Assess Your Financial Situation in 3 Easy Steps

At some point, most businesses require an in-depth look at their financial structure. An expansion project, low cash reserves or a jump in expenses can prompt you to conduct such an exercise.

One way to analyze your financial health and identify how it might be improved is by looking closely at your financial situation. Do You Know Yours?

Start by Assessing your Financial Situation.

Here’s how to do it, in 3 easy steps.

If you’re organized, it will be a simple matter to get hold of the documents (paper or electronic) showing the balance on your credit card, your mortgage and the value of your investments.

If you’re more the type to squirrel your financial papers away in different desk or dresser drawers, finding the amounts on those bonds inherited from your father might involve some excavation.

While you’re looking for your life insurance policy, you might come across other documents such as your vaccination records, passport, certificates of investment and household bills. Take the opportunity to organize them in clearly marked folders (health, identity, savings, taxes, etc.).


All the goods and investments you own are assets.

Assets help keep a business afloat. They can be sold during lean times, used as collateral during expansion and help produce a healthy balance sheet. An asset is classified in one of three categories: tangible, intangible and intellectual property.

For a business to be successful, it should have a healthy combination of all three.

Tangible Assets

These assets are often further subdivided into two classes, fixed and current tangible assets. Fixed assets include things like your buildings, machinery and vehicles, which are used in the process of doing business and are depreciated over time.

Current assets include your on-hand inventory and your accounts receivable, which can’t be sold as such but contribute directly to your company’s current valuation.

Intangible Assets

Assets with no physical form, such as a business’ reputation, company know-how, industry knowledge and name recognition, are referred to as intangible assets. These assets are not listed on the balance sheet, nor are they considered liquid assets, but their intrinsic value adds to the credibility of the business.

Intellectual Property

A variation of an intangible asset, intellectual property includes trademarks, patents, brand names, logos, formulas, inventions and other creative communications. These properties are generally covered under copyright law to protect them from imitation and infringement.

List out all the resources you have, such as your salary and wages, any bank savings or investments like shares or unit trusts.

Small Business Finance


Your liabilities consist of short-, medium- and long-term debts:

Long-term Liabilities. Long-term liabilities are those obligations of the business which are expected to continue for more than one year.

These include loans payable and mortgages payable.

Short-term Liabilities. Short-term liabilities are those obligations of the business which are expected to be paid off within a year. These include

  • Sales taxes payable
    These amounts are collected from customers at the time of sale and held until due to be paid to the appropriate state revenue department.
  • Payroll taxes payable
    These amounts are collected from employees (withholding from income taxes and for employment taxes) and set aside by the employer, to be paid at the appropriate time to the IRS or state tax agencies.
  • Loans and mortgages payable
    These are the monthly payments on loans and mortgages.

What’s the Difference Between Liabilities and Expenses?

A liability is usually money owed by a business for the purchase of an asset. For example, you might buy a company car for business use, and when you finance the car, you end up with a loan – that is, a liability.

An expense is an ongoing payment for something that has no tangible value, or for services. Expenses are used to generate revenue. The phones in your office, for example, are used to keep in touch with customers. Some expenses may be general or administrative, while others might be associated more directly with sales.

Most of the payments a business makes are for expenses.

Expenses and liabilities also appear in different places on company financial statements. Because they are associated with assets, liabilities appear on the company balance sheet.

But expenses, which are associated with revenue, appear on the company income statement (profit and loss statement).

3. The Moment of Truth

The difference between your assets and liabilities reveals your net worth.

If your net worth is positive, you may wish to save or plan some future projects, or maybe even both!

On the other hand, if your net worth is negative, you are “in the red”. It’s time to get back on track—you’ll need to tackle your debts first.

Your budget

Whether your net worth is positive or negative, the next step is to establish your monthly budget.

By listing all your income and expenses, you’ll know exactly where your money goes and how to control it. The 3 steps to drawing up a monthly budget can help you in this process.

If your budget shows a surplus, you’ll be able to save or invest, as you choose. Maybe you would like to invest in your RRSP, buy a house, try your luck on the stock market or go on sabbatical? Anything is possible for a person as disciplined as you are! Maybe the advice of a financial planner would be useful for you.

If your budget is in deficit, identify the expenses you could cut back on to balance it. The important thing is to go slowly and set realistic goals to pay off your debts.

Learn to Achieve a more sound Financial Situation with the Action Plan – 5 steps to organizing your finances.


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Talk Soon,

Nicky and Dave

Related Article:

9 Ways to Finance Your Small Business