How to Read a Balance Sheet in Five Minutes
You probably know roughly what’s in your company account today.
The balance sheet tells you the rest: what your company owns, what it owes and what’s left over. It looks like a lot of numbers, but it follows the same order every time, so once you know it, you can read one in about five minutes.
At the top you’ll see a date, usually written as “as at” your year-end. Every number below is a snapshot of that one day, and a week later the cash figure could look quite different. Next to each number there’s a second column with last year’s figure.
Comparing those two columns shows you what changed, and it’s the easiest first step in how to understand a balance sheet.
What the company owns and owes
The top part lists assets.
Fixed assets are things your company keeps for more than a year, like equipment, vehicles, computers or property. Most of them lose a bit of value on paper each year through depreciation, which is why the laptop you bought three years ago now looks cheaper.
Next are current assets, which should turn into cash within a year. You’ll usually see stock, debtors (money people owe your company) and cash at bank and in hand (the money in your company’s accounts, plus any physical cash).
If your company files micro-entity accounts, these are usually rolled into one current assets figure, so check your account statements for the cash number.
Some balance sheets also show prepayments, which are bills paid ahead of time, like a full year of insurance.
Below the assets you’ll see what your company owes.
These are listed as creditors, the people and businesses your company needs to pay, and they’re split into two groups by when the money is due.
“Amounts falling due within one year” is everything your company needs to pay in the next 12 months, like supplier invoices, tax and short-term loans. If your company owes you money through a director’s loan account, you’ll often find it here too.
Longer debts, like a loan with a few years left to run, go under “amounts falling due after more than one year”.
You might also see provisions for liabilities. That’s money set aside for a cost your company expects but can’t price exactly yet.
Net current assets is your current assets minus what you owe within a year.
If it’s positive, your company has enough money in hand or coming in to cover this year’s bills.
If it’s negative, you’ll see it in brackets as net current liabilities, and that’s the line to look at more closely. The next line, total assets less current liabilities, adds your fixed assets back in, and then the longer debts and provisions come off.
Once everything your company owes has come off, you’re left with net assets. Underneath sits capital and reserves, showing where that value came from. The two totals always match, which gives the balance sheet its name.
For most small companies, capital and reserves has two main lines, though a micro-entity may show just one total.
Called up share capital is the face value of the shares the company has issued, often a very small figure. The profit and loss account is all the profit your company has kept since it started, after tax and dividends.
Yes, it shares a name with the separate profit and loss statement, which doesn’t help. On the balance sheet it’s just a running total, and a negative number means your company has lost more than it’s made so far.
With the main lines of the balance sheet explained, you can run five quick checks:
- The date and last year’s column. Check the date, then see what changed since last year.
- Cash. See whether it went up or down, and by roughly how much.
- Debtors next to cash. If debtors grew a lot while cash fell, customers may be taking longer to pay.
- Net current assets. Brackets mean this year’s bills are bigger than the money you have or expect to collect.
- Net assets and the profit and loss account. If these grow each year, your company is building value.
Debtors is the check you can do the most about. If a lot of money is stuck in unpaid invoices, letting customers pay by card when they order means less chasing later.
With an Ampere merchant account, your customers can pay online by Visa or Mastercard, from the UK or abroad. It needs an approved Ampere business account and a separate merchant review, and pricing is quoted for your business. Apply for a merchant account
Checking other companies
Knowing how to read a balance sheet helps with customers and suppliers too.
UK companies file their accounts with Companies House, and anyone can search the register and download filed accounts for free, without registering.
Right now, small companies can keep their profit and loss statement off the public record, and micro-entities file an even shorter balance sheet.
From April 2028, both will have to file a profit and loss account too, but they can choose to keep it off the public register. For many smaller companies, the balance sheet will stay the main set of figures you can see.
Before you give a new customer longer to pay, or send a deposit to a new supplier, a quick look shows you what they owe short term and whether their net current assets are above zero. Most small company accounts show cash, though on a micro-entity’s version it usually sits inside the current assets total.
