The Balance Sheet

As we said before, it’s an inventory of all of the assets that your company has invested in. And it is a list of all the liabilities that you’ve taken on that you owe to other people. It’s really a tally of the financial health of your company at any one point in time.

So what is the balance sheet? Well, fundamentally on one side, you’ve got the assets, the things that you own and then you’ve got the liabilities on the other. And the difference between those two leaves you with the equity. And that’s the money that your business has created beyond having to pay off its liabilities that it can return to its shareholders and owners.

It describes what you’ve got and what you’ve invested money in, and it looks at where you’ve got that money from and who you owe money to.

Why do we care about the balance sheet?

Now, one of the things that is important to understand about the balance sheet is that cash can get tied up in it. So if we go and purchase lots of inventory, for example, then that becomes an asset – our inventory on one side and we need to sell that asset to generate revenue, which we can return back as equity to our shareholders.

This is where we start to look at concepts of free cash flow and some of the uses of data that we’ll explain later on free up cash flow, make your business more efficient, but also allow you to do more. You can churn the handle between the money that you’ve got in the bank and purchasing things that you then sell on to your customers. And this can drive up the operational efficiency of your business.