A balance sheet is a financial statement that shows the assets, liabilities, and equity of a company at a specific point in time. In businesses that require subscription and billing management, a balance sheet helps keep track of their active subscriptions, recurring revenues, subscription cancellations and revenue losses.
The main purpose of a balance sheet is to give stakeholders an idea of the company’s financial health and its ability to pay debts. The balance sheet is one of the three most important financial statements, along with the income statement and the cash flow statement. A company’s balance sheet can be divided into two parts: the left side (liabilities) and the right side (assets). The liability and equity side lists all of the money that a company owes to others, such as suppliers, banks, employees, and shareholders including short-term and long-term debt. The asset side lists all of the things that a company owns, such as cash, inventory, buildings, equipment, and investments. Liabilities on a balance sheet can be divided into two categories: current and long-term. Current liabilities are debts that are due within one year, while long-term liabilities are debts that are due after one year.
The bottom line on the balance sheet is called “net worth” or “shareholders’ equity.” This is what’s left after you subtract liabilities from assets. If net worth is negative, it means the business owes more money than it has on hand. If assets are greater than liabilities, then the business has a positive net worth. Shareholders’ equity includes both common stock and retained earnings—the latter being profits reinvested back into the business instead of paid out to shareholders as dividends.
SaaS companies have a unique set of liabilities on their balance sheets due to their subscription-based business model. SaaS companies typically have two types of subscriptions: recurring revenue from customers who have signed up for ongoing service, and non-recurring revenue from customers who have signed up for a one-time service or product purchase. Thus, companies in the subscription management business can use balance sheet in conjunction with other financial statements and ratios to get a clear picture of their financial health. In short, the balance sheet is still relevant – perhaps even more so than ever before – in the world of subscription and billing management services. With the right tools in place, any business can reap the benefits of this crucial financial foundation.
