What is Liabilities?

Liabilities are a company's legal financial debts or obligations that arise from its business operations. They represent what the company owes to others and are reported on the balance sheet. Liabilities are classified as either current (due within one year) or long-term (due after one year).

For Startups: It is crucial for startups to manage their liabilities to maintain solvency and liquidity. Common liabilities for a startup include Accounts Payable (money owed to suppliers), short-term loans, and Deferred Revenue (for SaaS companies with annual contracts). A high level of current liabilities compared to current assets can be a sign of liquidity risk.

Example: A startup's balance sheet shows current liabilities of ₹20 Lakhs (comprising accounts payable and salaries payable) and a long-term loan of ₹50 Lakhs. Its total liabilities are ₹70 Lakhs.