Beating Up the Balance Sheet

Beating up the balance sheet is a term we use in Auditing.

How do you normally diagnose the financial health of your business?  Just run a P&L report, right?

Your cash flow is smoother than ever and your operating bank balance is steadily increasing, so you must be doing great, right?

Everything is actually so great that you decide to hire another employee or perhaps move into a larger, more expensive office space.

The next day, you log in to check your bank balance again and almost faint.  “Where did all my money go?”  Well, you probably forgot that sales tax was due on the 20th of the month, or that you have quarterly 941 deposit requirements, or that it actually takes some time for vendors to receive their checks in the mail and deposit them. This is the first lesson in why beating up the balance sheet is critically important to your business.

Alternatively, you may always find yourself scratching whatever hair is left on your head after your accountant prepares your income tax returns and determines that you owe thousands of dollars to our good buddy, Uncle Sam, despite your company never having more than $5,000 at any given time in the bank.

I’ve been through this conversation thousands of times and my answer is always the same…”Have you ever looked at your balance sheet?” – That’s another way of asking, “have you been beating up the balance sheet?”

I would argue that the balance sheet is the most important report for every company (especially accrual-based filers).  I am going to teach you everything you need to know in order to accurately identify the financial state of your business.  In order to accomplish that, we are going to be dissecting every section of the balance sheet.  We’ll be beating up the balance sheet every week, here. We are going to talk reconciliations, credit cards, paypal, cash, owner draws/distributions, equity, retained earnings, sales tax, loans, payroll taxes, and a bunch of other stuff that you probably don’t care about but need to soon (as in, like, now/immediately).

Oh, and one small disclaimer:  I am an avid and loyal Quickbooks Online and cloud accounting superuser.  I do not support any other accounting applications or desktop versions of Quickbooks.  The advice I provide in my column will serve you best in conjunction with your firm’s books on QBO.  The first step before you do anything should be to convert ASAP!

 

 

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