Also known as “statement of financial position,” the Balance Sheet is one (if not the most important) financial statement within a company. During this pandemic crisis we have seen a lot of companies suffering the consequences of not having enough cash to support their businesses (cash flow statement can give your cash position); therefore having a robust balance sheet will lead you to understand what your company’s assets are (what the company uses to operate), your liabilities (sources that support your assets) and your equity (amount of money invested or your business capital).
Why is it important to have enough current assets? Because they can be converted in cash within a year. Current assets are cash and equivalents, accounts receivables, and inventory. This top line is the single most important item in your balance sheet.
How can you use your assets to operate your business? You can sell your inventory and collect your receivables to generate cash flow.
What if you have fixed assets and need liquidity to operate during this crisis? Although these may be harder to sell, prepare a fixed asset inventory and determine whether they can be sold to get cash! Whatever you are not using, someone else might need it.
What happens to your liabilities? Prioritize! Since Government has placed a hold during this pandemic, make sure you get your employees paid (more importantly if you got the PPP loan). Call your vendors, make payment arrangements. They will understand and you will not get short in cash. Tip: forecast your cash for an eight-week period.
Do you have positive retained earnings? This means you have reinvested your profits within your company, or you have retained your profits for a future project. Use them!
We have learned from this experience that planning for your business is equally important as planning for your retirement. Controlling your expenses and growing your revenue is key, but keeping your company standing while there are no revenues should be your plan as of now.