What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archives: Cash Flow – AVC

Cash flow is really easy to calculate. It’s the difference between your cash balance at the start of whatever period you are measuring and the end of that period. Let’s say you start the year with $1mm in cash and end the year with $2mm in cash. Your cash flow for the year is positive by $1mm. If you start the year with $1mm in cash and end the year with no cash, your cash flow for the year is negative by $1mm.

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays: Accounting From The Archives – AVC

If you have a company, you must have financial records for it. And they must be accurate and up to date. I do not recommend doing this yourself. I recommend hiring a part-time bookkeeper to maintain your financial records at the start. A good one will save you all sorts of headaches. As your company grows, eventually you will need a full time accounting person, then several, and at some point your finance organization could be quite large. There… (read more)

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archives: The Profit and Loss Statement – AVC

A profit and loss statement is a report of the changes in the income and expense accounts over a set period of time. The most common periods of time are months, quarters, and years, although you can produce a P&L report for any period.

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archives: The Profit and Loss Statement – AVC

Numbers don’t tell you everything about a business. That is very true. A P&L can only tell you so much about a business. It won’t tell you if the product is good and getting better. It won’t tell you how the morale of the company is. It won’t tell you if the management team is executing well. And it won’t tell you if the company has the right long term strategy. Actually it will tell you all of that but after it is too late to do anything about i… (read more)

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archive: Analyzing Financial Statements – AVC

If someone asks you how much cash you have in your business, or a business you are analyzing, and you can’t answer that to the last accounting period (at least), then you failed. There is no middle ground. Cash is that important.

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archives: The Balance Sheet – AVC

The top line, cash, is the single most important item on the balance sheet. Cash is the fuel of a business. If you run out of cash, you are in big trouble unless there is a “filling station” nearby that is willing to fund your business. Alan Shugart, founder of Seagate and a few other disk drive companies, famously said “cash is more important than your mother.” That’s how important cash is and you never want to get into a situation where you run… (read more)

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archives: The Balance Sheet – AVC

After cash, I believe the liability section of the balance sheet is the most important section. It shows the businesses’ debts. And the other thing that can put you out of business aside from running out of cash is inability to pay your debts. That is called bankruptcy.

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archives: The Balance Sheet – AVC

In summary, the Balance Sheet shows the value of all the capital that a business has built up over the years. The most important numbers in it are cash and liabilities. Always pay attention to those numbers. I almost never look at a profit and loss statement without also looking at a balance sheet. They really should be considered together as they are two sides of the same coin.