hi I’m Evan Carmichael welcome to a special edition of ask Evan today we’re
special edition of ask Evan today we’re
special edition of ask Evan today we’re going to look at what is the role of the
going to look at what is the role of the
going to look at what is the role of the balance sheet and how can you use it to
balance sheet and how can you use it to
balance sheet and how can you use it to make important decisions for your
make important decisions for your
make important decisions for your business into a recently ran a survey
business into a recently ran a survey
business into a recently ran a survey which found that the single biggest
which found that the single biggest
which found that the single biggest reason that most small businesses don’t
reason that most small businesses don’t
reason that most small businesses don’t succeed is that they lack the financial
succeed is that they lack the financial
succeed is that they lack the financial literacy skills to navigate the
literacy skills to navigate the
literacy skills to navigate the obstacles in front of them only
obstacles in front of them only
obstacles in front of them only 51-percent of companies that start up
51-percent of companies that start up
51-percent of companies that start up today will still be around five years
today will still be around five years
today will still be around five years from now in order to change that we’re
from now in order to change that we’re
from now in order to change that we’re creating a new series of posts on
creating a new series of posts on
creating a new series of posts on financial literacy to help you make
financial literacy to help you make
financial literacy to help you make sense to the information in front of you
sense to the information in front of you
sense to the information in front of you today we’re going to look at what the
today we’re going to look at what the
today we’re going to look at what the role the balance sheet is and how it can
role the balance sheet is and how it can
role the balance sheet is and how it can be used to help you grow your business
be used to help you grow your business
be used to help you grow your business what is the role of the balance sheet at
what is the role of the balance sheet at
what is the role of the balance sheet at a very high level the balance she
a very high level the balance she
a very high level the balance she represents what resources your company
represents what resources your company
represents what resources your company owns the assets versus how much you owe
owns the assets versus how much you owe
owns the assets versus how much you owe to others your liabilities the
to others your liabilities the
to others your liabilities the difference is your owner’s equity in the
difference is your owner’s equity in the
difference is your owner’s equity in the company let’s start with the assets
company let’s start with the assets
company let’s start with the assets using my quickbooks online account I’m
using my quickbooks online account I’m
using my quickbooks online account I’m going to check out a sample balance
going to check out a sample balance
going to check out a sample balance sheet for you to have a look at this is
sheet for you to have a look at this is
sheet for you to have a look at this is data from a sample company craig’s
data from a sample company craig’s
data from a sample company craig’s designed and landscaping services the
designed and landscaping services the
designed and landscaping services the assets are split in the current assets
assets are split in the current assets
assets are split in the current assets and fixed assets current assets are cash
and fixed assets current assets are cash
and fixed assets current assets are cash and things that can be converted into
and things that can be converted into
and things that can be converted into cash in a relatively short amount of
cash in a relatively short amount of
cash in a relatively short amount of time in craigs case he has a few bank
time in craigs case he has a few bank
time in craigs case he has a few bank accounts accounts receivable and some
accounts accounts receivable and some
accounts accounts receivable and some undeposited funds fixed assets are
undeposited funds fixed assets are
undeposited funds fixed assets are permanent investments that are used to
permanent investments that are used to
permanent investments that are used to run the business but are not actually
run the business but are not actually
run the business but are not actually for sale by the business in craigs cases
for sale by the business in craigs cases
for sale by the business in craigs cases only fixed asset as this truck but it
only fixed asset as this truck but it
only fixed asset as this truck but it can also include equipment buildings
can also include equipment buildings
can also include equipment buildings lands patents and so on now let’s look
lands patents and so on now let’s look
lands patents and so on now let’s look at Craigs liabilities in owner’s equity
at Craigs liabilities in owner’s equity
at Craigs liabilities in owner’s equity liabilities are split in the current
liabilities are split in the current
liabilities are split in the current liabilities and long-term liabilities
liabilities and long-term liabilities
liabilities and long-term liabilities current liabilities are what your
current liabilities are what your
current liabilities are what your company owes it has to pay off within a
company owes it has to pay off within a
company owes it has to pay off within a year from the balance sheet being
year from the balance sheet being
year from the balance sheet being created in Craig’s case he has accounts
created in Craig’s case he has accounts
created in Craig’s case he has accounts payable credit cards loans and sales tax
payable credit cards loans and sales tax
payable credit cards loans and sales tax to pay long-term liabilities are
to pay long-term liabilities are
to pay long-term liabilities are everything else at your company owes
everything else at your company owes
everything else at your company owes that is due beyond one year for the
that is due beyond one year for the
that is due beyond one year for the balance sheet being created in Craig’s
balance sheet being created in Craig’s
balance sheet being created in Craig’s case his only long-term liability is a
case his only long-term liability is a
case his only long-term liability is a note payable now a balance sheet has to
note payable now a balance sheet has to
note payable now a balance sheet has to well balanced so the difference between
well balanced so the difference between
well balanced so the difference between your assets and your liabilities is your
your assets and your liabilities is your
your assets and your liabilities is your equity if we look at cranks complete
equity if we look at cranks complete
equity if we look at cranks complete balance sheet you’ll see that he has
balance sheet you’ll see that he has
balance sheet you’ll see that he has 30,000 $275 in liabilities and only
30,000 $275 in liabilities and only
30,000 $275 in liabilities and only twenty-six thousand six hundred
twenty-six thousand six hundred
twenty-six thousand six hundred eighty-four dollars in assets which
eighty-four dollars in assets which
eighty-four dollars in assets which gives him a negative equity of three
gives him a negative equity of three
gives him a negative equity of three thousand five hundred and ninety dollars
thousand five hundred and ninety dollars
thousand five hundred and ninety dollars so how does this help none of you know
so how does this help none of you know
so how does this help none of you know what the numbers mean and their values
what the numbers mean and their values
what the numbers mean and their values you can start making important business
you can start making important business
you can start making important business decisions from them here are a few to
decisions from them here are a few to
decisions from them here are a few to consider number one current assets to
consider number one current assets to
consider number one current assets to current liabilities also known as
current liabilities also known as
current liabilities also known as working capital you want to have more
working capital you want to have more
working capital you want to have more current assets compared to current
current assets compared to current
current assets compared to current liabilities this will help ensure that
liabilities this will help ensure that
liabilities this will help ensure that you have enough money to find your
you have enough money to find your
you have enough money to find your short-term debts as well as the
short-term debts as well as the
short-term debts as well as the day-to-day operations of your business
day-to-day operations of your business
day-to-day operations of your business if your current liabilities are more
if your current liabilities are more
if your current liabilities are more than your current assets then you’re
than your current assets then you’re
than your current assets then you’re going to feel a major cash crunch within
going to feel a major cash crunch within
going to feel a major cash crunch within the next year your options could be to
the next year your options could be to
the next year your options could be to make more sales sell some inventory
make more sales sell some inventory
make more sales sell some inventory restructure your loans or apply for
restructure your loans or apply for
restructure your loans or apply for short-term financing if we look at
short-term financing if we look at
short-term financing if we look at Craigs data he has thirteen thousand two
Craigs data he has thirteen thousand two
Craigs data he has thirteen thousand two hundred and thirty-nine dollars in
hundred and thirty-nine dollars in
hundred and thirty-nine dollars in current assets and only 5275 in current
current assets and only 5275 in current
current assets and only 5275 in current liabilities so right now he doesn’t have
liabilities so right now he doesn’t have
liabilities so right now he doesn’t have to worry number two fixed assets to
to worry number two fixed assets to
to worry number two fixed assets to long-term liabilities you also want to
long-term liabilities you also want to
long-term liabilities you also want to have more fixed assets than long through
have more fixed assets than long through
have more fixed assets than long through liabilities this will help ensure that
liabilities this will help ensure that
liabilities this will help ensure that you have enough in the business to find
you have enough in the business to find
you have enough in the business to find your longer-term debts ideally you want
your longer-term debts ideally you want
your longer-term debts ideally you want your long-term liabilities to be around
your long-term liabilities to be around
your long-term liabilities to be around fifty to seventy percent of your fixed
fifty to seventy percent of your fixed
fifty to seventy percent of your fixed assets if your ratio is higher remember
assets if your ratio is higher remember
assets if your ratio is higher remember that the value of fixed assets like land
that the value of fixed assets like land
that the value of fixed assets like land buildings patents and so on often
buildings patents and so on often
buildings patents and so on often increase with time and your best bet
increase with time and your best bet
increase with time and your best bet would be to try refinance and pitch your
would be to try refinance and pitch your
would be to try refinance and pitch your lender that it’s better to have them
lender that it’s better to have them
lender that it’s better to have them keep you around and making payments
keep you around and making payments
keep you around and making payments rather than force you into liquidity
rather than force you into liquidity
rather than force you into liquidity looking at Craigs data we see he’s in
looking at Craigs data we see he’s in
looking at Craigs data we see he’s in trouble his fixed assets total 13,000
trouble his fixed assets total 13,000
trouble his fixed assets total 13,000 445 and his long-term liabilities are
445 and his long-term liabilities are
445 and his long-term liabilities are $25,000 this means that if you can’t
$25,000 this means that if you can’t
$25,000 this means that if you can’t turn his business around he’s going to
turn his business around he’s going to
turn his business around he’s going to be in serious cash crunch after the year
be in serious cash crunch after the year
be in serious cash crunch after the year is up
is up
is up number three raising capital finally
number three raising capital finally
number three raising capital finally let’s look at the story about she chose
let’s look at the story about she chose
let’s look at the story about she chose the potential investors if you want to
the potential investors if you want to
the potential investors if you want to raise money any investor or lender will
raise money any investor or lender will
raise money any investor or lender will want to see your balance sheet they’re
want to see your balance sheet they’re
want to see your balance sheet they’re going to look at your working capital
going to look at your working capital
going to look at your working capital see if you can survive in a short run
see if you can survive in a short run
see if you can survive in a short run and they’ll compare your fixed assets to
and they’ll compare your fixed assets to
and they’ll compare your fixed assets to your long-term liabilities to see if you
your long-term liabilities to see if you
your long-term liabilities to see if you can survive in the long run but they’re
can survive in the long run but they’re
can survive in the long run but they’re also going to look at your equity they
also going to look at your equity they
also going to look at your equity they want to see how much you have in the
want to see how much you have in the
want to see how much you have in the business if you don’t have much equity
business if you don’t have much equity
business if you don’t have much equity it’s going to make it hard for them to
it’s going to make it hard for them to
it’s going to make it hard for them to give you any kind of money because
give you any kind of money because
give you any kind of money because you’re very high risk looking at Craigs
you’re very high risk looking at Craigs
you’re very high risk looking at Craigs data again he’s in trouble here’s
data again he’s in trouble here’s
data again he’s in trouble here’s negative equity of three thousand five
negative equity of three thousand five
negative equity of three thousand five hundred and ninety dollars he took out a
hundred and ninety dollars he took out a
hundred and ninety dollars he took out a twenty-five-thousand-dollar loan and
twenty-five-thousand-dollar loan and
twenty-five-thousand-dollar loan and spent thirteen thousand and a half
spent thirteen thousand and a half
spent thirteen thousand and a half approximately on a truck where did the
approximately on a truck where did the
approximately on a truck where did the other eleven thousand five hundred
other eleven thousand five hundred
other eleven thousand five hundred dollars go while Craig’s company has
dollars go while Craig’s company has
dollars go while Craig’s company has some positive signs in that it has over
some positive signs in that it has over
some positive signs in that it has over three thousand dollars in net income
three thousand dollars in net income
three thousand dollars in net income which means the company earned more in
which means the company earned more in
which means the company earned more in revenue than it’s been in expenses it
revenue than it’s been in expenses it
revenue than it’s been in expenses it would be very hard for Craig to convince
would be very hard for Craig to convince
would be very hard for Craig to convince someone to give him more money without
someone to give him more money without
someone to give him more money without proving you can do better or providing a
proving you can do better or providing a
proving you can do better or providing a personal guarantee to wrap up it all
personal guarantee to wrap up it all
personal guarantee to wrap up it all starts with the tools seventy-six
starts with the tools seventy-six
starts with the tools seventy-six percent of entrepreneurs we use
percent of entrepreneurs we use
percent of entrepreneurs we use financial software or solution or
financial software or solution or
financial software or solution or accountant provided feel confident that
accountant provided feel confident that
accountant provided feel confident that they have a strong grasp of financial
they have a strong grasp of financial
they have a strong grasp of financial management principles if you know where
management principles if you know where
management principles if you know where the problems are ahead of time you can
the problems are ahead of time you can
the problems are ahead of time you can plan for them so you’re not constantly
plan for them so you’re not constantly
plan for them so you’re not constantly putting out fires as they happen here’s
putting out fires as they happen here’s
putting out fires as they happen here’s your next step starting the business can
your next step starting the business can
your next step starting the business can be empowering but it also demands a
be empowering but it also demands a
be empowering but it also demands a level financial understanding to make
level financial understanding to make
level financial understanding to make sure your business succeeds to help
sure your business succeeds to help
sure your business succeeds to help address this need of financial expertise
address this need of financial expertise
address this need of financial expertise into it is offering free one-on-one
into it is offering free one-on-one
into it is offering free one-on-one consultation for small businesses with
consultation for small businesses with
consultation for small businesses with their into it pro advisors entrepreneurs
their into it pro advisors entrepreneurs
their into it pro advisors entrepreneurs can go to wwc re com / into a canada to
can go to wwc re com / into a canada to
can go to wwc re com / into a canada to set up a free consultation today thank
set up a free consultation today thank
set up a free consultation today thank you for joining me for another edition
you for joining me for another edition
you for joining me for another edition of ask Evan if you liked this video you
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seeing them come in so thank you i will see you on the next episode
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