Just as it’s time to clean out closets and wash windows it might be time to do a little spring cleaning on your balance sheet.
Why is cleaning up your balance sheet important? It’s the first place most banks and investors (and you) look when you measuring the health of a business. If there’s a lot of “junk” on the balance sheet it doesn’t give you a clear picture of your position and makes you lose credibility with outside parties.
Here are a few places you should look to spring clean your balance sheet:
- Flip-flopped balances. That’s the non-technical term for having debit balances where there should be credit balances or vise versa. These will show up on your balance sheet as negatives if you use QuickBooks. We’ll often see that there are negative balances in Credit Cards or Loans– which if interpreted literally– means that the bank owes you money. Often times it means a bill wasn’t recorded properly but the payments came out of that account.
- Inventory: It’s time to take a look at the balances you are carrying on your books. What’s old, what’s obsolete and what doesn’t have a prayer to be sold. Get rid of it.
- Accounts Receivable: Old balances just like inventory aren’t doing you any good. Go through and make the call on the past due accounts. Are you going to do one last push on collections, or are you going to just take the hit and write them off?
- Accounts Payable: Often there are “dangling” credits, or unapplied payments to bills. It’s time to go through and write off, refund or make apply those credits and go back and apply the payments to the bills.
Keeping a clean balance sheet is like keeping a good clean house– and knowing we’re everything is. So take some time during this month’s close and do some spring cleaning on your financials.