5 Balance Sheet Figures Every Business Owner Must Understand - FChain

Many business owners say: “I’m not an accountant. I don’t need this.” I agree. You don’t need to know accounting entries, accounting standards, or the nuances of taxation.

But there are 5 figures that a business owner is simply required to understand. Otherwise, you are managing your business practically blindfolded.

1. Cash on hand and in bank accounts

The simplest and most deceiving figure. What matters is not just how much cash you currently have in your accounts. It is crucial to understand:

• Is it enough to cover your immediate obligations?
• Is the balance growing or shrinking?
• How much of this money is already promised to suppliers, employees, and the government?

A high account balance doesn’t always mean the business is doing great.

2. Accounts Receivable

This is the money your customers owe you. Your money… which is not in your pocket.

On paper, it exists. In the bank account, it doesn’t. If your receivables are growing faster than your sales, that’s a red flag. Sometimes a company shows a healthy profit but experiences a cash crunch precisely because of customer debts.

Keep an eye on:

• How much is overdue?
• Who isn’t paying?
• Is the total amount rising or falling?

3. Accounts Payable

This is the money your company owes to others: suppliers, contractors, employees, and the government.

Accounts payable by itself is not a problem. The problem starts when the owner stops understanding its structure and payment deadlines. When that happens, it stops being just a debt and becomes a heavy pressure on the business.

4. Inventory

For retail and trade, this is your merchandise. For manufacturing, it’s raw materials and supplies. For an owner, this is money that is temporarily sitting—or rather, “buried”—in the warehouse.

As long as inventory just sits there, it isn’t working for you. The more stagnant inventory you have, the more cash is practically pulled out of circulation.

Check:

• How much is sitting as dead weight?
• Do you have obsolete or unsellable stock?
• Does the inventory on the books match reality?

5. Owner’s Equity

This is one of the best indicators of a business’s health. In simple terms, it’s what’s left for the owner after settling all the company’s liabilities.

When equity grows year after year, the business is creating value. When it decreases, it’s time to look into the reasons.

Please note: In all five indicators, there is not a single word about taxes. Because for a business owner, accounting is not just for filing tax returns. It is essential for understanding what is actually happening with the business.

If your accounting department only answers the question “how much tax do we have to pay,” then you are using only a tiny fraction of its capabilities.

If you ever feel like:

“Everything seems to be tracked, but I don’t see the big picture,” — the problem isn’t you. It means your accounting system is failing to work as a management tool.

Which of these five indicators do you look at regularly?

 

Article by Emil Nazarov

 

How Accounting Affects Business Profitability

 

🌐 az.f-chain.com
📩 baku@f-chain.com
📞 (+994 55) 235 86 03/ (+994 012) 505 23 30
📍35C, Matbuat Ave., Baku, Azerbaijan