The financial health and stability of a business are crucial for new business owners in Singapore. To gain insights into the financial health of their business, one of the most important tools they need to understand is the balance sheet.
In this article, we will explore the importance of the Singapore balance sheet for new business owners. We will discuss how it can assist in assessing financial health, making informed decisions, and meeting regulatory requirements.
What is a Balance Sheet?
The balance sheet is an important financial statement that provides an overview of a company’s financial health at a certain point in time. This document is also called the statement of financial position, this document serves as an important tool for assessing a business’s financial health and stability.
In Singapore, companies must comply with the Singapore Financial Reporting Standards (SFRS) when preparing and presenting their balance sheets. The Accounting and Corporate Regulatory Authority (ACRA) establishes the guidelines for financial reporting to ensure consistency and transparency in financial statements.
What is Inside the Balance Sheet?
The Singapore balance sheet encompasses three main elements: assets, liabilities, and owner’s equity. These components collectively reflect the company’s financial resources, liabilities, and residual value attributable to the owners or shareholders.
Assets represent the resources owned by the company, including tangible assets such as property and equipment, and intangible assets such as intellectual property. Conversely, liabilities encompass the company’s financial obligations, such as loans, trade payable, and accrued expenses.
The remaining interest in the assets following the deduction of liabilities is known as owners’ equity. It includes the initial investments made by the owners, retained earnings, and any additional contributions or withdrawals made over time. Owners’ equity serves as a measure of the company’s overall value or net assets.
Purpose of Balance Sheet
The balance sheet serves several important purposes that can help you make informed decisions and assess the financial health of your business. Let’s explore some key objectives of the balance sheet:
- It helps you evaluate your business’s financial strength and stability.
- Singapore balance sheet informs decisions by showing the impact on the financial position.
- A well-prepared balance sheet enhances credibility and increases the chances of obtaining funding.
- Accurate balance sheets help meet legal and regulatory requirements.
Key Terms You Should Know To Read a Balance Sheet
As a new business owner, understanding the key terms associated with a balance sheet is essential for interpreting and analyzing your company’s financial position. Here are the main terms you need to know, categorized into assets, liabilities, and owner’s equity:
Assets
Assets are the resources and properties owned by your business that hold economic value. When reading a balance sheet, assets are typically classified into current assets and non-current assets.
Current Assets
These are assets that expect to be sold or consumed within a year. These include:
- Inventory
- Marketable securities
- Trade receivable
- Cash
- Cash equivalents
Non-current Assets
Liabilities
Liabilities represent the financial obligations and debts that your business owes to external parties. Similar to assets, liabilities are typically split into two groups: current and non-current.
Current Liabilities
These are obligations that need to be settled within one year. Examples include:
- Payroll expenses
- Trade payable
- Utility payments
- Accrued expenses
- Short-term loans
- Rental payments
Non-current Liabilities
These are long-term debts and obligations that are due beyond one year. These include:
- Bonds payable
- Long-term loans
- Pension obligations
- Lease obligations
- Deferred tax liabilities
Owner's Equity
Owners’ equity, referred to as shareholder’s equity or net worth, denotes the remaining share in your business’s assets once liabilities have been deducted. It signifies the ownership entitlement to the business that is possessed by its owners or shareholders.
- Capital – The amount initially invested by the business owners to start the business.
- Retained Earnings – Accumulated profits that are returned to the company instead of being paid out as dividends to the owners.
How Can You Improve Cash Flow?
To ensure the financial health and sustainability of your new business, it’s essential to focus on improving cash flow. Here are some key strategies:
- Monitor and forecast cash flow regularly.
- Streamline trade receivable and follow up on overdue payments.
- Optimize trade payable by negotiating favorable terms.
- Control inventory levels to avoid tying up excess cash.
- Manage expenses wisely and look for cost-saving opportunities.
- Enhance sales and marketing efforts to boost revenue.
- Consider financing options if needed, but choose wisely.
- Build relationships with lenders and investors to obtain future support.
- Preserving cash reserves for emergencies or unforeseen expenses.
- Seek professional advice from financial experts.
How we can help - SJH Advisory’s accounting and bookkeeping services
At SJH Advisory, we specialize in providing comprehensive accounting services tailored to new business owners in Singapore. Our team is well-versed in managing financial matters, including the preparation of the balance sheet. We ensure compliance with Singapore’s accepted accounting principles, delivering accurate and reliable financial statements.
Running a new business in Singapore comes with unique challenges, but with SJH Advisory, you can navigate them with confidence. Contact us for a FREE consultation and let us handle your accounting needs while you drive your business forward.
Singapore Balance Sheet - Frequently Asked Questions
A balance sheet is a financial statement that presents the financial standing of a company at a certain point in time. This document gives a quick picture of a company’s assets, liabilities, and owner equity, which reflects its financial position.
In Singapore, companies are required to prepare and present their balance sheets in compliance with the Singapore Financial Reporting Standards (SFRS). The Accounting and Corporate Regulatory Authority (ACRA) sets the guidelines for financial reporting.
While it is possible to prepare your own Singapore balance sheet, seeking professional assistance from experienced accountants can ensure accuracy, and compliance to accounting standards, and provide valuable insights into your financial position. Professional assistance can help you make informed decisions and comply with t regulatory requirements effectively.
