Balance Sheet: Small Business Owners, It's Critical to Have Positive Owner Equity
In this video, I discuss the balance sheet a little. What I primarily focus on is owner's equity, also known as shareholder's equity. So many small business owners spend so much time thinking about taxes and trying to minimize them that they don't realize that they may be destroying the financial health of their firm. This applies to most of the small business owners I've worked with who have revenues of $1 million or less and a number of them who have over $3 million.
Shareholder's equity is a reflection of how much you've reinvested in your company. If you pull out all the money as distributions or if you only put money in as a shareholder's loan, you may have extremely low or even negative equity. NEGATIVE OWNER'S EQUITY IS A HUGE RED FLAG!! You will not get bank financing. You may not qualify for government contracts. You will have difficulty selling your business for anything more than liquidation value.
For women business owners and minority business owners looking to do business with the government under certain programs, a healthy balance sheet is a necessity. A balance sheet with negative book value (assets - liabilities = owner's equity) means you don't have the financial wherewithal to withstand any kind of issue or small shock. The government wants to ensure that you can perform. If you can't weather the ups and downs of a new contract, then you can't perform.
If you'd like to book a free 20-minute consultation to discuss your situation, please go to https://theresourcefulceo.com/schedule.
#smallbusiness #smallbusinessowners #smallbusinessowner #taxes #businesstaxes #ownersequity #shareholdersequity #balancesheet #financialstatement #minoritybusinessowners #womenbusinessowners