We’ve all heard about income statements and balance sheets, but that doesn’t matter when you are in start-up mode. Your main metric is cash (also known as liquidity) and cash flow. First, cash - this tells you how long you will be in business. If you divide your cash by your budgeted monthly operation expenditure (OPEX) then this tells you how long you have before you go out of business. Scary thought, right? I’ve been in many situations whereby I only have 1 week working capital - i.e. I didn’t know how I was going to cover payroll. In those cases, you need to manage through the crisis and focus on getting more cash! (this needs a lot of discussion and is unique to each situation - for example, you don’t want to raise cash through debt if you cannot repay the debt). Cash flow is created after a sale of your product or service. Cash flow can help add to your cash position so that you have more time to build your business. If you have a cash flowing business then you have done something right! I suggest you analyze it and assess whether or not you can repeat it. If you can repeat and it is scalable then you have a real business!
Financials (a little more sophisticated than the Entrepreneurial level) - At the start-up stage, we discussed cash and cash flow. Those things are equally important at the growth stage (And will always be important!). But, now, we are adding in three additional financial reports
Balance Sheet - It’s the standard assets and liabilities, but will be important particularly for trade finance (credit) underwriting purposes. A major area of growth financing for small, but fast growing companies is either bank lines (SBA) or vendor finance. The underwriting in these departments want to understand your cash position, account receivable, account payable, (general liquidity) and short-term/long-term debt; your financial health will dramatically impact your ability to scale.
Income Statement - How profitable are you? this is key for underwriting and, eventually, raising equity-type capital.Having completed a Series A with a large venture capital group, I can tell you that the income statement is more about the pro forma - what is your outlook? But, they also need to be convinced that you can operate a profitable business. The Income Statement is also used for underwriting purposes during the growth stage.
Payroll Budget - A comprehensive line item of team members and should include basic salary, benefits, etc - you need to get the full picture of each of your team members; it’s very interesting, this may help you understand who needs to ‘step it up’ and improve results. You’d be surprised how people can try to ‘hide out’ even in the smallest organizations and just do the minimal work? sound familiar? most organizations have this problem.