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Managing Sleepless Nights: Business viability and your startup

Written by Lee Ann Collins, CPA | Oct 2, 2019

My name is Lee Ann Collins, managing partner at Lane Gorman Trubitt, the top-ranked accounting firm in Dallas in 2019 according to Inside Public Accounting and this job is keeping me up at night.

I recently sat down with a small business owner friend of mine who was thinking of starting a new business.  This business owner already has a successful business but in his dealings has found that there is another place where he could be successful.  I want my friend to thrive. I want him to follow his passion, but he has been in his industry for 15 years; a start-up now is very different than how it was back then.  Thinking about the dilemmas and obstacles he will face is keeping me up at night.

There are many reasons a business can fail, but many of them can be avoided by doing a proper business viability evaluation.  This process will help make sure that not only is the company financially sound at start-up, but it will remain financially sound long enough for the company to show a profit.  When my friend told me over brunch that he was going to start a new company, I immediately handed him my business card.  I told him that we’ve been friends long enough that I am the first call he needs to make.

A business viability evaluation requires an accountant to not just look at numbers and recite facts but to become a trusted advisor to a potential new business owner.  Before a company chooses a name, a location, or even what type of entity they will be for the IRS, they should sit down with their pro forma financial statements and find out if this business can make it.  A business viability evaluation will analyze the client’s financial data, challenge the client’s assumptions, and look closely at funding methods and sources to make sure that the company can be funded through the start-up process.

This process also looks at any information that client gathered that led them to the decision to start this business.  We will look at how much revenue you expect to bring in and potential costs that your company will incur.  While there is no exact number for the amount of time that start-up funding should cover, the absolute minimum is close to six months.  The longer a company can cover its costs out of its capital, the longer it has to become successful and show a profit.

Finally, we will review your data and ensure that there is no faulty information and that assumptions are as accurate as it possibly can be.  Once we’ve done that and revised thee pro forma financial statements, it’s time for the potential business owner to decide if they are ready and want to move forward.  Investing the money in a thorough business viability evaluation can be the difference between a 15-year successful business and a 15-month bankruptcy. 

Not everyone who has this service decides to go through with the business.  Some people will scale back their plans to give them more time on their capital.  Some people will expand their plan because they realize they can do more with what they had.  Occasionally a person will realize that this idea is great but they need to wait before they can bring it to market.

The great thing about a business viability evaluation is that it gives you choices.  It gives you options to pursue your passion and not put your financial health at risk.

If you have a great new idea for business, or are looking to expand your current business, the advisors at Lane Gorman Trubitt want to help you succeed. 

Give us a call today and schedule your business viability evaluation with one of our professionals.