Financial Risk Assessment

FINANCIAL RISK PHILOSOPHY

Understanding Financial Risk for CEOs

Financial risk is the risk that threatens your company's ability to survive and thrive. Unlike operational risks that affect performance, financial risks can be existential. Running out of cash is the number one killer of startups. Understanding and managing financial risk is not optional—it's survival.

THE FINANCIAL RISK REALITY
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THE UNFORGIVING NATURE OF FINANCIAL RISK:

"Revenue is vanity, profit is sanity, cash is reality."

Why Financial Risk Is Different:
☐ It compounds quickly
☐ It limits all other options
☐ It can be fatal
☐ It affects every stakeholder
☐ Recovery is difficult once triggered

FINANCIAL RISK CATEGORIES:

LIQUIDITY RISK:
☐ Cash runway and burn rate
☐ Working capital management
☐ Access to credit/funding
☐ Cash conversion cycle

REVENUE RISK:
☐ Customer concentration
☐ Contract structure (MRR vs. services)
☐ Churn and retention
☐ Sales pipeline reliability
☐ Seasonality and cyclicality

CREDIT RISK:
☐ Accounts receivable exposure
☐ Customer creditworthiness
☐ Payment terms practices
☐ Bad debt exposure

COST RISK:
☐ Fixed cost structure
☐ Variable cost volatility
☐ Contractual commitments
☐ Cost reduction flexibility

CAPITAL RISK:
☐ Funding availability
☐ Valuation sensitivity
☐ Investor relations
☐ Dilution and control

MARKET RISK:
☐ Currency exposure
☐ Interest rate exposure
☐ Economic cycle sensitivity
☐ Inflation impact

THE CEO'S FINANCIAL RISK ROLE:

☐ Know your numbers cold
☐ Set and enforce financial guardrails
☐ Stress test regularly
☐ Maintain investor relationships
☐ Make hard decisions early

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COMPREHENSIVE FINANCIAL RISK FRAMEWORK

Financial Health Assessment

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SECTION 1: FINANCIAL HEALTH
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COMPANY FINANCIAL SNAPSHOT:

Company: _______________
Assessment date: _______________
Fiscal year end: _______________

KEY METRICS:
ARR/Revenue (TTM): $_____
Revenue growth (YoY): ___%
Gross margin: ___%
Net burn: $_____/month
Cash on hand: $_____
Runway: ___ months

FINANCIAL HEALTH SCORECARD:
| Metric | Current | Target | Status |
|--------|---------|--------|--------|
| Runway (months) | | >18 | ☐ G ☐ Y ☐ R |
| Gross margin | | >70% (SaaS) | ☐ G ☐ Y ☐ R |
| Burn multiple | | <2x | ☐ G ☐ Y ☐ R |
| Revenue growth | | >50% YoY | ☐ G ☐ Y ☐ R |
| Net retention | | >110% | ☐ G ☐ Y ☐ R |
| Quick ratio | | >4 | ☐ G ☐ Y ☐ R |
| CAC payback | | <18 mo | ☐ G ☐ Y ☐ R |

BURN MULTIPLE CALCULATION:
Net Burn = Cash Out - Cash In (operating)
Burn Multiple = Net Burn / Net New ARR

Interpretation:
☐ <1x: Exceptional efficiency
☐ 1-2x: Healthy (strong growth)
☐ 2-3x: Acceptable (moderate growth)
☐ >3x: Concerning (need focus)

Current burn multiple: ___x

Liquidity Risk Analysis

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SECTION 2: LIQUIDITY RISK
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CASH POSITION:

Current Position:
Cash and cash equivalents: $_____
Short-term investments: $_____
Total liquid assets: $_____
Date: _______________

Monthly Cash Burn:
Operating expenses: $_____
Capital expenditures: $_____
Debt service: $_____
Total cash out: $_____
Cash in (receipts): $_____
Net monthly burn: $_____

Runway Calculation:
Liquid assets: $_____
÷ Net monthly burn: $_____
= Runway: ___ months

RUNWAY THRESHOLDS:
☐ 24+ months: Excellent
☐ 18-24 months: Comfortable
☐ 12-18 months: Start planning
☐ 6-12 months: Urgent action
☐ <6 months: Crisis mode

Current status: _______________

CASH FLOW PROJECTION:
| Month | Beginning | Cash In | Cash Out | Net | Ending |
|-------|-----------|---------|----------|-----|--------|
| M1 | $ | $ | $ | $ | $ |
| M2 | | $ | $ | $ | $ |
| M3 | | $ | $ | $ | $ |
| M4 | | $ | $ | $ | $ |
| M5 | | $ | $ | $ | $ |
| M6 | | $ | $ | $ | $ |

LIQUIDITY STRESS POINTS:
☐ Large annual payments due: _______________
☐ Lumpy revenue recognition: _______________
☐ Seasonal cash demands: _______________
☐ Committed but not received: _______________

LIQUIDITY BUFFERS:
| Buffer | Amount | Access Time | Terms |
|--------|--------|-------------|-------|
| Operating cash | $ | Immediate | |
| Credit facility | $ | | |
| Investor commitment | $ | | |
| Asset sales possible | $ | | |
| Total available | $ | | |

Revenue Risk Analysis

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SECTION 3: REVENUE RISK
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REVENUE CONCENTRATION:

Customer Concentration:
| Rank | Customer | ARR | % of Total | Risk Level |
|------|----------|-----|------------|------------|
| 1 | | $ | __% | H/M/L |
| 2 | | $ | __% | H/M/L |
| 3 | | $ | __% | H/M/L |
| 4 | | $ | __% | H/M/L |
| 5 | | $ | __% | H/M/L |
| Top 5 Total | | $ | __% | |
| Top 10 Total | | $ | __% | |

CONCENTRATION THRESHOLDS:
☐ Single customer >10%: Material risk
☐ Top 5 >50%: High concentration
☐ Top 10 >70%: Concerning

Your status: _______________

CONTRACT RISK:
| Customer | Contract End | Renewal Risk | Amount at Risk |
|----------|--------------|--------------|----------------|
| | | H/M/L | $ |
| | | H/M/L | $ |
| | | H/M/L | $ |

Renewal concentration (next 90 days): $_____ (___% of ARR)

CHURN AND RETENTION:

Monthly Gross Churn:
☐ Last month: ___%
☐ Trailing 3-month average: ___%
☐ Trailing 12-month average: ___%

Net Revenue Retention:
☐ Last quarter: ___%
☐ Trailing 12-month: ___%
☐ Target: ___%

Dollar-based retention vs. logo retention: _______________

REVENUE PREDICTABILITY:
Recurring revenue: ___% of total
Contracted backlog: $_____ (covers ___ months)
Pipeline weighted: $_____ (closing in 90 days)
Pipeline conversion rate: ___%

Credit Risk Analysis

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SECTION 4: CREDIT RISK
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ACCOUNTS RECEIVABLE:

AR Aging Summary:
| Aging Bucket | Amount | % of AR | # Customers |
|--------------|--------|---------|-------------|
| Current | $ | __% | |
| 1-30 days | $ | __% | |
| 31-60 days | $ | __% | |
| 61-90 days | $ | __% | |
| 90+ days | $ | __% | |
| TOTAL AR | $ | 100% | |

AR Metrics:
Days Sales Outstanding (DSO): ___ days
DSO trend: ☐ Improving ☐ Stable ☐ Worsening
Bad debt reserve: $_____ (___% of AR)
Write-offs (TTM): $_____ (___% of revenue)

CUSTOMER CREDIT QUALITY:
| Quality Tier | % of AR | Collection Rate |
|--------------|---------|-----------------|
| Enterprise/Stable | __% | __% |
| Mid-market | __% | __% |
| SMB | __% | __% |
| At-risk customers | __% | __% |

CREDIT RISK MITIGATION:
☐ Credit checks on new customers
☐ Payment terms by customer tier
☐ Prepayment requirements
☐ Collections escalation process
☐ Bad debt reserve methodology

CONCENTRATION BY PAYMENT TERMS:
| Terms | % of Revenue | DSO Impact |
|-------|--------------|------------|
| Prepaid annual | __% | Negative |
| Net 30 | __% | 30 days |
| Net 45 | __% | 45 days |
| Net 60+ | __% | 60+ days |

Cost Structure Analysis

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SECTION 5: COST RISK
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COST STRUCTURE:

Fixed vs. Variable:
Total monthly costs: $_____
☐ Fixed costs: $_____ (___%)
☐ Variable costs: $_____ (___%)
☐ Semi-variable: $_____ (___%)

Major Fixed Costs:
| Category | Monthly | Annual | Commitment Length |
|----------|---------|--------|-------------------|
| Salaries | $ | $ | Ongoing |
| Office/facilities | $ | $ | ___ months |
| Software/tools | $ | $ | ___ months |
| Infrastructure | $ | $ | ___ months |
| Insurance | $ | $ | ___ months |
| Other | $ | $ | ___ months |
| TOTAL FIXED | $ | $ | |

COST FLEXIBILITY ANALYSIS:

If needed to cut costs:
Immediate cuts available (< 30 days):
| Cut | Monthly Savings | Impact |
|-----|-----------------|--------|
| | $ | |
| | $ | |
| | $ | |
| Total immediate | $ | |

Medium-term cuts (30-90 days):
| Cut | Monthly Savings | Impact |
|-----|-----------------|--------|
| | $ | |
| | $ | |
| | $ | |
| Total medium-term | $ | |

Hard to cut (90+ days or significant impact):
| Item | Monthly Cost | Barrier |
|------|--------------|---------|
| | $ | |
| | $ | |

MINIMUM VIABLE OPERATION:
If we had to cut to survival mode:
Minimum monthly cash needed: $_____
Resulting runway: ___ months
Capabilities preserved: _______________
Capabilities lost: _______________

Stress Testing Framework

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SECTION 6: STRESS TESTING
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SCENARIO ANALYSIS:

SCENARIO 1: MILD DOWNTURN
Revenue impact: -20%
Duration: 6 months

Impact Analysis:
Current monthly revenue: $_____
Reduced monthly revenue: $_____
Revenue lost: $_____ (6 months)
New burn rate: $_____
New runway: ___ months

Required Actions:
☐ _______________
☐ _______________
☐ _______________

Survivability: ☐ Yes, no action ☐ Yes, with cuts ☐ Challenged

SCENARIO 2: SEVERE DOWNTURN
Revenue impact: -40%
Duration: 12 months

Impact Analysis:
Current monthly revenue: $_____
Reduced monthly revenue: $_____
Revenue lost: $_____ (12 months)
New burn rate: $_____
New runway: ___ months

Required Actions:
☐ _______________
☐ _______________
☐ _______________

Survivability: ☐ Yes, no action ☐ Yes, with cuts ☐ Challenged

SCENARIO 3: LARGEST CUSTOMER CHURNS
Revenue at risk: $_____ (___% of ARR)
Impact timeline: Immediate / ___ months notice

Impact Analysis:
Current runway: ___ months
Post-churn burn: $_____
New runway: ___ months

Required Actions:
☐ _______________
☐ _______________
☐ _______________

SCENARIO 4: FUNDRAISE DELAYED
Current runway: ___ months
Planned raise timing: _______________
If delayed 6 months: Need $_____ bridge
If delayed 12 months: Need $_____ or cuts of $_____

Bridge Options:
| Option | Amount | Likelihood | Terms |
|--------|--------|------------|-------|
| Existing investors | $ | H/M/L | |
| Debt/venture debt | $ | H/M/L | |
| Revenue acceleration | $ | H/M/L | |
| Cost cuts | $ | H/M/L | |

SCENARIO 5: COMBINED STRESS
25% revenue decline + largest customer churns + fundraise delayed

Can we survive? ☐ Yes ☐ No
Path to survival: _______________

Capital and Funding Risk

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SECTION 7: CAPITAL RISK
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FUNDING HISTORY:
| Round | Date | Amount | Lead | Valuation | Runway Added |
|-------|------|--------|------|-----------|--------------|
| Seed | | $ | | $ | ___ months |
| Series A | | $ | | $ | ___ months |
| Series B | | $ | | $ | ___ months |

Total raised to date: $_____
Current valuation: $_____
Runway remaining: ___ months

NEXT FUNDING:

Planned next round: _______________
Target amount: $_____
Target timing: _______________
Current progress: ☐ Not started ☐ Early ☐ Active ☐ Term sheets

FUNDRAISING RISK FACTORS:
| Factor | Status | Risk |
|--------|--------|------|
| Market conditions | | H/M/L |
| Company metrics | | H/M/L |
| Investor interest | | H/M/L |
| Competitive funding | | H/M/L |
| Existing investor support | | H/M/L |

If funding doesn't happen:
Default option: _______________
Required changes: _______________
Downside scenario: _______________

ALTERNATIVE FUNDING:

Venture Debt:
☐ Currently have: $_____ available
☐ Could obtain: $_____ (estimated)
☐ Cost: ___% + warrants

Revenue-Based Financing:
☐ Available: $_____ (___x monthly revenue)
☐ Cost: ___% effective rate

Bridge Options:
☐ Insider bridge likely: ☐ Yes ☐ No ☐ Maybe
☐ Bridge amount available: $_____
☐ Bridge terms (estimated): _______________

Financial Risk Dashboard

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SECTION 8: FINANCIAL RISK DASHBOARD
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FINANCIAL RISK SUMMARY:

Overall financial health: ☐ Strong ☐ Good ☐ Caution ☐ At Risk

KEY METRICS DASHBOARD:
| Metric | Value | Threshold | Status |
|--------|-------|-----------|--------|
| Cash runway | ___ mo | >18 mo | ☐ G ☐ Y ☐ R |
| Burn multiple | ___x | <2x | ☐ G ☐ Y ☐ R |
| Net retention | ___% | >110% | ☐ G ☐ Y ☐ R |
| Customer concentration | ___% | <20% | ☐ G ☐ Y ☐ R |
| DSO | ___ days | <45 days | ☐ G ☐ Y ☐ R |
| Gross margin | ___% | >70% | ☐ G ☐ Y ☐ R |

TOP FINANCIAL RISKS:
| Risk | Exposure | Probability | Impact | Mitigation |
|------|----------|-------------|--------|------------|
| 1. | | H/M/L | H/M/L | |
| 2. | | H/M/L | H/M/L | |
| 3. | | H/M/L | H/M/L | |

WATCH LIST:
| Item | Current | Threshold | Trend |
|------|---------|-----------|-------|
| | | | ↑↓→ |
| | | | ↑↓→ |
| | | | ↑↓→ |

UPCOMING ACTIONS:
| Action | Due | Owner | Status |
|--------|-----|-------|--------|
| | | | ☐ On track ☐ At risk |
| | | | ☐ On track ☐ At risk |
| | | | ☐ On track ☐ At risk |

CEO Financial Risk Governance

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CEO FINANCIAL GOVERNANCE
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WEEKLY FINANCIAL REVIEW:
☐ Cash position updated
☐ AR aging reviewed
☐ Bookings/pipeline reviewed
☐ Burn vs. plan compared
☐ Anomalies investigated

MONTHLY FINANCIAL REVIEW:
☐ Full P&L review
☐ Cash flow statement review
☐ Runway calculation updated
☐ Stress test refresh (if needed)
☐ Board update prepared

QUARTERLY FINANCIAL REVIEW:
☐ Comprehensive financial review
☐ All stress scenarios run
☐ Capital planning updated
☐ Board financial deep-dive
☐ Annual plan adjustment (if needed)

CEO FINANCIAL QUESTIONS:

1. How much runway do we have, really?
2. What happens if our biggest customer churns?
3. What's the fastest we could cut to breakeven?
4. When do we need to raise, and what if we can't?
5. What financial metrics would concern our board?

FINANCIAL GUARDRAILS:

Non-negotiable thresholds:
☐ Minimum runway: ___ months
☐ Maximum burn multiple: ___x
☐ Maximum customer concentration: ___%
☐ Minimum cash buffer: $_____

Escalation triggers:
☐ Runway < ___ months → Board notification
☐ Burn > ___% of plan → Immediate review
☐ Customer loss > $_____ → Executive review
☐ AR > ___ days → CFO action plan

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