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Guide 03

Accounting 101

The three core financial statements every founder should understand. Think of them as three different camera angles on the same business.

1. Balance Sheet

The balance sheet shows what the company owns, what it owes and what is left for the founders and investors.

It gives a snapshot of a company at a single moment.

Assets

Assets are the useful things the company owns.

Examples include:

  • cash in the bank
  • money customers owe the company
  • computers
  • equipment

Liabilities

Liabilities are the financial obligations the company must pay.

Examples include:

  • unpaid bills to vendors
  • credit card balances
  • short term loans
  • payroll taxes owed

Equity

Equity is the remainder after subtracting liabilities from assets.

It reflects the ownership value held by founders and investors.

Example: Startup Balance Sheet Snapshot

  • Cash in bank: $250,000
  • Money customers owe (accounts receivable): $60,000
  • Equipment and computers: $40,000
  • Total assets: $350,000
  • Credit card and vendor bills: $45,000
  • Short term loan from a founder: $35,000
  • Payroll taxes owed: $10,000
  • Total liabilities: $90,000
  • Equity = $350,000 − $90,000 = $260,000

This $260,000 is the ownership value that belongs to the founders and investors at that moment.

Why the balance sheet matters

It answers:

  • Do we have enough cash?
  • Do we owe too much?
  • What is our financial position today?

2. Profit and Loss Statement (P&L)

The P&L shows how money moved through the business over a period of time, usually a month or a quarter.

It tells the story of how much we earned and how much we spent.

Revenue

Revenue is the money the company brings in from customers.

This can be from subscriptions, sales or services.

Expenses

Expenses are the costs required to run the business.

Examples: salaries, software, advertising, legal fees and rent.

Profit or loss

Profit is the amount left after subtracting expenses from revenue.

A loss means expenses were higher than revenue.

Example: Monthly P&L for a SaaS Startup

Revenue: $80,000

  • Subscriptions: $70,000
  • Services and onboarding: $10,000

Expenses: $110,000

  • Salaries: $70,000
  • Software and tools: $5,000
  • Marketing and ads: $20,000
  • Rent and office: $10,000
  • Legal and other: $5,000

Profit (loss) = $80,000 − $110,000 = −$30,000

The company lost $30,000 this month, even though revenue is growing.

Why the P&L matters

It answers:

  • Are we making progress?
  • Are our costs under control?
  • Are we improving month by month?

Startups often lose money early on, which is normal, but they still need to track it carefully.

3. Cash Flow Statement

The cash flow statement shows how cash actually enters and leaves the company.

This one matters the most for startups because cash keeps the company alive.

Why cash is different from profit

Profit happens on paper.

Cash is real money in the bank.

A company can look profitable but still run out of money if:

  • customers pay late
  • vendors require upfront payment
  • expenses bunch up at once

Example: Profitable on Paper, but Cash is Tight

  • In March, the P&L shows $20,000 profit.
  • But $50,000 of that "revenue" is from invoices that customers will only pay in May.
  • Meanwhile, the company already paid $30,000 in annual software contracts upfront.

On the P&L, March looks good. On the cash flow statement, March might show:

  • Cash inflows: $30,000 (customers who actually paid)
  • Cash outflows: $60,000 (payroll, rent, annual contracts)
  • Net cash change: −$30,000

Cash inflows

Money that comes in.

Examples: customer payments, investor funding, refunds from vendors.

Cash outflows

Money that goes out.

Examples: payroll, bills, rent, contractors, software.

Burn rate

Burn rate is how much cash the company spends each month after accounting for revenue.

This number sets the pace for how fast the bank account falls.

Example: Calculating Burn Rate

  • Average monthly cash in (from customers): $60,000
  • Average monthly cash out (all expenses): $110,000
  • Net cash change each month: −$50,000

Burn rate = $50,000 per month

Runway

Runway is how many months the company can survive with the cash it currently has.

If you have one million in the bank and burn one hundred thousand each month, you have ten months of runway.

Example: Runway with Changing Burn

  • Cash today: $600,000
  • Current burn rate: $75,000 per month
  • Runway today: 8 months

If the company cuts $15,000 of monthly spend and increases revenue by $10,000 per month, new burn might be $50,000 per month.

New runway: $600,000 ÷ $50,000 = 12 months

A few decisions bought 4 extra months of survival time.

Why the cash flow statement matters

It answers:

  • When will we run out of money?
  • Can we afford a new hire?
  • Should we raise a round now or wait?
  • How do small decisions affect our survival time?

Why Timing Matters Across All Three Statements

Timing changes the story.

Money can be earned but not yet collected.

Bills can be owed but not yet paid.

CoFina pays attention to these timing differences because they can:

  • change runway
  • affect fundraising timing
  • create sudden pressure
  • distort whether the company looks healthy or strained

Example: Same Business, Different Pictures

  • On the P&L, the company shows strong revenue because a big annual contract was booked this month.
  • On the balance sheet, accounts receivable are high because the customer has 60 days to pay.
  • On the cash flow statement, cash is flat or down because the payment has not arrived yet.

CoFina reads all three together so founders see the full picture, not just one angle.

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