Using Finance and Accounting to Make Sense of Your Business

Balance Sheet

For most companies, review of financials should start with the balance sheet. The balance sheet is a rich source of information and gives the overall snapshot of strengths and weaknesses in any economic situation.

We recommend using 12/31/2019 balance sheet because this report will reflect a more useful picture than a later 2020 date.


Cash: Start with cash. How many weeks or months can cash carry the company? Are there other assets that can be turned into cash if needed?

Accounts Receivable: How large and how strong is the company’s Accounts Receivable and how will this change in the COVID-19 environment? What is the percentage of potentially uncollectible receivables?

Inventory: Does your company have inventory? Raw materials, work in progress, finished goods? Is there a market for the current inventory or materials? Should it be discounted in order to generate cash? Are the current sales channels the only method of sales? 


Current liabilities: What is the nature and type of current liabilities and are they current? You want to stay in compliance as much as possible while holding back on payments as much as possible. Discounts for early payments, almost always a good idea for a company to use, may not be the best use of cash today. Payments that will affect the client DUNS rating need to be considered as well.   

This is the time to call vendors and negotiate delayed payments and get vendors to agree to partial, small, regular payments. Don’t ignore the vendors because the payment cannot be made.

Payroll liabilities: Payroll liabilities should be paid first because a late payment can incur interest and penalties.

Long term liabilities: Most small businesses use this section to show all liabilities that have any long-term component, such as bank loans and equipment loans.  It is important to calculate amounts you will pay in the current year when you are looking at this section of the balance sheet.  Do not forget to include what will be due in your current liability obligations review. 

Note:  Strengthening the balance sheet is one of the best uses of the EIDL. A business that shows weakness at this point in the balance sheet review should consider a possible EIDL. Contact your SBDC business advisor for advice and review your findings.  

Profit & Loss Review  

Most small business owners are very familiar with the P&L.  For this purpose, it will be used to review normal operations of the business and to compare this to the current situation with financial operations.  Remember that an SBDC advisor or a financial professional can help you with this process.  

  • Look at the past 2 years of the Profit and Loss Statement, January 1 to December 31, 2019, and CY 2018. Are there significant/material differences in the past two years?  Why?  (This could be as simple as a new business or a new line, or more complex as a change in supply cost or cash flow or terms.
  • How do these look in 2020 for January and February 2020, and how has this changed in March and April 2020? What are your projections for the rest of 2020?  This projection is a critical component in understanding your financial position in this radically changed financial environment.
  • Does your business have a Cost of Goods Sold? Many companies with CGS are experiencing current disruptions in the supply chain, and/or disruptions in sales and sales channels. What are the primary reasons for CGS changes? How will these project out in 2020?   
  • If the company is a restaurant or another industry that has been at least in part shut down this exercise shows radically different results than a manufacturing company that is providing an essential service.   
  • If the company is a personal service company, it may be experiencing a collapse in sales or it may be an essential service company.  
  • Are there services your business can provide online or in another way to keep a stream of income going? How much can the income stream be replaced?
  • What are your fixed and variable costs? What can be reduced or eliminated?   Fixed costs – such as rent, utilities and payroll, are often hard or not possible to reduce.  Variable costs change with the rate of activity, such as direct labor and material costs.  Many of these costs will be reduced and some may be eliminated.  
  • Many companies scale back marketing costs in periods of contraction. Good business practice indicates that this is often not the best decision. Businesses want to come out of a downturn in a strong position to capture a market and expand sales and maintaining and even increasing marketing expenses can support eventual expansion and growth.
  • What is the gap between income and expenses? In 2019 there may be no gap – in January and February, there may also be no gap. How does March look? What is the projected gap for April?  
  • Moving forward in 2020, are there items that can be eliminated from expenses if shutdowns continue? Can resources be redeployed? Can assets be sold if needed?
  • As we do not know the length of the shutdown, it is recommended that this exercise be done throughout 2020.


Contact your NH SBDC business advisor for more in-depth help or find your SBDC region and submit a request for service.

If you are a small business owner and you find time on your hands due to the crisis, or you need to expedite learning about a new topic for self-development via quality content, NH SBDC offers multiple free online classes.