Cash is still king: how to maintain a healthy balance sheet for your social enterprise
As a social enterprise, keeping on top of your accounts is vital to its ongoing success.
However, if your attitude towards your incomings and outgoings is too lax, you’ll struggle to balance the books at the end of the financial year.
Being able to input all of your transactions into a straightforward and easy-to-use balance sheet means that you’ll never be left out of pocket or concerned about paying the bills again!
Every social enterprise that takes payment for its goods or services needs to be able to record every financial detail. Thankfully, you can keep your debts to a minimum and always record every penny you spend by using a balance sheet.
What is a balance sheet?
A balance sheet will provide you with a fantastic picture of your financial position. It should be able to outline your total assets, as well as any money that’s owed to lenders, suppliers or the bank – as well as any equity.
To keep on top of your financial position, remember these three simple instructions:
1. Record all of your assets
Assets are everything your social enterprise owns that has a monetary value. This could be your stock inventory, your equipment or even the cash that you have in the bank.
When you note your assets on your balance sheet they should be broken down into different sections to demonstrate the assets you currently have available versus those that you’re expecting to come into the business.
Never be tempted to leave any asset out, no matter how small it might, as this will impact the accuracy of your balance sheet and cloud the amount of cash you have available to you at any particular time.
2. Keep a record of your liabilities
Your liabilities are any outstanding amounts that your social enterprise owes. This could be bank loans, wages, tax payments and even unpaid bills.
All of these liabilities should be listed in your balance sheet based on their due date, or the specific timeframe in which you expect them to be cleared.
While you may be nervous about any outgoings, it would be foolhardy to not make a note of what you owe and when, because failure to do so could result in a dangerous level of over spending in the long run!
3. Reassess your equity
The third part of the balance sheet equation is your equity.
This refers to the assets that you’ll be left with after you have deducted the amount your social enterprise owes.
This could be as simple as the balance you have in the bank minus the amount you’re due to pay out.
This vitally important equity figure should be reassessed as often as possible. Not only will it show you how much money your social enterprise has to hand, it can also help to future-proof the organization by giving you a good idea of what works financially and where you’re spending too much.
Why cash is still king
Now you understand how a balance sheet works and how important it is to have one, keep in mind how it will look if you take on any extra debt or loans.
It goes without saying that most social enterprises need a little financial help to get started, but the more you’re able to finance on your own, the healthier your balance sheet will look.
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