period of time for the big picture of your assets and liabilities. By comparing these on an item-by-item basis, you can spot trends that will affect your firm’s overall financial health. For example, larger quantities of merchandise on hand from one period to another reflect a decision to buy ahead because of continuing inflation. Receivables may show a continuing upward trend when collection of outstanding accounts exceeds 30 days. Debts may run higher when the firm expands or makes capital improvements.

Much like the balance sheet, the profit and loss statement (or operating statement) totals the result of operations over a selected time period. This statement will show sales volume, cost incurred and the amount of profit or loss. Comparing the monthly or quarterly profit and loss statements can be revealing. Why was there a lower gross profit for several quarters? Did price cuts decrease per sale profitability? Was a higher proportion of sales spent on operating costs such as personnel, rent or insurance? Are overhead costs increasing routinely?

Do not rely solely on your accountant for advice and guidance in understanding your balance sheet. As the decision-maker for your company, you need a clear understanding of how to read, interpret and act on financial information. For assistance, contact SCORE “Counselors to America’s Small Business.” SCORE is a nonprofit organization of more than 10,500 volunteer counselors provide free and confidential business advice to veteran entrepreneurs and those just starting out.

Dick Kuhl is a NH SCORE counselor for Chapter 199, Manchester / Nashua area. Local SCORE offices are available for walk-in or telephone questions but the more common methods of securing help from SCORE are E-mail counseling (via www.score.org) and traditional counseling. Six SCORE chapters provide the state of New Hampshire with traditional counseling: Manchester/Nashua, Concord, Lebanon, Keene, Portsmouth/ Seacoast and Lakes Area. Dick can be reached at (603) 666-7561.

Upcoming Events

Feb 21 (8-9:30a): NH Forum on the Future, NHHTC, CR Sparks, Bedford, NH

March 1 (6:30-8:30p): Women's Business Center and MicroCredit-NH Networking Event, Bank of America, Portsmouth, NH

March 6 (10a-noon): Growth Capital Resources in New Hampshire, City of Nashua, Office of Economic Development, Daniel Webster College, Nashua, NH

March 8: (12pm -1pm) Break the Rules and Close More Sales, Amoskeag Business Incubator, Manchester, NH

March 16: Peak Pitch (pitch your plan to invstors on the chairlift), Mt. Sunapee, NH ($)

March 22: Breaking Trends in Web Develoment, UVCIA, Hanover, NH ($)

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