Balance sheets are the unsung heroes of our industry’s accounting management tools. Love ‘em or hate ‘em, they’re vital to your business, and learning to read them correctly will supply you with information that can keep your company out of financial trouble, as well as show you some important growth opportunities. Let’s take a quick look at the fundamental ways that your balance sheet will help you better manage your company.
Before we dive in, allow me to dispel the common misperception that the income statement is more important than the balance sheet. While the income statement typically gets, by far, the most attention from owners, accountants, and managers, it does not take precedence over the balance sheet. Income statements are easy to understand and, generally, we have a little more control over it. The income statement allows us to see whether we’re winning or losing in the short term, so it’s easy to prioritize it over the balance sheet.