Financial Due Diligence

Revenue quality and concentration, burn and runway, expenses, cash flow, projections, unit economics and accounting quality in a startup's financials.

Checking the numbers behind the numbers

Lessons

• Not every number called revenue is the same kind of money — Financial diligence starts by separating recurring revenue from one-off fees, bookings from recognised revenue, and invoiced amounts from cash collected. (11 min)
• Runway is cash in the bank divided by what really leaves each month — Diligence recalculates burn and runway from bank statements rather than from management's summary, separating gross burn from net burn and cash held from cash promised. (10 min)
• The real cost of running the company is often higher than the books show — Early companies often have below-market founder pay, unpaid invoices, deferred costs and free resources. Normalising the expense base shows what the company will actually cost to run. (10 min)
• A growing company can run out of cash while its revenue rises — How customers pay and how quickly they pay changes cash needs. Diligence checks billing terms, receivables and working capital, not only revenue and profit. (10 min)
• A projection is tested against the company's own history — Financial projections are most useful when compared with what the company has actually achieved and run through downside scenarios that show when cash would run out. (11 min)
• Messy books are common; hidden liabilities are the real risk — Early companies often have informal accounting. Diligence separates harmless untidiness from problems that matter: unpaid taxes, related-party transactions, commingled spending and unrecorded obligations. (10 min)

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