We see it often in our Crawley office. A business owner walks in, beaming. "We had a record month for sales!" they say. "The Profit & Loss looks amazing."

But when we pull up the Balance Sheet, the smile fades. They have cash in the till, yes, but they also have a mountain of unpaid VAT, a looming Corporation Tax bill, and three suppliers chasing payment.

This is the danger of only looking at one half of the picture.

While your Profit & Loss (P&L) tells you if you made money yesterday, your Balance Sheet tells you if you will still be in business tomorrow. It is the true measure of your company's health, wealth, and resilience.

If you want to build a business in West Sussex that lasts, one that can weather economic storms and budget bombshells, you need to understand this document.

Here is your plain English guide to the Balance Sheet.

The Golden Rule of the Balance Sheet

Accounting can be complex, but the Balance Sheet is built on one simple, unbreakable rule. It’s called the Accounting Equation:

Assets = Liabilities + Equity

Think of it like a set of scales. It must always balance.

• Assets: What the business owns (Cash, vans, computers, unpaid invoices).
• Liabilities: What the business owes (Loans, tax bills, supplier invoices).
• Equity: What is left for you (The owner's stake).

If your Liabilities are heavier than your Assets, your business is technically insolvent. That is the definition of a "bad" balance sheet.

How to Read a Balance Sheet 

When you open Xero or QuickBooks, your Balance Sheet is split into three blocks. Here is what they actually mean for a Crawley business owner.

1. Assets (The Good Stuff)

This is everything your business has that is worth money.

• Current Assets: Cash in the bank, stock on the shelves, and money customers owe you (Debtors). Basically, anything you can turn into cash quickly.
• Fixed Assets: Long-term items like your office fit-out in Manor Royal, your company electric car, or your laptops.

2. Liabilities (The Scary Stuff)

This is everything you owe to other people.

• Current Liabilities: Debts you have to pay soon (usually within 12 months). This includes your VAT bill, PAYE, supplier invoices, and the upcoming Corporation Tax bill.
• Long-Term Liabilities: Big debts that stick around, like a Bounce Back Loan or a mortgage on commercial property.

3. Equity (Your Stuff)

This is the magic number. If you sold all your assets and paid off all your debts today, this is what would be left. It represents the true value of your business to its shareholders.

What Does a Good Balance Sheet Look Like?

A strong balance sheet gives you options. It means you can get a loan, survive a quiet month, or invest in growth. Look for these three signs:

✅ 1. Positive Working Capital

The Test: Are your Current Assets higher than your Current Liabilities? If you have £50,000 in cash and owed invoices, but you owe £60,000 in VAT and bills next month, you have a problem. A good balance sheet shows you have enough liquid cash to cover your short-term debts.

✅ 2. Retained Earnings are Growing

This is the profit you haven't taken out as dividends. Seeing this number go up year-on-year is a sign of a healthy, growing company. It’s your war chest.

✅ 3. Debt is Manageable

Debt isn't always bad; it fuels growth. But a good balance sheet shows a healthy ratio of Equity to Debt. Banks like to see that the owners have as much "skin in the game" (Equity) as the lenders do.

What Does a Bad Balance Sheet Look Like?

You don't want to see these warning signs on your quarterly report:

❌ 1. Negative Equity (Insolvency)

This is the red alert. It means you owe more than you own. If you closed the business today, you wouldn't be able to pay everyone back. Trading while insolvent is illegal in the UK, so if you see this, you need to speak to an accountant immediately.

❌ 2. High "Aged Debtors"

This means you have "assets" on paper (people owe you money), but they aren't paying. If your balance sheet shows £100,000 in assets but £90,000 of that is unpaid invoices from 6 months ago, your balance sheet is lying to you. That isn't an asset; it's a bad debt risk.

❌ 3. The "Director’s Loan" Trap

If the "Assets" section includes a huge Director's Loan Account (money you owe the company), be careful. Lenders often strip this out when assessing you. It looks like you are propping up your lifestyle with company cash that doesn't really exist.

Why This Matters for Crawley Businesses Right Now

Why are we talking about this now? Because the local economy is shifting.

• Rent & Rates: Commercial rents in Crawley and business rates are significant fixed costs. You need a cash buffer (Current Assets) to cover them during quiet periods.
• Lending is Tighter: High street banks are scrutinizing balance sheets more closely than ever. If you want funding to expand, a strong balance sheet is your ticket.
• Resilience: With the recent budget freezing tax thresholds and increasing costs, margins are being squeezed. A healthy balance sheet is your shield against these rising costs.

Don't Just Read It… Fix It

Understanding your Balance Sheet is the first step. Fixing it is the second.

If you look at your numbers and see negative equity, low cash reserves, or spiralling liabilities, don't panic but do take action.

This is exactly what we tackle in our Accountancy Support Workshops.

Chris Irving, our founder, will sit down with you and your Balance Sheet. We won't just look at the numbers; we'll find the story behind them. We can help you:

• Structure your debts more efficiently.
• Chase those aged debtors to boost your cash assets.
• Plan your dividends to protect your Retained Earnings.

Book a Workshop with Chris Today