A balance sheet is a snap shot of your business, usually at the end of each month. A balance sheet show your assets, current and long-term liabilities, capital, and net profit for any given month. If you takeover an existing business or start a new one, how do you create an opening balance sheet?
First off, it's always necessary to create one for several reasons. Your accountant will need one and if you plan to seek funding for your business, banks and lenders will require one. The Small Business Administration (SBA) offers a great Microsoft Excel balance sheet template which can be found in our Media Gallery. Before you read further about opening balance sheets , it's suggested you print this template and follow along to help you understand the easiest way to make balance sheet assumptions.
Life may be a balancing act, but when it comes to your balance sheet, you need to be as accurate as you can be while also making assumptions. Now that you've printed out the balance sheet template, here's how to break down the elements:
Current Assets
Cash - This is the amount of cash you expect to have in your business checking, savings, money market, and payroll accounts as well as any petty cash on-hand.
Accounts Receivable - If you are a new business, this number may be zero. If you have taken over an existing business and have inherited their accounts receivable, this number goes here. For example, if the company is owed $10,000 from customers, you would put $10,000 in this field.
Bad Debts - New businesses will have no bad debts on opening day, however, an existing business may. During your due diligence period when you bought the existing business, you should have inquired about bad debts. If there are any, place that amount in this field.
Inventory - Whether you are a new business or an existing business, you will have inventory. New businesses should estimate what they intend to spend for inventory to have on hand for opening day. Existing businesses can use the inventory already in place to come up with this number.
Prepaid Expenses - Prepaid expenses almost always occur for both new or existing businesses. These are expenses you pay to utility and telephone companies to hook-up service to your business and any city water or sewer fees you have to pay prior to opening day. Check with your accountant for any other prepaid expenses you should put in this field, however, they are mostly reserved for prepaid utility fees, hook-ups, or licensing fees.
Notes Receivable - A new business may or may not have any notes receivable, but existing businesses may. An example of a note receivable from an existing business would be a short or long-term financing note the company is allowing a customer to pay over a period of time.
Current Assets - The sum of all of the above items, less bad debts, determines your Total Current Assets.
On the next page, we'll go into more detail about the other items that should be included in your opening balance sheet.