Create Your Personal Balance Sheet
Set up a balance sheet. The first step in creating personal financial statements is to create a Balance Sheet, which display your overall net worth at a specific point in time, such as the end of the year, by illustrating the difference between what you owe and own. The balance sheet is composed of columns that list your assets (what you own) and your liabilities (what you owe). Start your balance sheet by opening a new sheet in a spreadsheet program. Start by creating a column labeled "Assets." Under this heading, you will list your assets. As you go, write in the asset categories to the left of their values. This will result in two side-by-side columns that split up your assets by type. If you are applying for a loan, you may be required to fill out an SBA or bank-specific personal financial statement. In this case, be sure to obtain the proper document and fill it out as instructed.
Determine the value of your liquid assets. Liquid assets are those assets that can be easily liquidated, which means turned into cash. These include current balances of your personal cash reserves, checking account(s), and saving account(s). In addition, the balances of any money market account accounts you own should be recorded in this category. Sum up the balances of these accounts to find your total liquid assets. If you are creating your own balance sheet, you may choose to list these assets separately or include them all under one category. Liquid assets are sometimes also referred to "cash and cash equivalents," especially in formal accounting contexts. If you are personally owed money by someone, you can list this amount as "notes receivable."
Find the value of your investments. Investments are those assets that are held in investment or brokerage accounts. This includes investment portfolios, retirement funds, mutual funds, certificates of deposit (CDs), and the cash value of your life insurance policy. These assets should be recorded at their current market value for the date of balance sheet creation. Check online or call for your current balance in these accounts. Once again, you may want to list these assets in categories, like "securities" for stocks, bonds, and mutual fund holdings and a separate line for your life insurance policy.
List your fixed assets. Fixed assets are those assets that would be the most difficult to liquidate. For example, your home, other properties, and vehicles are fixed assets. In addition, any valuable collections, artwork, antiques, or other valuables are considered fixed assets. In the context of personal financial statements, these are sometimes called "large assets." These assets should be listed at their estimated or appraised market value.
Sum up your assets. Underneath the last asset category, sum up the total value of all of your assets. Create a line for "Total Assets" on the left and record the total value to the right. To ease your calculation, you can use the SUM function in Excel by typing "=SUM(" into the total assets value cell, selecting the cells containing your assets values, and then closing the parentheses and pressing enter. The program should sum the values for you.
Create a second column named "Liabilities." Underneath your "Total Assets" cell, skip a row and type in "Liabilities." From here, you will begin listing all of the amounts that you owe to lenders, creditors, and the government. All liabilities should be listed as the amount owed at the present date. Check your bills or account statements for the most up-to-date information.
Tally your liabilities by type. Go down the list of loan balances you owe, credit you have been extended, unpaid bills you have, and taxes you owe. Separate out each category of liabilities and list their value to the right, just like you did with your assets. Your categories might include: Notes payable. Money you owe an individual or business. Outstanding personal bank loans. Unpaid bills. Auto loan balances. Mortgage balances. Unpaid state and federal taxes. Loans taken out against your life insurance policy. Credit card balances.
Sum up your liabilities. When you've listed all of your liabilities and their values, type in another category on the left for "Total Liabilities." To the right, place the added up value of all of your liabilities. Double-check your work to make sure you didn't miscalculate the total or exclude any liabilities.
Subtract your total liabilities from your total assets. The result is your net worth. List this total next to the "Net Worth" cell. Your net worth is how much you are "worth" and represents how much you would have left if you were forced to sell all of your assets and settle your liabilities.
Create a box labeled "Net Worth." Place this cell underneath your "Total Liabilities" cell. This box will list the difference between what you own and what you owe, otherwise known as your net worth. This figure is what business bankers look for when reviewing an entrepreneur's personal financial statement. Make sure your balance is sheet is balanced by checking to see that your assets are equal to the sum of your liabilities and net worth.
Create Your Personal Income Statement
Start your income statement on a separate sheet. Your personal income statement is a record of your inflows and outflows of money over a specific period of time, such as a month or year. In other words, this statement shows how much you make and where it goes. Like the balance sheet, the income statement is broken into categories. However, these show income and expenses rather than assets and liabilities. The end result of creating an income statement is your "net income," which shows your personal "profit" or loss for the period. Your income statement may also show non-cash income, such as appreciation and returns on investment accounts. Follow the lender's specific requirements when it comes to reporting this type of income.
Create a column called "Income." On your income statement spreadsheet, start by creating a category in the lefthand column for your income. Here, you will list all of your sources of income over the period. To the right, you will list the amount of income received from each source. For example, you will likely have a category for your salary. To the right of this cell, you would enter the amount you earned from your primary occupation during the period.
Find your total income from all sources. Your income will be listed in categories based on how it was earned. This list will include all inflows of cash or value from the period, whether from wages, investment, or other sources. At the bottom, include an extra cell for "Total Income" and insert the sum of your different incomes for the period. Edit the following list of income sources to suit your purposes: Salary/wages. Tips/commissions. Self-employment income/freelancing. Investment returns/income. Interest Income. Distributions. Retirement Income/Pension distributions. Child support/alimony. Social Security benefits. Other income.
Create a second column on the sheet called "Expenses." Under your "Total Income" cell, skip a line and create a place for "Expenses." This column will display your expenses for the period. Expenses include everything you paid for, from your loan payments to food and entertainment. At the bottom, leave room for a "Total Expenses" cell so that you can sum up your total expenses. Your expenses might include: Mortgage/rent payments. Utilities. Car loan payments. Insurance premiums. Investment Contributions and fees. Court-ordered payments like alimony or child support. Food. Discretionary spending (entertainment, hobbies, meals out, etc.). Medical expenses. Other expenses.
Subtract your total expenses from your total income. This total is your net income. Write the total down immediately following the expenses column. A positive net income means that you earned more than you spent, whereas a negative one means the opposite. Use your net income as a starting point for reassessing your spending, if necessary.
Review your Personal Financial Statement
Analyze each column in both documents. Financial statements are useful tools for businesses and investors who want to assess the financial health of a business. The same goes for personal financial statements. Assess your balance sheet to compare your assets to your debts. Think of how you can increase your assets or decrease your liabilities over time to increase your net worth. You can also analyze your income statement to locate areas where you can increase income or reduce expenses each month. You may also locate excess cash that can used to increase your assets or reduce liabilities.
Work with a certified financial planner (CFP). A CFP can review your figures for accuracy and help you create a neat and organized set of financial statements. Search online for CFPs in your area and contact one with positive reviews. Keep your receipts and other statements ready if questions arise during your sit-down with the CFP. You may also find it useful to consult with a business organizations attorney when creating your personal financial statements, especially if you have any legal questions or concerns.
Prepare to meet with bankers. Personal financial statements are most often used to apply for a loan or credit with a bank. The statements allow the bank to assess your financial situation and aids in their decision. Create a neat copy of your personal financial statement snapshot by entering the figures into a spreadsheet application if you haven't done so already. Make sure that your financial statements are clearly labeled and neatly filled out.
Print, file and wait for your banker to request the statement. Generally you will turn this in with your loan application. If you are applying for the loan with a business partner, general partner, co-owner, or other large shareholders (over 20 percent ownership), they will each need to create and submit their own personal financial statements.
Comments
0 comment