A balance sheet is one of the most important financial documents of your company. It helps you evaluate the financial health and progress of the business. It’s particularly crucial when you’re trying to raise capital for your business.
Nevertheless, creating and maintaining a balance sheet isn’t a cakewalk. Even if you hire a skilled bookkeeper or accountant, they’re prone to make mistakes while preparing a business balance sheet.
Between recording every transaction and entering various types of data, it’s easy to let a few things slip.
But even the smallest errors could result in an imbalance, and impact the accuracy of your balance sheet. Given the volume of transactions you have to deal with every day, identifying and correcting errors becomes a herculean task.
Your best bet is to avoid these mistakes in the first place. That’s why in this blog post, we’ve outlined a few tips to help simplify the process of creating and updating your company’s balance sheet. Let’s take a look.
1. Start With a Balance Sheet Template
Preparing a balance sheet takes more than simply entering a bunch of transactions into a spreadsheet. Of course, you can create an Excel spreadsheet and add a few columns to distinguish assets from liabilities.
But failing to maintain the right format could introduce serious problems to your company’s balance sheet. Also, identifying specific transactions and comparing data from different periods will become difficult.
That’s where a pre-designed balance sheet template comes to your rescue.
With a simple balance sheet template, your accountants don’t have to worry about the format and structure of the document. They just have to input the correct data in various columns.
It gives them time to focus on more important aspects, such as the proper classification of transactions. Also, it lets them avoid errors while entering any values into the document.
That, in turn, helps maintain the accuracy of your balance sheet and ensures that the document is always ready to be reviewed by external stakeholders.
2. Keep Your Documents Handy
Preparing a balance sheet involves entering data from various business transactions. If you want to avoid errors in the process, it’s always a good idea to review any documents related to a specific transaction.
Make sure you gather all invoices, receipts, and other financial records for various transactions over a given period.
While your company’s ledger will have most of the information, you might need other documents, such as an income statement and tax summaries.
3. Prioritize Data Classification
Misclassification of transactions is one of the biggest mistakes business owners make when updating a balance sheet.
Typically, a balance sheet template features the following sections:
- Assets (what your company owns)
- Liabilities (what your company owes)
- Equity (what’s left after deducting expenses)
Transactions related to petty cash and accounts receivable should be classified as assets. On the other hand, any loans, mortgages, and accounts payable will fall under business liabilities.
Entering a single transaction to the wrong section could create an imbalance, and render the document unusable. Make sure your company’s accountants have a clear understanding of where each transaction should go.
4. Keep Transactions Up-to-Date
There are two ways to create your company’s balance sheet. You can wait until you’ve accumulated a sizable backlog of transactions before entering them into the sheet. Or you could enter transaction data as and when it occurs.
No points for guessing which of the two techniques delivers better results.
As a ground rule, you should update the balance sheet every time there’s a new transaction. If that isn’t feasible, try setting daily reminders for entering the day’s transactions. It minimizes the burden on your company’s bookkeeper and helps them rectify errors on the go.
5. Double Check the Information
Transaction misclassification and omission aren’t the only balance sheet errors you need to worry about. Even a simple transposition error could disrupt the equation of your balance sheet, and make it inaccurate.
Worse still, they could end up adding a transaction to the wrong section of the balance sheet. That’s why it is always wiser to have an extra pair of eyes review your balance sheet whenever it’s being updated.
Ask them to check any data that’s being entered into the sheet, and tally it with the values in other financial documents. Automation can often be helpful in this regard.
Whether you’re running a bootstrapped startup or a global corporation, your company’s balance sheet plays a key role in maintaining financial health. It’s just as important when you’re trying to get a business loan or secure funding for your company.
Use a well-designed balance sheet template to get started with the proper. Cross-check every bit of information that goes into the sheet, and make sure that every transaction is properly classified. Leverage automation to make the process of data entry more efficient.