Effectively owning and operating multiple companies requires having a team of knowledgeable individuals in place such as executives, managers, operations, and support staff. Owners should install the right team and instill proper task delegation. Yet, even with an effective strategy and a strong support system in place, owners with multiple businesses must continually balance both their time and resources.
Handling the financial aspects of multiple businesses requires close oversight and a consistent review of financial statements. A consolidated balance sheet provides a comprehensive overview of the financial performance of all businesses in the portfolio. It’s important because it tracks current business performance while evaluating the organization’s ability to meet financial obligations.
The Importance of the Balance Sheet
If you’ve ever taken an introductory course in accounting, you’re probably familiar with the fundamental basics of a traditional balance sheet. Unlike a profit and loss (P/L) statement, which begins and ends at a certain point in time, the balance sheet provides real-time insight into the current financial status of a business.
The balance sheet is calculated using a simple formula: Total Assets = Total Liabilities + Total Equity. It’s designed to communicate, in financial terms, how much a company is worth at a given point in time. The balance sheet provides a snapshot into a company’s total assets and whether or not these assets are financed through debt or equity.
The balance sheet is a critical tool that provides business owners and other interested parties with an overview of a company’s financial health. If you’re a business owner with multiple companies, having a consolidated balance sheet can provide valuable insight into an organization’s overall financial well-being.
The Challenges of Owning Multiple Businesses
Owning multiple businesses is a challenge in several respects. Running a car rental business is entirely different from a smoothie shop – performance of each must be assessed accordingly. However, financial success won’t look the same at two different companies. So owners with diversified businesses must evaluate the performance of each business from an individual perspective while also measuring performance of the entire portfolio.
Consolidated balance sheets show the overall economic performance across different companies. Perhaps one business is heavily indebted with long-term liabilities such as expensive equipment and large inventory reserves while another business is a consulting company with absolutely no overhead. Using a consolidated balance sheet can show liabilities and assets across multiple companies to provide a more complete financial picture.
The Practical Uses of a Consolidated Balance Sheet
Executives, investors, analysts, and regulators all review balance sheets to gain insights on a company’s business health and viability. Having real-time insights into a company’s entire financial picture can have several practical applications – including applying for loans.
Lenders examine balance sheets to determine how much cash is currently on-hand versus how much is tied up in equipment and other assets. More importantly, they review debts and liabilities to see if a company has outstanding financial obligations. They use this information to verify that a company has enough financial resources available to meet loan payment obligations.
Automate Your Multi-Location Business Accounting
Docyt can help multi-entity business owners by providing a consolidated balance sheet. See how all businesses are doing at once, or compare financial statements by company on a monthly, quarterly, or annual basis. With quick access to financial statements across entities, Docyt enables you to pull financial reports for investors, lenders, and business partners.
If you’re looking for a tool to better manage your multi-location business accounting, Docyt can help make the process easier. Schedule a free consultation today.