“Few ideas work on the first try. Iteration is key to innovation.”
Sebastion Thrun, German Computer Scientist
To assess the viability of your startup, you need to look at the key turning points mentioned in the earlier section. The key turning points are obtained from the profit and loss account, balance sheet and the cash flow balances.
In your first attempt, you may encounter a situation where the cash flow balance turns positive only after 36 months or never. Or you may have been overoptimistic and the cash flow balance becomes positive in the first few months. Therefore you need to go back to your revenue forecast to make changes. The change can be an increase in the number of products/services sold on month 36 in the case where the cash flow turns positive only after 36 months. For the overoptimistic case, it can be a reduction. Usually, more than one change is needed. The to and fro steps involved in making the changes are known as iterations.
The profit and loss account is a financial statement which shows the cumulative profit or loss of a company obtained after deducting cost of goods/services and expenses from revenue generated over a period such as three months or a year.
The balance sheet is a financial statement which, at a specific date, shows cumulatively what the company owns and what it owes to both creditors and shareholders. What it owns is known as assets and what it owes is liabilities. The amount it owes to shareholders or owners of the company is equity.
The cash flow balance is the amount of cash remaining in the company at a specific date, usually the end of the month or quarter, after deducting the cash outflow from the cash inflow. For the purpose of this app, the cash flow balance can be negative over an extended period without adverse consequences.
Changes that you can make for the iteration are given below:
Assess and Iterate