Reading a balance sheet in ten minutes
You don't need to be an accountant to get the important answers from a client's balance sheet. Eight questions, in order, tell a financier most of what it needs to know.
On Business Training · 21 July 2026 · 6 min read
Many of the businesses a financier funds are small companies. The accounts they file at Companies House often contain a balance sheet and very little else: small companies may leave the profit and loss account off the public record. So the balance sheet is frequently the only independent view you get of a client or a prospect before you ask for more.
The good news is that a balance sheet answers a financier’s most important questions quickly, if you read it in the right order. Here are eight questions that take about ten minutes.
1. How old is it?
Check the date at the top: the balance sheet shows the position on one day, the year end. A private company has nine months from its year end to file, so a balance sheet you download today may describe the business as it was well over a year ago. Note the age, and treat everything you read as history, not news. Then check whether the accounts were filed on time. Late filing is a warning sign in itself.
2. Is it worth anything?
Find net assets, the bottom line of the top half, matched by total equity (capital and reserves) in the bottom half. If net assets are negative, the company owes more than it owns. That doesn’t mean it will fail tomorrow, but it does mean the owners have nothing left at risk, and creditors are carrying the business.
3. What is it really worth?
Net assets can flatter. Take off anything that wouldn’t raise cash if the business failed: intangible assets such as goodwill, and often amounts owed to the company by its directors or by connected companies. What remains is tangible net worth, and it’s the figure most financiers care about.
4. Can it pay its bills?
Compare current assets (stock, debtors, cash) with creditors: amounts falling due within one year. The difference is net current assets, the business’s working capital. Negative net current assets mean the bills due this year are bigger than what the business can turn into cash this year. Many funded businesses run close to the line; what matters is whether it’s getting better or worse.
5. Do the debtors make sense?
Trade debtors on the balance sheet should broadly match what you know of the sales ledger. Compare them with turnover if you have it: debtors that are growing much faster than sales mean customers are paying later, or that some debtors aren’t collectable. If you already fund the client, compare the figure with your own records for the same date.
6. Who is owed money?
Read the note to creditors due within one year. Three lines matter most:
- Taxation and social security. Money owed to HMRC for VAT, PAYE and corporation tax. A large or growing figure can mean the business is using tax money as working capital, which rarely ends well.
- Bank loans and overdrafts. Other lenders, some of whom may rank ahead of you.
- Trade creditors. Suppliers. Compare them with purchases if you can; a rising figure means suppliers are waiting longer.
7. What do the directors owe, or lend?
A director’s loan account can sit on either side. Directors who owe the company money have taken cash out of a business that may need it. Directors who lend the company money are supporting it, but may want that money back at an awkward moment. Check which, and how much.
8. Which way is it going?
Every balance sheet shows last year’s figures beside this year’s. Read across: is net worth rising or falling? Working capital? Tax owed? A single year is a snapshot; two years show direction, and direction is often the most useful thing a balance sheet tells you.
A balance sheet answers one question well: what would be left if the business stopped today. Read it with that in mind.
What it can’t tell you
A balance sheet says nothing about profit or cash flow. A profitable business can have a weak balance sheet, and a strong balance sheet can hide a business losing money every month. Ten minutes on the balance sheet tells you which questions to ask next: for management accounts, for the full accounts, for the aged debt report, or for a conversation with the owner.
Companies House also holds the rest of the company’s record: its directors, any charges registered against it, and its filing history. A new charge in favour of another lender, or a change of year end, is worth knowing about before you read a single figure.
Understanding Financial Statements works through each of these steps with a fictional client’s filed accounts, from Finding Accounts at Companies House and The Balance Sheet: What a Business Owns and Owes, to Profit Is Not Cash and Six Simple Stages: a Structured Read of Any Accounts.