A balance sheet is a snapshot of your business assets, liabilities and capital at a particular date in time. The balance sheet shows the amounts owed alongside an overview of assets (including stock and money in the bank). The total figure at the bottom of a balance sheet shows the value of the business at that time.
Most business owners will generally focus on items such as profitability and tax liability, but professional financial readers will be looking at the balance sheet differently, searching for answers to questions such as; Is the business solvent? and Does the business have enough working capital?
While we all want to minimise our tax liability as part of year end planning, always keep in mind that every additional cost included to reduce you tax bill could reduct your net worth position. Say you are a small business tendering for a new contract with a large organisation, as part of the process you may need to submit your year end accounts for review to assess your financial situation and robustness to undertake a new contract. Whilst saving tax may be a priority, you it wise to consider your intentions and who the users of your accounts may be.