Financial position statement – Example and advice

The term ‘balance sheet’ is likely familiar to small business owners. However, the balance sheet is now known as the “Statement of financial status,” much like “the artist formerly known as Prince.”

The Statement is an essential financial document that facilitates the effective and profitable operation of your firm. It serves as a reference to your company’s financial health, thus it is crucial to comprehend its components and significance.

The Statement depicts the financial condition at a certain point in time, which is often presented at the conclusion of the fiscal year or when management accounts are distributed to stakeholders. By comparing numbers from prior years, performance can be compared to the previous year and any dangers or opportunities can be identified.

Statement of financial position terminology
The example of a Statement of financial status contains several key concepts.

Capital assets
These are assets that you own and keep for a longer period of time in order to operate your firm. They often consist of property, vehicles, machinery, and equipment. You assign a value to these, which was initially based on the purchase price of the asset.

Intangible resources
Your company may also possess intangible assets, such as the value of its patents, licences, trademarks, or copyrights.

Depreciation The value of these assets decreases over time due to depreciation. Each fiscal year, HMRC permits you to depreciate various types of assets by a specified proportion.

Combined fixed assets
This is the current worth of your fixed assets after depreciation has been subtracted.

liquid assets
These are assets that can be converted into cash quickly. They serve as a measure of your liquidity.

Debtors Debtors reflect the total amount owing by your customers at the time your Statement is compiled. This amount could be calculated using invoices due for payment by the Statement date.

Cash
This is the quantity of cash in your possession. This is typically the small amount of cash you have on hand to cover expenses.

Bank
This amount reflects the balance of your bank accounts on the date of the Statement.

Adding the value of your fixed assets, current assets, and subtracting the value of your creditors yields the value of your net assets.

Current liabilities
This indicates the amount you owe as of the Statement’s date.

Creditors
This is the amount you owe to suppliers based on invoices due for payment as of the Statement date.

Tax
This amount indicates any Corporation Tax, VAT, or PAYE payments that are due by the Statement date.

This is the outstanding balance of all loans and grants, including principal and interest, as of the date of the Statement.

Capital and savings
This number represents the capital that shareholders have invested in the company.

Profit/loss
Your profit or loss for the fiscal year is conveyed through your profit and loss statement.

Capital at year’s end
At the end of the year, the sum of your profit or loss, capital and reserves, and funds not yet paid to meet current liabilities yields a figure for capital. This number should correspond to the entire asset value.

Statement of financial position analysis
Creating and reviewing your Statement of financial position is not merely an accounting exercise; it is a vital instrument for financial management that may assist you in making successful, financially sound decisions regarding the maintenance and expansion of your firm.

In its most basic form, the Statement displays your company’s net worth – the difference between your total assets and current obligations.

The disparity between current assets and current liabilities is a significant measure. Do you have sufficient cash, bank deposits, and client payments due to satisfy your obligations?

A disparity in this area could signal a potential cash flow issue before it becomes a serious concern. You could require additional working capital to address the issue.

Analysis of current liabilities also reveals the business’s debt status. If your income is unsustainable and your debt is considerable or has climbed dramatically over the past year, you could face serious challenges in the future.

The Statement might shed light on other crucial company figures and trends. For instance, the section on debtors can include information regarding how long it takes to get payment from clients. To enhance cash flow, you might have to restrict payment terms.

Analyzing the Statement provides insight into the health of one’s own business. You can also use the data to compare your performance and key ratios with those of other companies in your industry. For instance, what is the industry average debt ratio, and how do you compare? How much capital do enterprises of comparable size employ?

Obtaining financing
The financial position statement can serve two purposes. It might help you acquire additional financing by highlighting the need for it.

Before lending funds, lenders and investors demand evidence and assurance of your company’s financial health and future prospects to mitigate risk. They want to see a picture of your financial health over time, so they may request multiple statements. They also want to see if you have a history of collecting payments and repaying loans on schedule.