As an SME business owner, your Balance Sheet is the only financial statement that you are required to file publicly. It shows the overall health of your business at a point in time - your most recent company year end. It's vital that you understand what makes up your Balance Sheet before you can look to improve the numbers.

1.
Understanding Your Company Balance Sheet

2.
What is a Balance Sheet?
A Balance Sheet is a snapshot in time of the Assets you own, the Liabilities you owe, and the
difference between the two, known as Equity. The usual point for taking a snapshot of your Balance
Sheet is at your company accounting year end.
As an SME it is the only financial statement you are required to file publicly. So it’s vital that you
understand it as a business owner. The strength of your company Balance Sheet affects a number
of areas, including credit checks, personal mortgage applications and applications for funding.
It’s made up of 5 main areas, which we’ll explore individually. These are:
● Fixed Assets
● Current Assets
● Current Liabilities
● Long Term liabilities
● Equity

3.
Fixed Assets
An asset is something you own. If you think about your personal assets, you might have your own
house, own your own car and have money in current and savings accounts. These are all assets.
In accounting principles, determining whether something is ‘fixed’ depends on the time you believe
you’ll own the asset and that it can’t be readily convertible into cash. A fixed asset is expected to be
owned for at least the next 12 months. So in your personal life, this would be the value of your house
and current market value of your owned vehicles.
In business terms, fixed assets cover things like:
● Property​ owned by the business
● Vehicles ​owned by the business
● Computer & Office equipment​ owned by the business
Most assets ‘depreciate’ over time, meaning that your accountant writes off a percentage of their
value, so that the Balance Sheet displays a realistic value for them, rather than showing them at
cost price.

4.
Current Assets
If a Fixed Asset is expected to be owned for at least 12 months, a Current Asset is obviously
something that you expect to own for less than 12 months. For a business, the main current assets
are:
● Cash​ balances
● Aged Debt​ i.e. total amounts owed from your clients
● Prepaid ​Costs i.e. costs that you’ve paid for but haven’t had the full benefit of yet
● Work In Progress​ i.e. the value of work completed but not invoiced for
● Tax owed to you - some businesses claiming R&D can end up with a tax refund, which is an
asset

5.
Current Liabilities
A liability in accounting terms is something that you owe as a business. Current Liabilities are
therefore amounts owed with the next 12 months. Commonly for a business this section of the
Balance Sheet is made up of:
● Aged Creditors​ i.e. amounts owed to your suppliers
● Accrued ​Costs i.e. costs that you’ve had the benefit of but not yet been invoiced for
● Deferred Revenue​ - where you’ve invoiced a client but not yet delivered all or part of the work
● Taxes owed ​- VAT, PAYE and Corporation Tax owed to HMRC at the Balance Sheet date
● Loans ​- to either directors or funders that you expect to be repaid within 12 months

6.
Long Term Liabilities
Long term liabilities are costs that you owe but don’t expect to pay in the next 12 months. So things
like:
● Long term loans owed back to directors
● Long term loans owed to funding providers

7.
Equity
When we subtract the total value of our Liabilities from our Assets, we get a figure known as ‘Net
Assets’. This figure should always balance to the Equity section of the Balance Sheet (hence the
name!).
The usual sections you’d expect to find within Equity are:
● Share Capital ​- the nominal value of the current shares in the business
● Share Premium​ - any amounts paid for shares above their nominal value
● Retained Profits - the rolling balance of profits made in the business after all shareholders
dividends

8.
A Working Example
The table below shows a working example of a Balance Sheet and how you’d expect to see this in a
set of accounts.