What Do I Do If My Balance Sheet Doesn't Balance? Fix It Fast Here
If you're looking at your financial model and wondering, "What do I do if my balance sheet doesn't balance?", you're not alone. It’s a common issue, even for experienced professionals.
In this guide, we’ll walk through real solutions to a balance sheet that isn’t balancing, breaking it down step-by-step in plain English.
Understanding and fixing an unbalanced balance sheet is crucial to building trust with investors, partners, and even your bookkeeper. Let’s tackle it together.
Why a Balance Sheet Needs to Balance
At its core, a balance sheet is built on a simple formula:
Asset = Liabilities + Equity
This formula captures your company’s financial health at a specific snapshot in time. If the assets don’t equal liabilities plus equity, your balance sheet doesn’t balance, and there’s likely an error somewhere in your financial statement or model.
When this foundational equation breaks down, your financial model loses credibility, and your cash flow statement may not link correctly. Let's break down ways to fix an unbalanced balance sheet.
Step 1: Spot the Imbalance
First, perform a high-level check by comparing your total assets with total liabilities and total equity. Use the basic formula:
Assets less total liabilities and equity = 0
If that’s not the case, your balance is off. You may spot an imbalance right away, or you might need to dig deeper.
Key clues:
The balance sheet is out of balance by a small, repeating amount? It could be an incorrect sign or rounding.
Off by a large, flagged number? Likely due to a missing line item or misalignment.
Step 2: Work from Right to Left (Yes, Really)
When your balance sheet still doesn’t balance, use a technique accountants swear by: work from right to left. Start at the ending figures like ending cash, retained earnings, and equity, and trace backwards.
In this step 2, here’s what to look for:
Retained earnings: Check if your beginning balance matches the prior period’s ending balance.
Change in cash: Verify that your cash flow statement ties out to the balance sheet cash.
Depreciation, CapEx, and working capital shifts: These feed into both cash flow and balance sheet.
Large swings in goodwill, PP&E, or deferred tax may be mistyped.
Also, confirm you're referencing the correct period-to-period numbers.
Step 3: Dive Into Formulas Across the Model
Now it’s time to get surgical. Errors often hide within formulas that stretch across the model.
In step 3:
Hunt for incorrect totals in your formula bar.
Inspect formulas across rows, particularly those flowing from the income statement into the balance sheet.
Use Microsoft Excel's Control key, tracing precedents and dependents to track each financial statement link.
A hard-coded value that you meant to reference dynamically can throw off totals without any visual cues. Replace any placeholder "plug" values with accurate formulas wherever possible.
Step 4: Check the 3-Statement Model Linkages
In your 3-statement model, make sure the income statement, balance sheet, and cash flow statement are all properly linked. If even one component is missing – or completely disconnected – the model won’t hold together.
In step 4, here are the common links to validate:
Net income flows into retained earnings.
Non-cash expenses like depreciation are added back on the cash flow statement.
Capital expenditure (CapEx) subtracts from cash and increases long-term assets.
Working capital items like current assets, accounts payable, and receivables should reflect operating changes.
If these don’t align throughout the model, the balance sheet isn’t balancing.
Other Reasons Why Your Balance Sheet Doesn’t Balance
If you’ve combed through the math and your balance sheet still doesn’t balance, here are a few other areas to investigate:
Incorrect sign: Something may be entered as positive when it should be negative (or vice versa).
Missing line item: Even one miscategorized value in your assets and liabilities can cause issues.
Incorrect decimal placement or rounding can throw off your totals, especially when compounded across many values.
Increase in assets without a corresponding increase in liabilities or equity.
Incorrect total assets summation or formula carryover.
These kinds of issues can cause a broken balance sheet and result in a total imbalance.
How to Fix an Unbalanced Balance Sheet Fast
Still staring at a balance sheet isn’t balancing? Here’s how you can fix this problem methodically:
Start with totals: Confirm that total assets, total liabilities, and total equity add up properly.
Audit links to your income statement and cash flow statement.
Cross-check depreciation, inventory changes, tax line items, and capital expenses.
Trace hard-coded numbers or overrides. Replace them with linked formulas or calculated fields.
If your eyes have gone blurry, take a step back and rerun it with a fresh perspective (or call in expert help!).
Local Help to Fix an Unbalanced Balance Sheet
If you've tried everything and still cannot find the error, don’t burn more hours scrolling through your financial model for days. You need to bring the model across the finish line.
That’s where a trusted local expert comes in. Our Denver bookkeeping services at AY Miller are built to help businesses like yours fix an unbalanced balance sheet with accuracy, speed, and context.
Whether it's mislinking in your 3 statement model, an Excel oversight, or something more systemic, we’ll help you identify exactly where things went wrong—then help you make it right.
Final Takeaway: Balance Your Balance Sheet with Confidence
There’s no shame in dealing with a balance sheet not balancing. It happens to startups, growing small businesses, and even seasoned CFOs building complex financial models.
The key is staying systematic:
Check totals
Confirm formulas
Audit the inputs
Work from right to left
Adjust where necessary
If your balance sheet doesn't balance, use the tips here to pinpoint and resolve the issue; don't let it sit unreconciled.
And if it still doesn’t balance, ask for help. We’re just a click away, and we’d love to help you get your balance sheet and cash flow aligned properly.
