EP.31 – How to Read and Interpret a Balance Sheet - Part 6

This episode features an answer to one of the questions I received on the series. I concluded the answer to practical tips for improving balance sheet without getting into complex financial jargon.

This episode is part of an ‘8-series’ show on ‘how to read and interpret a balance sheet’. This is part 6.  

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Episode Transcript

(00:00):
Music.

(00:06):
Are you starting a small business or buying an existing business?
This podcast, Startup Your Small Business and Learn, shares perspectives using
the psychology of retail and financial awareness, all with a reasonable dose of optimism.
The show promises to give startup solopreneurs insightful strategies and practical

(00:29):
solutions that supports the mindset to execute business projects.
My name is Ola Williams, your host on the show.
I encourage you to join me to learn with positivity and great exchange of ideas.
Music.

(00:51):
Oh, yes. Welcome back. So the practical steps you can take, remember,
that's what we're talking about. to actually improve your balance sheets.
So when you look at the assets, so some of those equipments,
can you review the design of the assets?

(01:13):
So practically in businesses, there has been value in actually looking at the
design of those assets, speaking with engineers.
In the case of a small business, I'll be looking at the manuals that came with the equipment.
And, you know, doing some research, some simple research on Google and speaking

(01:36):
to anybody that is knowledgeable with such an asset to actually know the life,
the expected life of the asset.
So assuming you have an equipment that you...
Your account has been depreciating for three years. With further review and
with the way the asset has been serving the business,

(01:58):
with what had happened with other businesses in the past, with all this information,
as long as there are credible sources of information that you have,
you can actually put together a justification.
This can be done with your accountant. Your accountant can do it to actually
increase the life of the asset. set.
So there's an equipment that the accountant has been depreciating for like three years.

(02:22):
If you've enjoyed this episode and learned something or the show has benefited
you in any way, I encourage you to please hit the subscribe button and share
this episode with people so they too can learn.
This action of yours ensures that we continue to give you content that that adds value to you,
supporting our commitment to be providing high quality content and fostering

(02:47):
a community of informed and successful entrepreneurs.
The accountants can actually, with the justification and with review and everything,
if you find out that the assets can last maybe two years more,
you know, so that's five years instead of three years now.
And what What that means is instead of the accountants, you know,

(03:09):
we said the example we made was a laptop of $1,000.
And the accountant start charging into your income statement monthly based on
the three years, maybe about $28.
So if it was five years, the accountant would be charging like $15, $16. Right.

(03:30):
Now, look to the math, $28, $15, $16.
That's in every month. In the case of our example, remember,
we're just keeping it simple.
That's $12 extra that you're saving, that is not being charged as an expense in your business.
It's little, but it's because we're using a simple example.
If the asset was more expensive, you can imagine the compounding,

(03:55):
the accumulation that will happen over five years for this kind of saving.
So that's a way to improve your balance sheet, and it's very practical. It's doable.
So next, we're going to look at warning signs.
Are there warning signs that you should look at when reviewing your balance sheet?
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(04:23):
Thanks for listening hopefully that added
value to you i do like to say that the
show aims to highlight broad business patterns that are considered same as ever
however i also acknowledge that personal circumstances may differ so please
apply the lessons and learn with your context text and seek professional guidance

(04:45):
as may be applicable to your business.
Until next episode, please do share the show so value is added to others as well.
And remember, let's continue to learn together and be encouraged to keep on connecting.
Music.