Welcome to another instructional video from Jon’s Bookkeeping. I’m Jon Cooney and today I will be providing a quick guide on Owner’s Equity!
You may remember I spoke about owner’s equity when discussing the Balance Sheet back in episode #5.
As a reminder. owner’s equity represents the owner’s stake in the business. It’s the difference between your business assets and liabilities.
To make it easier to understand, let's compare it to real estate equity. Imagine you own a house worth $300,000, but you still owe $200,000 on your mortgage. Your real estate equity would be $100,000—the value of the house minus the debt.
Similarly, if your business has $100,000 in assets and $60,000 in liabilities, your owner’s equity is $40,000. This amount represents what you, as the owner, actually own in the business after all debts are paid.
Owner’s equity is crucial because it shows the net worth of your business. Just like in real estate, where higher equity means more value, higher owner’s equity means your business is financially healthier.
Owner’s equity can also increase or decrease based on the business’s performance. Profits add to your equity, while losses and additional liabilities reduce it.
Understanding owner’s equity helps you make informed financial decisions, like reinvesting in your business or securing loans.
And if you need help making informed financial decisions, schedule a free consultation call with me!
We can discuss your business and bookkeeping situation.
I am sure I can offer you some help and look forward to hearing from you!
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