Entrepreneurs hate doing financials! But we will all have to learn how to handle financial statements. One of the biggest mistakes many entrepreneurs make (including myself and I paid heftily for it!) Is to get a number-savvy finance guy as a shareholder early during the startup years. Founders quickly find that the stake given out is often too much for what little these finance folks can do.
Now? My engine is always to do it yourself!
Here. I’m going to give you baby steps. I became the stand-in CFO for my company right up to the submission of our prospectus to Nasdaq for IPO. See? It is possible. All it took was hard work. I’m going to pass on some knowledge to you here.
The 3 statements you made that must know are:
- Income statement or Profit and Loss Statement
- Balance Sheet
- Cash Flow
Income Statement a.k.a Profit and Loss Statement
Just one formula to remember:
Income = Revenue – expenses
Revenue = All the money your company takes in to provide any goods and services.
Expenses = All the costs involved in generating the revenue above.
Now make a list of your revenue and expenses. Once done, you are ready to see your new income statement. I have a simple template here . You can key in all your numbers.
So just one formula to remember:
Asset = Liability + Equity
Asset = Something valuable that you own and can generate revenue
Liability = What the company is obliged to pay back
Equity = What the shareholders have invested in the company
Now make a list of all your assets, liabilities and equities. Input them into a spreadsheet like this. You will see your balance sheet for the company once done.
Last but definitely not the least. Your company can do without profit, but it definitely can’t do without cash. I feel that this statement is THE MOST IMPORTANT statement of them all. It’s basically how much money you have in the kitty at any point in time.
Again the formula:
Net Cash Flow = Cash Inflow – Cash Outflow
Exactly! Easier than you thought!
Cash Inflow = Cash the company received using whatever means (operating, investing, etc)
Cash Outflow = Cash the company paid for whatever reasons (operating expenses, capex etc)
Again, the cash flow spreadsheet that you can use to help you build that statement. Have fun!
Now that you’ve gotten these things done, go ahead and get familiar with the numbers. I mean very, very familiar. Like the back of your hand. Let the potential investors, board members, your angel investors, professors shoot their questions. You must be able to answer anything !!! While trying to build your brand identity as a startup, don’t forget to monitor your financial statements.
If you are the visual kind, here’s a nice video that summarizes it for you.