I recently came across a Forbes magazine article by Jeff
Thermond that addressed the need a for a startup business to focus on the
balance sheet and it made a lot of sense. Most startup entrepreneurs do not
have keen financial backgrounds. They very often come from marketing, sales, or
operations. They may even understand income statements, and gross margins and
be able to talk to financial analysts and bankers.
The balance sheet lists (read as BALANCES) the assets
against the liabilities plus stockholders equity of a company. The two sides of
this equation must be equal. In businesses generating positive cash flow and
operating income, current assets will be greater than current liabilities
resulting in increased stockholder equity. This situation generally does not
exist in the early days of a startup. During this time profits are not being
generated and losses are mounting with negative shareholder equity. In the
beginning it is not uncommon, even with high margins (if they are possible), to
be unable to cover operating costs.
The article makes the point that the startup CEO should
admit that there is a gap between the amount of time it will take the cash to
run out and his experience and seek experienced help. This is not a bookkeeper,
but someone, even on a part time basis, experienced with startups.
How are you handling this in your business?
Steve Koenig, SCORE Counselor
Visit us at: www:scoresouthflorida.net
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