How to Know if a Startup is Financially Stable (Before You Take a Job There)

By Dixie Somers

Taking a job with a startup company sounds fun and exciting, giving many people the feeling they are helping build something from the ground up. Many startups that have become giant corporations make millionaires of those who joined them in the beginning—which is why some people are attracted to companies just beginning with a great product and excellent business plan. However, before taking that job, you want to be sure the startup is financially secure. These tips can help you determine the financial standing of the startup that has offered you a position, and therefore aid you in your decision of whether or not to accept.

Ask About the Business Structure

The first thing to ask when considering employment with a startup company is what type of business structure they have chosen. It is often more desirable to work with a Limited Liability Company (LLC), Partnership or Corporation as those business structures offer the owner and employees the best protections. Many new businesses begin as a sole proprietorship, but there is little protection should the company become involved in a lawsuit. A negative lawsuit outcome could result in the owner losing personal assets as well as business assets, putting the entire business at risk.

How Much Capital Is Required to Become Sustainable?

Revenue generation and profitability are the two main metrics of financial stability. Many startups are months, or even years, from reaching those metrics, requiring them to seek capital to manage cash flow. During your interview, ask how much capital will be required for the company’s cash flow to break even. The owner of the company should be able to answer that immediately and if they cannot, you may want to seek employment elsewhere. Banks and investors will be less likely to provide capital if the owner does not understand how much capital the company needs for sustainability.

Level of Hiring Criteria

If the person interviewing you seems to have a less-than-enthusiastic attitude about the company, chances are you probably don’t want to work for that company. Startups who have hired mostly friend or family members may hire out of convenience rather than hiring those who are actually competent for the job. Ask for a detailed job description and discuss the strategy for building up the management team as the company grows. If the hiring manager is unable to provide those things, the company may not be well managed, and this could lead to business failure or financial difficulties.

Discuss Market Analysis

If you have reached the point where a startup company has actually offered you a position, you need to sit down with management and discuss their market analysis. You may be the first new hire for the startup, and even if you are not, you need to be sure that the company has conducted a thorough market analysis that the product or service they are offering is one the target market wants. There are many resources available to business owners and individuals to conduct market research. If the company has not done so, you can do the research on your own to determine if the startup has a chance of success.
 

If you are considering a position with a startup company, these tips can help you determine if the new business is financially stable or at least has the foundation to become financially stable in the near future. The information for this article was provided by professionals who specialize in credit card processing solutions for businesses. 

 

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