How to Create a Balance Sheet for a Startup
Last Updated: By Michaela Dale
Your startup’s financial position guides the decisions you have to make to scale and sustain your company. Balance sheets offer a realistic look at the financial wellness of your company and what it's worth.
This article on how to create a balance sheet for a startup shares what a balance sheet is, as well as a step-by-step guide to preparing one for your company.
Balance Sheets for Startups
Making decisions for the future of your company is tough without a comprehensive overview of its financial position. Balance sheets offer a look into your startup’s assets, liabilities, and equity to provide you with the information you need to know to run a successful startup.
What Is a Balance Sheet?
A balance sheet is a summary of your startup’s assets, liabilities, and equity to convey your company’s financial position.
Companies are required to create three financial reports quarterly and annually: the balance sheet, profit and loss (P&L) statement, and a cash flow statement. The balanced sheet, alongside a profit and loss (P&L) statement and cash flow statement, offers a holistic view of the company’s financial wellness and sustainability.
Why Do I Need a Balance Sheet for My Startup?
The primary reasons for completing a balance sheet for a startup are tracking performance, conveying information to investors, and using it as a decision-making tool.
Tracks Performance
Knowing where your business is financially is one of the most important aspects of running a successful company. Balance sheets provide a comprehensive overview of your startup’s financial position, allowing you to track its performance.
Helps to Make Educated Decisions
Your balance sheet serves as a method to determine your startup’s financial position. Thus, it is integral to educated decision-making for your company.
Conveys Information to Investors
Whether they are current or prospective investors, a balance sheet alongside P&L and cash flow statements provides a valuable look inside your company that is critical for investors.
What to Include in a Startup Balance Sheet
When you’re ready to create a startup balance sheet, you will need to include assets, liabilities, and equity held by shareholders.
Assets
These can be broken down into current and long-term assets:
- Current assets are able to be converted into cash within one year. This may include cash, cash equivalents, marketable securities, inventory, prepaid expenses, accounts receivable, and other short-term investments.
- Long-term assets, or non-liquid assets/non-current assets, are assets that can be used for more than one year, minus depreciation. This may include fixed assets such as property, intangible assets such as patents or copyrights, bonds and real estate, and other long-term investments.
Liabilities
Similar to assets, liabilities are split into current and long-term liabilities:
- Current liabilities are money owed on immediate expenses such as taxes, rent and utilities, accounts payable, and debt repayment on loans or credit.
- Long-term liabilities, however, only include bonds payable and long-term debt agreements.
Equity
Finally, you need to include the equity held by your company’s shareholders. This will be denoted by the amount of capital shareholders have put into the company as well as the profits left over after dividends are paid to your shareholders — otherwise known as retained earnings.
Types of Balance Sheets
There are five types of balance sheet formats you can choose from. Each has a different focus; however, they all require the same inclusions: assets, liabilities, and equity.
- Classified Balance Sheets separate assets, liabilities, and equity into three categories. This is the most common type of balance sheet used.
- Unclassified Balance Sheets do not put assets, liabilities, and equity into categories, they are consolidated into one list.
- Common Size Balance Sheet is similar to a classified balance sheet in that it categorizes assets, liabilities, and equity in the same way. The key difference is that each asset includes a percentage total of the total assets value while liabilities listed include a percentage of the total value of both liabilities and equity.
- Comparative Balance Sheets compare lists of assets, liabilities, and equity against different time periods.
- Vertical Balance Sheets are simply a list of assets, liabilities, and equity in that order, organized by decreasing liquidity.
How to Create a Startup Balance sheet
Once you’ve determined the type of format you’ll be using, you can start compiling data and creating your balance sheet.
When you’re ready to create your startup balance sheet, we recommend obtaining the help of an accountant to ensure you’re getting the most accurate representation of your startup’s cash position.
1. Pick a Date
Most companies complete a balance sheet at the end of the fiscal year, commonly a few weeks after it has ended. However, you can also choose to create one quarterly or even monthly.
Once you’ve determined the date, you can gather all relevant information to create your startup balance sheet.
2. List and Add Up Assets
Add up all current assets that will convert to cash within the year, as well as long-term or non-liquid assets that will not convert to cash within the year. Total both types of assets in their own sections.
Calculate the total of both assets as well and place it below the two asset sections.
3. List and Add Up Liabilities
Identify all current liabilities or repayment obligations within the year. This may include salaries and accounts payable or short-term debts.
Next, add all long-term liabilities not due within the year. This may include mortgages or loans. Then, calculate the total of all liabilities and place it below.
4. Calculate Equity
The next step is to list equity by retained earnings and owner’s equity. Under this, you will include a total of all equity.
5. Compare Numbers
Finally, combine the balances of your liabilities and equity. This should result in the same amount as your assets. If not, you will need to redo your initial calculations.
Balance Sheet Tools for Startups
While it is possible to create a balance sheet for your startup on your own or with the help of an accountant, there are also tools available that make preparing your balance sheet simple.
1. QuickBooks
QuickBooks offers balance sheet preparation tools included in their packages, ranging from $15–$100 per month. However, they also offer a free balance sheet template that is compatible with Excel.
2. FreshBooks
If you’re looking for a free balance sheet template that easily integrates with other platforms, look no further. FreshBooks offers a free, customizable balance sheet template that is compatible with Microsoft Word, Google Docs, and Excel.
3. Puzzle
Puzzle is a startup accounting software with a suite of features for managing your business’s financials, generating tax reports, and preparing documents such as balance sheets – all on a single platform.
