The balance sheet should … balance?

February 12, 2009

Here’s a quick rant.

One of the most common and inexcusable¬†errors we see on Texas Emerging Technology Fund applications is an unbalanced balance sheet. Assets are always equal to liabilities plus equity. Always. It’s also inexcusable to have items that don’t add up on income statements or statements of cash flow. This is basic accounting, and it can be a big mark against your application.¬†

More subtly, it’s common to see expenditures that aren’t aligned with the timeline. If you’re adding 4 sales people to the head count in Year 2, you’re going to need a sales budget in Year 2 too.

I don’t know if these companies think we’re not going to look too closely at the financials, but we do. Sure they’re projections and nobody knows how the future will play out, but how carefully the financials are presented says a lot about how carefully the business will be run.

For more on the topic, Independent Street covered a study on the importance of formal business planning to getting a startup off the ground.

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