How often do you review your Balance Sheet? Is it monthly, quarterly, yearly or never? The Balance Sheet is the ugly stepsister to the Income Statement. Every business owner wants to know how much money they have in the bank. They may even review the Income Statement and perform ratio analysis to gain more information about the past month. But few will do any review or analysis on the Balance Sheet.

For a small business the Balance Sheet may not change much from month to month. However, checking the balances weekly or monthly for accounts receivable and accounts payable is a good practice. Determine how much of your accounts receivable balance is over 30 days old. What can you do to get your customers to pay within the next 10 days? Do you have any outstanding balances to your vendors that exceed 30 days? If so, will they be willing to continue to do business with you until the balance is paid?

The Balance Sheet can give you a snapshot of the overall business health. Do you own more in assets than you have in debt? If not, then you should consider what tactical, i.e., short term, actions you can take to reverse this trend. Are you liquid enough that you could pay your short-term debts, if necessary? What about your long-term solvency? Will you be able to service the long-term debt sitting on your books? Or should you contact your bank to negotiate a lower interest rate or extended payback period?

The information on the Balance Sheet is fairly logical and intuitive, which is probably why it gets overlooked as a financial tool for internal users. Consider how a banker might view the information on your Balance Sheet. Would you be willing to loan money to you? Do some analysis on the Balance Sheet to answer that question and then make a list of five things you can do to improve your company’s financial position.