Is My Balance Sheet Healthy?
Alright, let’s be honest — balance sheets don’t exactly get people’s hearts racing. Most blokes and sheilas would rather yabber about sales or marketing than get stuck into financial statements. But here’s the kicker — your balance sheet? It’s the one thing that’ll tell you if your business is cruisin’ or on the rocks.
So, what’s a balance sheet anyway? Just some boring numbers?
Nah, mate, it’s a snapshot — like a quick photo of your business’s money situation at a point in time. It lays out what you own (your assets), what you owe (liabilities), and what’s left for you (equity). Sounds pretty straightforward, but don’t let that fool you.
Unlike your profit and loss — which shows you how you’ve gone over a few months — the balance sheet is more like a frozen moment. Your business’s financial selfie, if you like.
Why bother about whether it’s “healthy”?
Fair question. Lot of folks reckon, “I’m making money, so all good.” Problem is, profit’s only one part of the puzzle. You can be printing cash but still have a balance sheet that’s about as healthy as a dead kangaroo on the side of the road.
Picture this: you owe heaps of money coming due soon, but your assets are tied up in stuff you can’t sell quick, or worse — customers dragging their feet paying you back. That’s when things start to get messy.
A healthy balance sheet means you can pay your bills, keep the lights on, and plan ahead without sweating bullets.
What does a “healthy” balance sheet actually look like?
Well, there’s no cookie-cutter answer. But generally:
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Assets should outweigh liabilities: More stuff of value than debts owed. Sounds simple but you'd be surprised how many businesses don’t nail this.
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Good mix of assets: Cash in the bank, stock that moves, equipment that earns you dough. Not just a pile of old junk.
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Manageable debts: Some debt is fine — even smart if it helps you grow. But too much, or the wrong kind, can choke your business.
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Equity that makes sense: This is your ownership. If it’s too low, you’re probably relying too much on borrowing.
Thing is, what’s healthy for a tech startup isn’t the same for your local cafe or tradie. Always gotta factor in the business type and where you want to head.
How to tell if your balance sheet is more “sick” than healthy?
Alright, here’s the warning signs you don’t wanna see:
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Debt keeps piling up: If you owe more and more but your assets aren’t keeping pace, that’s a red flag.
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Cash flow’s tight: Sometimes your balance sheet looks sweet but you can’t pay your bills because the cash isn’t flowing.
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Customers slow paying: Loads of accounts receivable might look good, but if your customers drag their feet, that’s a problem.
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Stock piling up: Inventory gathering dust is just money stuck on the shelf.
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Negative equity: This basically means you owe more than you own — not a spot you wanna be in.
If you’re ticking any of those boxes, time to take a good, hard look.
Pro tip: It’s not just the numbers, but the story behind ’em
This always throws people a bit. The balance sheet is a bit like a novel — gotta read between the lines.
Say you bought a heap of gear last month. Your assets jump, right? But did you take on a huge loan to do it? Because that loan’s coming back to bite ya eventually.
Or maybe your customers owe you a bucketload, but they’re slow payers. That inflates your assets but doesn’t help when you need to pay the power bill.
Balance sheets aren’t just numbers, they’re stories — and sometimes not the happy kind.
How do you keep your balance sheet healthy then?
Easy-ish to say, hard to do — but these tips help:
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Check your ratios regularly: Stuff like debt-to-equity and current ratio give you quick clues.
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Watch your cash flow like a hawk: Having assets doesn’t mean squat if you can’t access cash.
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Don’t take on debts blindly: Borrow to grow, sure. But don’t drown yourself.
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Review it often: Don’t wait till tax time. Make it part of your regular routine.
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Get advice when stuck: No shame in calling in the pros.
Common myths about balance sheets — busted!
Here’s some that need knocking on the head:
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“If I’m making money, my balance sheet’s healthy.” Nah, not always true.
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“Only big companies need to care.” Nope, every business needs to watch it.
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“My accountant sorts it, so I don’t have to.” Sure they help, but knowing what’s going on gives you a leg up.
Real talk: Why balance sheets feel like a headache — and how to make it less painful
No sugarcoating it, financial statements can be a grind. It’s confusing, dry, and let’s face it, a bit of a drag. But ignoring them is like ignoring the engine warning light on your ute. Might be fine for now, but you’re cruising towards trouble.
If running a business is surfing, the balance sheet is the swell — tells you if the conditions are good or you’re about to get wiped out. Profit and loss? That’s just the ride itself.
What now?
If all this balance sheet talk feels like drinking from a firehose, no worries. You don’t have to be a numbers nerd.
For a fair dinkum, no BS chat about whether your balance sheet’s healthy — or what to do if it’s not — it’s worth reaching out to Accountants 2 Business. They help you get the numbers straight, without the jargon, and point you where you need to go.
No stress if finance isn’t your thing — that’s what they’re for.
FAQs: What do Aussies really wanna know about balance sheets?
Q: How often should I look at my balance sheet?
A: Every month or quarter’s good. Keeps you ahead of dramas.
Q: Does a healthy balance sheet mean my business will always succeed?
A: Not quite, but it sure helps you survive the rough patches and grab chances.
Q: What’s the difference between current and non-current assets?
A: Current assets turn into cash within a year — like stock or money owed by customers. Non-current are long term — buildings, gear, that sort of thing.
Q: What if my equity is negative?
A: Means owing more than you own — get help quick before it gets worse.
Q: Should I care about intangible assets like goodwill?
A: Depends on your biz. They’re less tangible, harder to turn into cash.
Legal Disclaimer: This info is general only and not legal or financial advice. For advice tailored to you, talk to a qualified professional.
