Why Founders Should Look at Their Balance Sheet First

When reviewing your financials, it’s tempting to head straight for the income statement to see how much money your business is making. But wait - before you run for the P&L, let us give you a suggestion.

If you want a clear, accurate picture of your financial health, the balance sheet is where you should start.

What Is a Balance Sheet?

Your balance sheet provides a snapshot of your company’s financial position at a specific moment in time. It answers three foundational questions:

• What do you own? (Assets)

• What do you owe? (Liabilities)

• What’s left over? (Equity)

  
  

These three sections work together to tell the real-time story of your business. It's not a forward-looking projection or a summary of recent activity—it's a clear look at what is, right now.

Why Start Here?

This is one of our favorite questions, and the answer is pretty simple: because everything else depends on it.

If your balance sheet isn’t accurate, no other report can be trusted. That includes your income statement and cash flow statement. Here’s why:

• Bank and credit card balances on the balance sheet must match actual accounts. If they’re off, your reported revenue or expenses might be, too.

• Loan balances should reflect the most current amounts owed, including any recent payments or draws.

• Accounts receivable and accounts payable need to be up to date. Old or incorrect balances here can skew your understanding of who owes you money, or who you still owe.

• Equity accounts (like owner draws or contributions) tell the story of your personal investment in the business.

  
  

Think of It as Your Financial Foundation

Just like a house needs a solid foundation, your books need a solid balance sheet. If it's incomplete, out of date, or inaccurate, you could make decisions based on misleading data. Decisions like overestimating your cash flow, underestimating your debt, or misjudging your profitability.

What Founders Can Do

• Review your balance sheet monthly. Make sure you make it a habit, not a once-a-year chore.

• Check for unusual balances. Is that credit card still open? Did that client really pay their invoice six months ago? These are important questions to be asking.

• Keep your accounts reconciled. Bank and credit card accounts should be reconciled regularly, which ensures your data is clean and trustworthy.

• Understand the numbers. You don’t need to memorize every figure, but you should be able to explain what each line represents without finding unexplained amounts in places they shouldn’t be.

  
  

It’s important to remember that in a lot of ways, the balance sheet is going to be the backbone of your business. Whether you’re keeping track of what you owe, who owes you, or just doing checks and balances, it’s important to know what you’re looking at.

And if you need help making sense of your balance sheet, that’s where a good bookkeeper comes in.