By-the-Book Debt Risk Assessment
Before performing this self-assessment, make sure to read the article titled Accumulated By-The-Book Debt Will Eventually Come Due at (https://wp.me/p9WJ5p-1lr). After completing the assessment, you can tabulate your total score and associated level of risk but realize this is more about honestly assessing yourself than placing a letter grade on your final result. Use it as a tool for building a great company.
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DISCLAIMER: This assessment was not produced by a licensed attorney or a certified accountant and should only be used as a general assessment and to facilitate discussion with such professionals.
CRITICAL CATEGORY: Are your business accounts and associated activities with them completely separate from your personal ones?
Yes (0 pts)
Partial (5 pts)
No (10 pts)
Bank Accounts
Credit Cards
Salary Payments
Expense Reimbursements
Filings or registrations for various IP (trademarks, website URL, patent filings, etc)
Enter Your Total Score from Above
Your answer
CRITICAL CATEGORY: Do you have formal, signed agreements for important business matters?
Yes (0 pts)
Partial (5 pts)
No (10 pts)
Founder Equity Allocation with Vesting Schedule
Contractors, Advisors and Service Providers
Other Important Business Matters
Enter Your Total Score from Above
Your answer
CRITICAL CATEGORY: Fundraising-Related Issues
Yes (0 pts)
Partial (5 pts)
No (10 pts)
N/A (0 pts)
Were proper approvals/consents put in place before the first investor signed and funded?
Did every investor sign the required documents in the same timeframe as making their investment?
Are all investors accredited, using the SEC definition (if required for your type of funding round)
Enter Your Total Score from Above
Your answer
CRITICAL CATEGORY: Do you have documented board approval for the following actions and decisions?
Yes (0 pts)
Partial (5 pts)
No (10 pts)
N/A (0 pts)
Authorizing shares of stock and issuing them into the company?
Creating a stock option plan
Issuing stock options or warrants
Setting/changing the fair market value of your various classes of stock
Other actions/decisions that require board consent
Enter Your Total Score from Above
Your answer
CRITICAL CATEGORY: Intellectual Property Assignment
Yes (0 pts)
Partial (5 pts)
No (10 pts)
Has every person or entity that has contributed work to the company legally assigned any resulting IP to your company?
Enter Your Score from Above (add an additional +10 points for EACH lack of IP assignment with employees or service providers that are no longer actively engaged with the company)
Your answer
CRITICAL CATEGORY: Use of Open Source Software (OSS)
Yes (0 pts)
Partial (5 pts)
No (10 pts)
N/A (0 pts)
Are all instances of OSS identifiable in your source code (ie - commented/remarked)?
For each instance of OSS, do you know the associated license type?
For each instance of OSS that is licensed in such a way that requires enhancements to be contributed back to the community, have you done so?
Enter Your Total Score from Above
Your answer
CRITICAL CATEGORY: 83(b) Filings with the IRS
Yes (0 pts)
Partial (5 pts)
No (10 pts)
N/A (0 pts)
For each instance of an early stock option exercise or similar action that requires an 83(b) filing with the IRS, was the filing completed within the required timeframe?
For each such instance, do you have a copy of the 83(b) form that was filed?
Enter Your Total Score from Above
Your answer
IMPORTANT CATEGORY: Accounting
Mostly Compliant for Important Items (0 pts)
Somewhat Complaint for Important Items (5 pts)
What are GAAP and IFRS? (20 pts)
How close to US GAAP or international IFRS accounting standards do you follow?
Enter Your Score from Above
Your answer
IMPORTANT CATEGORY: Share Price
True (0 pts)
Not True (10 pts)
Not Applicable (0 pts)
Once we started generating revenue, we took some action to set/change the fair market value of our stock
Once we passed the $25K MRR stage, we had a 409A valuation done
With each equity round of funding, we had a formal 409A valuation done
Enter Your Total Score from Above
Your answer
IMPORTANT CATEGORY: Fee Deferrals
True (0 pts)
Not True (5 pts)
Not Applicable (0 pts)
We know how much in fee deferrals have accrued and when they must be paid
Fee deferrals are reflected in our financials
Our board of directors is aware of our fee deferrals and associated amounts
Enter Your Total Score from Above
Your answer
Enter Your GRAND TOTAL Risk Score (285 is the highest/worst score possible)
Your answer
If you are generating early revenue, multiply your Grand Total by 1.5 and if you are generating more than $1M/yr in revenue, multiply your Grand Total by 2.0. Enter the ADJUSTED GRAND TOTAL below.
Your answer
There is no magic decoder ring to translate your score into a descriptive level of text. Obviously, the higher your score the more you should be concerned with your current state and the more you should take immediate action to remedy critical issues. Feel free to provide feedback about this assessment and/or reflections of your personal situation below.
Your answer
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