Financial Tips for StartupsAll Articles
We've listed here some basic financial information that every startup should be familiar with.
First is the standard statement of cash flows, which is prepared by accountants under Generally Accepted Accounting Principles (GAAP). This explains changes in the cash balance and compliments the income statement. Cash inflows & outflows include operating, investing, and financing activities. Understanding this document is critical for keeping track of your money!
It is likely that a potential investor will ask what your cash burn is. This is the rate at which your company uses its cash reserves. Calculate the burn rate for a selected period of time using this formula:
(ending cash balance - beginning cash balance) / months in period
The answer is a monthly value, and the lower it is, the better.
Also be familiar with how long your cash will last at the current burn rate. Calculate this with the following formula:
cash reserves / burn rate
The 13 week cash flow model is an alternative commonly used by companies in financial distress. This tool allows you to see the “big picture” and analyze the amount of cash you will need in the future. It is different from other financial forecasting tools because it is cash-based rather than accrual-based, which means that cash is measured only when it's available for use.
Something else to remember is that you must file a 1099 for all consultants you hire. This is done by the company or bookkeeper, and is due by January 31 of each year.
Thanks for checking out these tips from your trusted partner and Ohio Accountant BizImprove!