Developers: How to Create a Balance Sheet

Here’s everything real estate developers need to know about making the most of the balance sheet.

Key takeaways

• A balance sheet lists your assets, liabilities, and stakeholder equity

• It is a crucial document to present your current financial standing to investors or lenders

• Best practices for your balance sheet include:

  1. Your balance sheet should always balance

  2. Indicate the reporting period and date

  3. Assets should be listed in order of liquidity

  4. Use a balance sheet template

Running your small business requires lots of care and attention to your finances. It’s more than monitoring cash flow; effective financial management requires monthly, quarterly, and annual reports that help you understand your business’s current financial position.

Creating a balance sheet is a crucial component of your accounting responsibility. As a real estate developer, you always need to know facts about your standing and profitability. It will help you attract investors or lenders or just to get a sense of your assets and liabilities at a given time.

Here’s everything you need to know about balance sheets and how to create them.

What is a balance sheet?

A balance sheet is also known as a statement of financial position. It provides an overview of a business’s financial condition at a given time, including assets, liabilities, and shareholders’ equity.

An asset is a financial resource, including cash, valuable equipment, property, or inventory. Fixed assets are items like property and intangible assets, and current assets include cash and inventory.

Liabilities are obligations or liquidated assets. There can be long-term liabilities and current liabilities, depending on when they are expected to be paid. Short-term debts are other types of liabilities, as are long-term debts like loans. Shareholders’ equity is the amount of money that owners have invested in the company.

You will subtract the total of your liabilities and equity from your assets to get your net assets on your balance sheet. This shows what you are worth or your business’s equity.

Why you need a balance sheet

The balance sheet helps you understand your current financial position so you can make predictions for the future and alter your approach as needed. But, it also provides important company information for third parties, including analysts, lenders, or investors with interest in your business. You may also need to share the balance sheet with stakeholders within your company. This information shows the profitability of your business.

Balance sheets are usually pretty brief, as they are meant to provide a simple overview that can be assessed quickly. Consider a balance sheet a snapshot of your financial position that is easily understood by other parties. It shows what you owe, what you currently own, and provides insight into current operations.

Your statement is a crucial part of managing your finances. You will typically generate a balance sheet monthly or quarterly, so you always have a clear picture of where you stand. It goes beyond the profit and loss statement, which doesn’t provide information about current assets or expected liabilities.

Accounts to include in a balance sheet

Let’s look at all the accounts and items to include on your balance sheet as a developer:

• Assets:

  1. Cash

  2. Accounts receivable

  3. Inventory

  4. Fixed assets (those that are not easily converted into cash)

  5. Short- and long-term marketable securities

  6. Property

  7. Goodwill

• Liabilities:

  1. Accounts payable

  2. Short- and long-term debt

  3. Accrued expenses

  4. Deferred revenue

• Shareholders’ equity:

  1. Stock

  2. Retained earnings

  3. Preferred stock

  4. Treasury stock

Line items on your balance sheet will vary based on your industry, business size, and whether your business is private with a single owner or is publicly held.

How to create a balance sheet

There are a few best practices for gathering and presenting all of this information on a balance sheet. Make sure you are aware of how your balance sheet should look when all is said and done. Here are a few tips:

1. Your sheet should always balance

It’s always important that your balance sheet is, in fact, balanced, meaning that your total assets equal your total liabilities plus equity. To calculate, add your liabilities and equity together. This number should equal your total assets (this is also known as the accounting equation: assets = liabilities + shareholders’ equity). If your numbers aren’t balanced, double-check all of your calculations and numbers, as it is probably just an error.

2. Indicate the reporting period and date

A balance sheet will always have a date to reflect current information. Many businesses create a balance sheet at the end of a reporting period, whether at the end of the month or the end of the quarter.

3. List assets in order of liquidity

Your line items should be listed in the order of their liquidity, meaning that those assets that are the easiest to convert into cash are at the top. An example of common order of liquidity follows:

• Cash

• Marketable securities

• Accounts receivable

• Fixed assets

• Goodwill

4. Use a template

If you’re not completely sure about everything you should include on your balance sheet, use a template. You can find a simple, free balance sheet in QuickBooks that lists everything you need to include under each category so you won’t miss anything.

Having an accurate balance sheet that is updated regularly will give you valuable insights into your business is doing and its profitability. Seeking professional help will ensure that you are tracking everything you need to for your business.

Work with the experts at Franco Blueprint

Whatever questions you may have about creating a balance sheet or managing your business accounting, Franco Blueprint is ready to help. We assist business owners with setting up their company, managing taxes, and improving accounting processes. No matter what stage your small business is in, we can help you improve your financial systems to support long-term growth.

Get in touch with Franco Blueprint to schedule a free consultation today.