How to Read a Balance Sheet Without an MBA

A simple way to see what you have, owe, and can keep

Author

Sanju G Prakash
September 05, 2025

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Estimated Read Time: 4 - 5 minutes

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Latest News from the World of Business

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  • (2) UTC Investment launches $17.3M “Startup Korea Fund” (KoreaTechDesk)

    South Korea’s UTC Investment unveiled a ₩23.8 billion (~$17.3M) fund targeting startups in AI, biotech, and deep tech with global ambitions. Supported by the Ministry of SMEs and Startups, Korea Venture Investment Corp., and private investors, the fund aims to accelerate Korean startups’ international expansion.

A balance sheet can look intimidating, but it’s actually one of the simplest financial tools once you know what to look for. For founders, it’s not about accounting theory but survival: how much cash you have, what you owe, and what’s left over for you and your investors.

“Beware of little expenses; a small leak will sink a great ship.”

- Benjamin Franklin

The Rule That Always Balances

Assets = Liabilities + Equity

Everything your startup controls (assets) is funded either by borrowing (liabilities) or by money from you and your investors (equity).

The Three Sections That Matter

1. Assets: What You Have

Current Assets (your lifeline, usable within 12 months):

  • Cash and cash equivalents (your runway)

  • Accounts receivable (customer money owed—but only real if they pay)

  • Inventory (if physical products)

  • Prepaid expenses

Non-Current Assets (long-term commitments):

  • Equipment and technology

  • Software licenses

  • Intellectual property

2. Liabilities: What You Owe

Current Liabilities (due within 12 months—these eat your runway):

  • Accounts payable (unpaid bills)

  • Credit card debt and short-term loans

  • Accrued expenses (wages, taxes not yet paid)

Long-Term Liabilities (future commitments):

  • Equipment financing

  • Long-term loans

3. Equity: What’s Left for Owners

  • Share capital (money from founders and investors)

  • Retained earnings (profits you’ve kept in the business)

Startup Health Indicators

Runway Check:
Runway = (Cash + near-cash assets) ÷ Monthly burn rate.
This tells you how many months you can survive without new funding or revenue.

Debt vs Equity:
Debt demands repayment every month. Equity doesn’t. Debt without predictable cash flow = danger.

Receivables Reality:
A big accounts receivable balance is useless if customers don’t pay on time. Watch the cash, not just the promise.

Asset Flexibility:
Heavy equipment, leases, or long-term contracts mean high fixed costs. In a downturn, those can kill your runway.

Red Flags & Green Flags for Founders

  • Red Flags:

    • Current liabilities > current assets (negative working capital)

    • Receivables piling up faster than revenue

    • Debt outweighs equity by a large margin

    • Big chunk of assets tied up in things you can’t sell or use quickly

  • Green Flags:

    • Cash balance growing steadily

    • Liabilities shrinking or under control

    • Receivables collected on time

    • Low fixed costs relative to revenue (flexibility)

Reading the Story Behind the Numbers

  • High cash? You raised capital or manage costs well.

  • High receivables? You might look profitable but be broke.

  • Heavy liabilities? You’re betting on future growth.

Pro Tip: One balance sheet shows today. Several over time show whether you’re improving or sliding toward trouble.

The Only Questions That Matter for Founders

  1. How many months of runway do I really have?

  2. Am I taking on debt I can’t service if revenue drops?

  3. Are my receivables from customers who actually pay?

  4. Is my model flexible enough to cut costs fast if needed?

A balance sheet is just a list of what you have, what you owe, and what’s left. Once you see it that way, you can read any company’s financial position with confidence.

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