Thoroughly understand the Liabilities allows entrepreneurs to anticipate risks, better negotiate with investors and optimize their financial structure.
What are the Liabilities?
In simple terms, the Liabilities (liabilities) represent all those financial obligations that the company has with third parties. It is the money that the company must pay in the future as a result of debts, contractual commitments or acquired liabilities.
In the accounting balance sheet, liabilities are placed on the right side, together with net worth, and are mainly materialized in two categories:
Short-term liabilities (Current)
- Outfitters: outstanding invoices < 12 months.
- Financial debt: credit policies, lines Factoring or bridge loans.
- Tax and labor obligations: VAT, personal income tax withholding, Social Security contributions.
- Advances from customers: Advance revenues that generate delivery commitments.
Long-term liabilities (Non‑current)
- Bank loans: > 12 months, usually with guarantees.
- Deferred public funding: ENISA, CDTI, Horizon Europe, ICO.
- Technological leasing/renting: servers, machinery or fleets.
- Long-term contracts: rentals, Venture Debt, convertible bonds.
Why is it key to understand Liabilities in the startup ecosystem?
Within the entrepreneurial ecosystem, the Liabilities represent much more than just numbers on the balance sheet. Its correct interpretation allows founders to have a clear vision of the financial health of their company, to anticipate potential risks and, above all, to make informed decisions when designing their growth strategy.
In the case of startups, where business models are often intensely leveraged in their early stages (both because of the need for investment in R&D, customer acquisition or internationalization), understanding in detail the financial commitments made is critical. Sustainable indebtedness can be an acceleration tool, allowing companies to achieve key milestones before new rounds of funding. However, overindebtedness or a poorly designed liability structure can stifle cash flows and negatively affect the company's future.
In addition, to know in depth the Liabilities allows founders to manage relationships with the different financial agents of the ecosystem: from private investors, Venture Capital, banking institutions to public funding bodies. Each of them will assess not only the absolute amount of the debt, but also its nature, its conditions and its alignment with the projected business plan.
Therefore, the management of Liabilities cannot be addressed as a purely administrative issue. This is a central axis in the financial strategy of any startup that aspires to solid, orderly and attractive growth for the investment market.
Is it always negative to have Liabilities?
There is a fairly widespread conception among first-time entrepreneurs that any debt is dangerous by definition. However, in the business area, indebtedness (well designed and managed) can be a lever for growth. In fact, it's common for high-growth businesses to use different debt instruments to finance product development, market expansion, or hiring key talent.
Indebtedness, therefore, is not in itself a problem. What really makes the difference is its proportion to the company's cash generation capacity, its financial cost, its contractual flexibility and its strategic fit. For example, a public funding line such as ENISA or CDTI, with very favorable interest conditions and long repayment periods, can be an optimal tool for financing early phases without causing excessive dilution in the founders' capital.
However, the danger appears when debt commitments exceed the company's operating capacity to meet them, especially if the projected cash flows do not materialize at the expected pace. In addition, high interest rate debts, rigid clauses or personal guarantees can negatively affect the company's financial flexibility.
Therefore, indebtedness should not be avoided out of fear, but should be managed with rigor, foresight and professional advice, always integrating it into a global financial strategy that considers both the present needs and the future objectives of the startup.
The impact of Liabilities in the valuation of the startup
When a startup is preparing to raise capital, investors, especially funds from Venture Capital, carefully analyze their financial structure. One of the first aspects they review is the level of total indebtedness, that is, how much the company owes in relation to its own resources. A certain level of debt is normal and can even be positive, but if the volume of liabilities is excessive compared to the capital of the founders or previous rounds, it can generate alarm signals. Investors interpret this as a potential risk of future insolvency or lack of capacity to assume new obligations.
Beyond the total amount, investors delve into three key aspects:
- Ability to pay. They evaluate whether the company generates enough cash to meet debt payments in the short and medium term. This is called the debt service coverage ratio (Debt Service Coverage Ratio, or DSCR). A good sign is that recurring revenues or operating margin are able to cover quotas with ease.
- Contractual conditions. Not all debts are the same. Some include clauses that can anticipate their expiration if the company fails to meet certain milestones (acceleration clauses), or require personal endorsements from the founders. These conditions are analyzed with a magnifying glass during the due diligence.
- Creditor profile. It is also reviewed who has lent the money. Soft public debt (such as ENISA or CDTI) is valued positively because it offers flexible conditions, while bank debt or debt with private investors may be more demanding.
In short, having liabilities is not a problem in and of itself, as long as they are well structured, aligned with expected growth and do not compromise daily operations or the future viability of the company. A transparent, diversified and sustainable debt structure can even work in favor during a round, transmitting financial maturity and professional growth management.
Los Liabilities in public funding: a critical aspect
In the context of public aid, Liabilities they take on even greater relevance, since can directly influence a startup's eligibility for grants and funding programs. Many public bodies and instruments, such as CDTI, ENISA or the European funds of Horizon Europe, impose strict requirements regarding the levels of indebtedness allowed. Exceeding certain debt thresholds can mean direct exclusion from the evaluation process.
In addition, the existence of debts with the Public Administration, either with Social Security or with the Tax Agency, can immediately block the granting of new aid. It is not enough to have a good project; the startup must demonstrate that it is aware of its fiscal and labor obligations, and that it has a financial structure robust enough to co-finance the project and execute it successfully.
For this reason, Intelectium not only helps our clients identify and apply for the most appropriate lines of public funding, but we also work with them to structure and optimize their liabilities. This comprehensive approach is essential to maximize opportunities for access to public funds and ensure sound financial execution of subsidized projects.
Keys to healthy management of Liabilities In startups
Proper management of liabilities is not limited to paying on time. It is a strategic financial discipline that directly impacts the viability of the business. Here are some key practices for ensuring a sustainable liability structure:
1. Regularly monitor your debt ratios. Regular monitoring of indicators such as the debt-to-capital ratio makes it possible to anticipate deviations and act quickly. This monitoring also facilitates dialogue with investors and financial institutions, who value rigor in financial management positively.
2. Diversify your funding sources. You shouldn't rely too much on a single funding channel, especially if it's traditional bank debt. Startups can, and should, combine different sources: grants, soft public debt, investment in equity, etc. This diversity not only reduces financial risk, but also provides greater flexibility in times of treasury tension.
3. Always negotiate the terms of your loans. Many startups accept the financing conditions without questioning them, but aspects such as interest rates, grace periods, commissions and, especially, the personal guarantees required, must be carefully analyzed and negotiated. Good financial advice can make the difference between healthy debt and a burden that is difficult to bear.
4. Strictly comply with your tax and employment obligations. Beyond avoiding sanctions or blockages in obtaining public aid, being up to date with Social Security and the Treasury transmits professionalism and seriousness. It is a sign of good governance and increases the confidence of partners, investors and public administrations.
5. Anticipate the impact of new rounds of funding on liabilities. Each investment round, each new loan or grant, has effects on the balance sheet structure. Integrating this vision into financial planning makes it possible to avoid surprises and to maintain a balanced capital structure. In addition, it provides a coherent and solid narrative during processes of due diligence.
Understand and properly manage Liabilities is a key financial skill for any founder, CFO or startup manager. It's not just an accounting issue: it directly impacts the viability of the business, the ability to attract investment, access to public funding and, ultimately, the company's success.
At Intelectium, we help startups and scaleups to intelligently structure their funding every day, optimizing the balance between debt, grant and equity. If you need professional advice to manage your liabilities and optimize your financing strategy, contact us.
