Market research and framing the business idea

7. Read and create a balance sheet

"Balance sheet": At first glance, this may sound deterrent - and for many, for example, the obligation to draw up balance sheets is a reason to decide against certain legal forms. When you start out as a sole proprietor, the balance sheet is usually not that complex. In any case, the structure of the balance sheet always follows the same basic rules. That's how it looks:

Assets	Liabilities
the value of all you own	Equity (you paid for this with your own money)
	debt capital (you paid for this, but the money came from elsewhere, eg. bank loan
SUM	SUM

The most important rule: on both sides, i.e. with the so-called assets and liabilities, the same must stand at the bottom. Under "assets" you will find everything that belongs to you. Under "Liabilities" is where the money comes from. It's not that complicated, is it?

Assets	Liabilities
Condominium 100000€	Equity 250000€
share portfolio 100000€
bank balances 50000€
250000€	250000€

Filled with numbers, it can look something like this. In this case all assets are listed under assets: a condominium worth 100000€, a stock portfolio of the same value as well as a bank balance. Since no debts are available, there is here only an own capital funds in the height of likewise then naturally 250000€.

But this could also look different if, for example, a loan was taken out to pay for the condominium.

Assets	Liabilities
Condominium 100000€	Equity 100000€
share portfolio 100000€	debt capital bank loan 100000€
200000€	200000€

What else could happen? Maybe you will receive dividends on your share portfolio - say 3%. That means: On the left side under "Assets" you will suddenly find 3000€ more! But since the sum of right and left always has to be the same, we have to place the 3000€ under "Liabilities" as well.

Assets	Liabilities
Condominium 100000€	Equity 100000€
share portfolio 100000€	debt capital bank loan 100000€
bank balances 3000€	net income 3000€
200000€	200000€

The balance gives a good overview of the financial situation of a company in relation to the company. This is not only mandatory for some types of business, it also gives you a good overview of your financial situation.