Financial Statements at Collective
All Collective members receive financial statements as part of their membership. If you're in the LLC tier, you'll have access to all three financial statements: Profit and Loss, Balance Sheet, and Cash Flow Statement. While you receive all three statements, only your Profit and Loss report is used for tax reporting purposes since LLC tier members file taxes as sole proprietors using Schedule C.
If you're in the S Corp tier, you'll also receive all three statements, and your Profit and Loss report is similarly used for tax reporting on Form 1120-S.
This guide focuses on your Balance Sheet—a snapshot of your business's financial position at any given moment. For help understanding your profitability, see our guide on How to Read Your Profit and Loss Report.
What Is a Balance Sheet?
Your balance sheet is a snapshot of your business's financial position at a specific point in time. Unlike your Profit and Loss report, which shows performance over a period, the balance sheet tells you what your business owns, what it owes, and what's truly yours at a single moment.
Think of it as your business's net worth statement—a financial photograph capturing everything your business has and owes on a particular date.
The Three Main Components
Assets
Assets are everything your business owns that has value. This includes cash in your business bank account, money clients owe you (accounts receivable), equipment, computers, and any other resources your business controls. Assets are typically listed from most liquid (easily converted to cash) to least liquid.
Liabilities
Liabilities are what your business owes to others—your debts and obligations. This includes unpaid bills (accounts payable), credit card balances, loans, and taxes you owe. Like assets, liabilities are usually listed by how soon they need to be paid.
Equity
Equity is what's left over after you subtract liabilities from assets. It represents your true ownership stake in the business—the portion that actually belongs to you. For sole proprietors and single-member LLCs, this is sometimes called "owner's equity" or "member's equity."
The balance sheet follows a fundamental equation: Assets = Liabilities + Equity
How to Read Your Balance Sheet: The Big Picture
Open your balance sheet from your Collective dashboard and look at the total assets at the bottom of the assets section. Then look at the combined total of liabilities and equity. These two numbers should always match—that's why it's called a balance sheet.
Next, focus on your equity number. This reveals your business's net worth. If equity is positive, your business owns more than it owes. If equity is negative, your liabilities exceed your assets—a situation that requires attention.
Understanding Your Assets
Scan through your assets section, which typically includes:
- Cash: Money readily available in your business accounts
- Accounts receivable: Outstanding invoices clients haven't paid yet
- Equipment and property: Physical items your business owns
A healthy asset section shows strong cash reserves and reasonable accounts receivable. If you notice accounts receivable growing substantially, it might signal that clients are taking too long to pay invoices—an issue worth addressing.
Reviewing Your Liabilities
Look through your liabilities to understand what your business owes. Common liabilities include:
- Accounts payable: Bills you haven't paid yet
- Credit card balances: Outstanding business credit card debt
- Loans: Money borrowed that needs to be repaid
High liabilities aren't necessarily bad—many successful businesses carry debt. What matters is whether your assets comfortably exceed your liabilities and whether you can manage your payment obligations.
What Your Balance Sheet Reveals
Your balance sheet answers important questions: Does your business have enough cash to cover upcoming expenses? Are clients paying you in a timely manner? Is your business building equity over time?
Compare your balance sheet from different dates to spot trends. Is your equity growing? Are your cash reserves increasing? Is debt going up or down? These patterns reveal whether your business is strengthening or facing challenges.
Key Takeaways
When you review your balance sheet, focus on:
- Whether your equity is positive and growing over time
- Your cash position and whether it's adequate for operations
- The balance between what you own and what you owe
- Trends in accounts receivable that might affect cash flow
Understanding your balance sheet alongside your Profit and Loss report gives you a complete picture of your business's financial health.
Ready to analyze your profitability? Check out our guide on How to Read Your Profit and Loss Report to understand if your business is making or losing money.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.