H O W T O E VA L U AT E Y O U R S TA RT U P F I N A N C I A L LY

B Y N O B L E N E W M A N

W H E T H E R Y O U A R E WAT C H I N G T H E N E W E S T E P I S O D E O F S H A R K TA N K O R R E A D I N G T H E H E A D L I N E S O N F O R B E S , I T S E E M S L I K E M A N Y S TA R T U P C O M PA N I E S A R E H AV I N G A L L O F T H E F U N .

T H E Y C R E AT E N E W M A R K E T S , D I S R U P T L O N G S TA N D I N G C O M P E T I T O R S , A N D AT TA I N L A R G E A M O U N T O F F U N D I N G F R O M VA R I O U S V E N T U R E C A P I TA L F I R M S .

While the idyllic stereotype seems nice, the harsh truth is that 90% of all startups tend to fail.

There can be a variety of reasons of why so many startups tend to fail. Sometimes it could be because of the lack of management.

Other times it is because of the product or service itself.

But the main reason why startups, and even well standing businesses, fail is that they do not look at the numbers.

W H E N R U N N I N G A B U S I N E S S , Y O U N E E D T O M A K E S U R E T H AT Y O U A R E I N T E R N A L I Z I N G T H E O V E R A L L VA L U E O F Y O U R C O M PA N Y. B Y U N D E R S TA N D I N G T H E F I N A N C I A L H E A LT H A N D F I N A N C I A L P O S I T I O N O F Y O U R C O M PA N Y, Y O U W I L L B E A B L E T O M O V E Y O U R C O M PA N Y T O T H E R I G H T PAT H F O R S U C C E S S . T O D O T H I S , Y O U N E E D T O P E R I O D I C A L LY A N A LY Z E T H E C O M PA N Y ’ S B A L A N C E S H E E T.

A B A L A N C E S H E E T I S T H E P R I M A R Y F I N A N C I A L T O O L F O R A S S E S S I N G T H E R E L AT I V E H E A LT H A N D F I N A N C I A L C O N D I T I O N O F A B U S I N E S S AT A N Y G I V E N P O I N T I N T I M E .

O F T E N T I M E S , T H I S I S R E F E R R E D T O A S N A P S H O T B E C A U S E I T P R O V I D E S A B U S I N E S S L E A D E R W I T H A C L E A R A N D A C C U R AT E

P I C T U R E O F W H E R E T H E B U S I N E S S I S AT T H AT C U R R E N T M O M E N T.

Y O U R B A L A N C E S H E E T Y O U W I L L O F T E N F I N D T H AT T H E F I N A N C E S A R E B R O K E N D O W N I N T O VA R I O U S R AT I O S . W I T H T H E S E R AT I O S , Y O U W I L L F I N D T H R E E M A J O R C AT E G O R I E S : A S S E T S , L I A B I L I T I E S ,

A N D E Q U I T Y. T H E S E T H R E E F I G U R E S W I L L G I V E Y O U T H E N E C E S S A R Y K N O W L E D G E T O F I N A N C I A L LY V I E W A N D E VA L U AT E Y O U R C O M PA N Y.

So what are assets, liabilities, and equity?

• Assets: the economic value that an individual, firm, or company owns and controls

• Liabilities: a company’s legal debt and expense obligations that arise during the course of a business operation.

• Equity: the asset amount and the liability amount, you are able to find the stockholders’ or owners’ overall equity and net worth of the company. Equity is found by simply finding the difference between the assets and the liabilities.

By internalizing and comprehending these numbers, you will be able to ascertain the overall financial health and status of your business.

In addition, the balance sheet will give you access to the solvency of your business, the overall proprietary interest you get as an owner, your company’s working capital, inventory levels, and most importantly, your company’s long-term debt.

W I T H T H I S I N F O R M AT I O N , I T I S I M P O R TA N T T H AT Y O U TA K E T H E T I M E T O U N D E R S TA N D W H AT T H E S E N U M B E R S M E A N A N D H O W I T C A N

B E N E F I T Y O U I N T H E F U T U R E .

Remember, many companies often overlook these numbers. Do not make that same…