Most business owners pay an accountant each year to construct a balance sheet of assets less liabilities at a certain date. This can be a very useful tool to analyse the business net worth, cash flow requirements and liquidity. Clever business owners also construct a summary personal balance sheet to measure their personal net worth. A personal balance sheet should record all personal assets including the net worth of the business less all liabilities.
Standard assets would be residential property, businesses, savings, pensions, shares, cars and other assets. Standard liabilities could be overdrafts, loans, mortgages.
The net worth assets less liabilities becomes a very interesting figure and not many people are fully aware of theirs. It should be done on a regular basis to measure performance one year to the next. Assets, businesses and investments are then monitored for success and plans can be adapted accordingly.
Are you happy with your net worth? Do you have a plan for increasing your net worth in the future? Is the net worth likely to be enough to allow you to retire when you want with the amount of money you would like? Do you know the steps for increasing the net worth of your business?
Mark Wrigley, FCCA
GreenStones Accountants 01733 371180