What is a Balance Sheet?

Oct 26

WELCOME TO WEEK 2 OF THE BALANCING ACT NEWSLETTER! I HOPE YOU FIND THIS INFORMATION HELPFUL & EMPOWERING!

BUSINESS ACCOUNTING/BOOKKEEPING TIP OF THE WEEK

Ever need to put cash into your business to help cover business costs? I know I do sometimes. Did you know that there is a place on your Balance Sheet that will show you how much you've put into the business over time AND how much the business has profited & distributed (aka repaid) back to you?

What is a Balance Sheet?
I was working with one of my favorite clients recently, and after I finished getting her setup within Quickbooks I told her I wanted to go over her Balance Sheet. Her response was "What's a Balance Sheet?" It immediately hit me that many of you small business owners may not be familiar with the Balance Sheet, and how valuable it can be to you! I get it...you wan't to see your Profit & Loss Statement (which is important too!) But please believe me when I say that your Balance Sheet is a really great financial statement, and every business should have one, without exception. At a glance, your Balance Sheet will show your the following:

Assets, (things of value...cash, inventory, office furniture, computer equipment, amounts owed to you, etc.)
Liabilities (amounts owed by the business...credit card debt, business loans, etc.)
Equity - The amount of money put into the business by the owner, the amount of net profit or loss generated since the start of business, and the amounts paid back to the owner over time through "owner draws" or "distributions"

I Don't Have a Balance Sheet, But Now I Want it. How Do I Get One?
This is how it works...if you are recording your business transactions regularly (aka bookkeeping), then your accounting system will be able to take all of the information that you've entered and produce a Balance Sheet UNLESS you're using Quickbooks Self -Employed.

RANT ALERT: I have a beef with Quickbooks Self-Employed. The fact that you can't run a Balance Sheet is a huge flaw within that system. If you're using Quickbooks Self-Employed right now, I suggest switching to Quickbooks Online Essentials. Or if you're in need of an accounting system and are considering Quickbooks, do not choose Quickbooks Self Employed. Talk to ANY accountant, and they will tell you that the Balance Sheet is a necessity. Okay, end rant.

What if I'm Not Using an Accounting System OR I'm Using Quickbooks Self-Employed?

I want to help you! But here's is my issue...I'm at max capacity when it comes to taking on new clients. BUT I'm creating an online course that walk you step-by-step through creating an accounting system that will work best for you and will allow you to record your transactions, and generate a Balance Sheet along with a Profit & Loss Statement (commonly called "P&L".) In the meantime, checkout my free resource mentioned under the next question.

Once I have a Balance Sheet, How Will I know What the Heck I'm Looking At?
I'm been working on resources that I think could be helpful to you. I've created this quick little video for you called "Balance Sheet Basics" where I quickly walk you through a Balance Sheet & describe what it tells you and why I think it's so incredibly important! Take 5 minutes of your day and watch it. It will absolutely be worth it! Click here for your free resource!

What's Relevant to You (as a Business Owner) This Week?

The Economic Injury Disaster Loan Program (commonly referred to as the "EIDL")

I think I've heard ramblings of this, But I don't understand exactly what it is or if its even an option for my business.
This loan program is part of the small business aid package passed by Congress to help small businesses during the pandemic. The Small Business Administration is offering loans with REALLY favorable terms to small businesses to help cover operating costs during the Pandemic.

Can you hit me with the high notes?
You know I love a good bullet point list!:

There is no cost to apply
There is no obligation to take the loan if you're approved
Payments are automatically deferred for 12 months
They do check your credit score
The Interest rate: 3.75%
The Term- 30 Years
Eligibility is based on the size, type of business, acceptable credit history & ability to repay the loan in the future.
You can borrow up to $25k without collateral. Anything above $25k is secured with your business assets (p.s. wondering what those are and how much you have?This can be found on your balance sheet.)

When you say eligibility is based on size & type of business, what do you mean? What type or size does my business have to be?
The EIDL program is available to the following:

Small Businesses with less than 500 employees
Sole Proprietors (including 1099 employees)
Non-profits
Other (complete comprehensive list found here.

Whats the catch? There's always a catch.
The catch here is that they want you to use this loan to help your business get through this tough time and cover existing costs, and not as cheap access to funds to help grow your business. Here is a list of ways that you are allowed and not allowed to use the funds:

If you think that this could be a great option for you, click here to apply.

KNOWLEDGE YOU CAN DROP AT A (VIRTUAL) DINNER PARTY THIS WEEK

The US Economy's GDP figure for Q2 (April, May & June) was released, and It showed a NEGATIVE 32.9% change from Q1 (Jan,. Feb. & Mar.) But...that's not the full story.

What is "GDP"? I don't know what "negative 32.9%" really means, but it doesn't sound great. How bad is it really?
GDP is "Gross Domestic Product"---simply put, this is the sum of all of the products & services that the US economy produces.

And yes, a 32.9% drop in the second quarter sounds scary. The economy is struggling right now, and we all know that. But there are some things that you need to know about how that negative 32.9% is calculated. Don't worry, I'm not about to take you through a math problem, because I wouldn't do that to you. But you need to know this:

The actual decrease during the second quarter was 9.5% and not 32.9%.

What the?

The 32.9% that is being reported represents what the decrease will be over a 12 month period if we continue to plummet at a rate of 9.5% every 3 months.

Is there a way that you can put this into a little more perspective for me?
I'm going to talk to you in actuals here vs. the "if we continue to plummet" scenario. Think about it this way...the actual change in GDP per quarter (every 3 months) is typically anywhere from 1.5%-3%. And its typically an increase vs.a decrease. So the actual decrease of 9.5% for the second quarter is still a drastic change, and is still bad news. But, when someone likens today's economy to that of the Great Depression, drop the 9.5% knowledge bomb, and kindly explain that this downturn in the economy is different because its a direct result of the Coronavirus. Which means its more than likely temporary. Then "mic drop" and walk away.

This Week's Recommendation:

No Limits with Rebecca Jarvis - Episode 144

If you like hearing stories from successful women, check out this podcast episode. The host sits down with Katrina Lake (CEO and Founder of Stitch Fix and the youngest woman to ever take a company public.) She discusses her path to success including her failures along the way. The hubs even enjoyed listening to it.

That’s it for this week! As always, I hope you found this helpful, and I want to hear from you! What did you like? What did you not like? Lemme know.

My sources:
"The Indicator from Planet Money"- NPR
The Small Business Administration