of the company’s financial position/condition, as of a particu- lar date or moment in time. In other words, the cumulative net results of previous years’ profits or losses will appear on your balance sheet as retained earnings, under the equity sec- tion. It may be helpful to consider that the income statement and balance sheet equivalents for not-for-profit companies are “statements of activities” and “statements of financial position” respectively, which may be clearer descriptions but are essen- tially the same concept. The balance sheet is comprised of three primary sections: assets, liabilities and equity. Assets are grouped into current, other and fixed. Current assets are listed in subcategories, beginning with cash and then in order of their likelihood of being converted into cash within one year. “Other assets” is a category for intangible assets (aka soſt assets) such as patents and trademarks. Fixed (aka hard assets) assets are tangible as- sets such as property, plant and equipment (PP&E). The liabilities section is comprised of current liabilities, long-term debt (LTD), and shareholders’ equity. Current li- abilities are listed according to the type of organization you owe money to. Essentially, whom you owe the money to, by standard subcategories. LTD is for recording debt such as mortgage notes, less the portion that is due within one year, which has already been recorded under current liabilities (current portion of LT debt. The equities section is comprised of capital stock and retained earnings. Capital stock represents the owners’ initial start- up money, plus any additional future investments. Retained earnings represents the cumulative amount of net income (“earnings” from prior years), less any dividends the company may have distributed to shareholders. Remember, we discussed WWW.ALOA.ORG that at the end of each year — since the annual income statement resets and begins anew for the new/next year — we park the net income (or loss), in the retained earnings section of the balance sheet. The entire balance sheet structure is based on the accounting equation: Assets = Liabilities + Worth. Both sides of the bal- ance sheet must balance (be the same number). What your business owns (aka has, possesses), less what your business owes others, equals your business’s equity or worth. Hopefully you are now more comfortable, having absorbed the basic concepts in this article and achieved at least a rudi- mentary understanding of a basic corporate balance sheet. Even if your business is not incorporated, you can develop basic fi- nancial statements with or without help from your accountant or tax preparer. Such statements are useful and informative tools that, as a business owner or manager, you should avail of. Don’t be intimidated by the terminology; every industry has some. Best wishes for success. The next article in this series will discuss why your business needs a mission statement and how to write one. Noel Flynn is a degreed business management con- sultant with global senior leadership experience, including more than 20 years in manufacturing, wholesale distribution and consulting sectors of the security industry. Noel has been a senior execu- tive, officer, board director and adviser to not-for- profit and for-profit companies in numerous industries worldwide. This includes being an ALOA SPAI board member since 2011, and he is also an ACE instructor, developing and teaching business management. Contact him at [email protected] MAY 2021 KEYNOTES 29
