How to Read Your Balance Sheet (Without Feeling Like You’re Back in GCSE Maths)
A simple, jargon-free guide to understanding your balance sheet. Learn how to read assets, liabilities and net assets to assess the real strength of your business.
Last week we dug into how to read your P&L.
Now we’re heading over to its quieter, less flashy sibling: the Balance Sheet.
And I’ll be honest, most business owners don’t really know what the balance sheet is or how to use it.
It’s the report people tend to open, scroll… and quietly close again.
But once you understand it, the balance sheet becomes one of the most powerful indicators of the health and strength of your business.
Banks love it.
Investors love it.
And as a CEO, you really should love it too.
So… what actually is a balance sheet?
Think of it as a snapshot of your business at a single point in time.
It shows:
Everything your business owns (assets)
Everything your business is owed (also assets)
Everything your business owes (liabilities)
What’s been left in the business vs taken out
It’s the ultimate “where do we stand today?” report.
Your balance sheet changes constantly, but it’s the best indicator of how stable, resilient and investable your business is.
It also shows how well you could weather a storm, something every CEO should quietly keep an eye on.
How a Balance Sheet Is Split
It has two halves:
Top Section → Assets + Liabilities
What the business owns, what it’s owed, and what it owes out.
Bottom Section → Equity
What’s been invested, accumulated, and retained over time.
And yes, the top and bottom must balance.
(That’s why it’s called a balance sheet!)
Assets: What Your Business Owns
1. Non-Current Assets
These are long-term investments used to run the business day-to-day and create future value.
Think:
laptops
machinery
vans/cars
equipment
fit-outs
If it helps you operate and lasts longer than a year, it’s likely in here.
2. Current Assets
These are things that can be turned into cash quickly.
Typically:
bank balances
debtors (people who owe you money)
stock / work in progress
Strong current assets help you sleep at night.
Liabilities: What Your Business Owes
1. Current Liabilities
What you owe soon usually within 12 months.
Think:
suppliers not yet paid
credit cards
VAT / PAYE balances
overdrafts
short-term loans
2. Long-Term Liabilities
Anything owed over a longer time period.
Examples:
bounce-back loans
asset finance
business loans
A strong business can have liabilities, it’s not a bad thing.
But they need to be well managed and well understood.
⭐ The Most Important Number on the Entire Balance Sheet
Net Assets (sometimes shown as “Net Assets Less Current Liabilities”).
Why this one?
Because it answers the question:
“If everything we were owed came in, and everything we owed out was paid, what would the business actually be worth today?”
It’s the truest representation of your business’s real-time value and stability.
A growing, healthy business sees this number steadily increase.
A business under pressure often sees it fall, stall or go negative.
This number is your compass.
Ignore it at your peril.
How to Read Your Balance Sheet Like a CEO
Here’s what I’d encourage you to do when reviewing it:
1. Look at trends, not just totals
Quarter over quarter or year over year:
Are assets growing?
Are liabilities shrinking or creeping up?
Are debtors increasing while cash decreases? (Hello credit control issues!)
Is stock building up without translating into revenue?
The movement tells the real story.
2. Understand the relationships
Does the business have enough current assets to cover its current liabilities?
If not, you may be skating close to cashflow issues.
Does equity increase steadily over time?
If yes, you’re building a strong financial foundation.
3. Ask: does this reflect reality?
Sometimes things look “fine” on paper, but your gut says otherwise.
If your cash feels tight but the balance sheet looks strong, something is missing.
If the numbers don’t match the story of your business activity, dig deeper.
4. Know what’s normal for your business model
Manufacturing balance sheets look very different to agencies.
High-debtor businesses look different to recurring-revenue ones.
There is no “one-size-fits-all healthy balance sheet”, but there is a healthy version of your balance sheet.
5. Use it to spot storm warnings early
The balance sheet often shows stress signs before the P&L does.
Rising liabilities.
Ageing debtors.
Shrinking cash cushion.
Falling net assets.
These show up long before profit starts dropping.
Final Thoughts
Your P&L tells you how you performed.
Your balance sheet tells you how strong you are.
Both matter but the balance sheet is the one CEOs tend to overlook, even though it holds the clearest indicators of resilience, stability and long-term growth.
If yours currently feels confusing, overwhelming, or like it’s written in another language, that’s exactly what we help clients decode every month.
