- Writing a Business Plan
- Financial Statements
- Business Forecasting
- Business Checklist
BUDGET 12 - DEVELOPING YOUR OPENING BALANCE SHEET
Recall from previous discussions, a Balance Sheet is a statement used to determine the financial strength and weakness of a business. It lists everything a company owns (assets), everything a company owes (liabilities) and the owner's investments (equity) on a specific date. An Opening Balance Sheet, on the other hand, usually lists everything a company owns (assets), everything a company owes (liabilities) and the owner's investments (equity) on the Opening Day of Operations. Since Murray's Opening Day is scheduled for July 1, 200X, his Opening Balance Sheet will show all his company's Assets, Liabilities and Equity on July 1, 200X.
Some companies feel their opening balance sheet date should be the date at which they register their business name. For instance, if Murray registered "Scholarship Information Services" (his business name) on June 15, 200X, his opening balance sheet would show his asset values, his liability values, and his equity values on June 15, 200X; with no attention paid to his scheduled first day of operations (July 1, 200X).
Still other companies feel their opening balance sheet date should be the date at which they begin to prepare their forecasted financial statements. For instance, if Murray began preparing his forecasted financial statements on June 5, 200X, his opening balance sheet would show his asset values, his liability values, and his equity values on June 5, 200X ; with no attention paid to the date of registration or his scheduled first day of operations.
Most existing companies, developing forecasted financial statements for expansion purposes, prefer to use the last Approach. Aspiring entrepreneurs, however, tend to favor Approach 1 or 2. In our example, we prepared Murray's Opening Balance Sheet as of July 1, 200X - his scheduled first day of operations. The reason; we assume Murray would spend very little cash to research his business prior to his scheduled first day of operation (July 1, 200X).
At any rate, Murray would use information from existing Budgets to develop his Opening Balance Sheet; namely, Budget 8 and Budget 11.
Recall from Budget 8 entitled, "Developing your Fixed Assets Budget, that Murray plans to invest personal fixed assets into his company. These assets include: an automobile, computer, printer, and other computer accessories. The Automobile was appraised at $6,000 and the Computer and Computer accessories were appraised at $3,900.
Recall from Budget 11 entitled, "Determine all Cash Investments into Your Company", that Murray plans to take $7,500 cash out of his personal savings account and invest (place) it into his business' bank account. No other cash investments, from other sources, are expected to be invested into Scholarship Information Services.
One final item must be determined before Murray can prepare his Opening Balance Sheet. This item is known as corporate liabilities. In other words, Murray must determine if his business owes people or other businesses money as of the Opening Balance Sheet date (July 1, 200X). This is a simple task, since he should know whether his business currently owes money (or expects to owe money) on July 1, 200X. Let's assume, Murray's business will NOT owe money on July 1, 200X (IE his business will have NO liabilities on July 1, 200X)
Now Murray is ready to prepare his Opening Balance Sheet. To do this, he will list and total all his assets, list and total all his liabilities, and list and total all his equity. The sum of the company's assets must equal (IE balance) the sum of the company's liabilities and equity. Recall Murray's Assets include cash of $7,500, an automobile valued at $6,000, and office equipment valued at $3,900. His company's liabilities equal $0.00. And his total investment (Equity) into the company is value at $17,400 (the sum of the assets he invested into the company).
Below illustrates Murray Opening Balance Sheet:
|SCHOLARSHIP INFORMATION SERVICES
OPENING BALANCE SHEET
AS OF JULY 1, 200X
|JULY 1, 200X|
|TOTAL LIABILITIES||$ 0.00|
|TOTAL LIABILITIES & EQUITY||$17,400|
As you can see, the sum of the assets equal (balance with) the sum of the liabilities and equity ($17,400 = $17,400).
ONE FINAL NOTE:
DO NOT confuse a Personal Balance Sheet with an Opening Balance Sheet. A personal balance sheet lists items an INDIVIDUAL owns (personal assets) and owes ( personal liabilities), while an Opening Balance Sheet lists the items a COMPANY owns (business assets), Owes (business liabilities) as well as the Owners Investment into the company (IE Equity or often referred to as Capital).
For additional information, please refer to our discussion on Balance Sheet.