Most founders I talk to are so focused on operations that two areas often slip through the cracks: finance and legal. That’s not a coincidence. The two overlap more than people realize.

These areas get overlooked for two reasons. First, founders don’t know what they don’t know. Second, they’re heads down in the day-to-day and assume everything’s fine until it isn’t.

Here’s the thing about finance and legal: nothing is a problem until it becomes one. And by the time it becomes one, the cost to fix it has usually compounded. What would’ve been a quick correction early on turns into something far more expensive (in time, money, or both) down the line.

The good news: Stephanie Grey from Counsel & Capital and I put together a self-audit founders can run on their own businesses to spot the gaps before they turn into expensive problems.

Subscribe now

Table of Contents

• Legal Audit, Written by: Stephanie Grey

  • Client & Customer Contracts

  • Vendor & Supplier Contracts

  • People Agreements

  • Intellectual Property

  • Corporate Governance

• CFO Checklist, Written by: Lauren Parla

  • Books & Records

  • Cash & Runway

  • Revenue Recognition

  • Cap Table & Equity

  • Forecasting & Metrics

• Your Next Steps

The Legal Audit: What to Check Before Something Forces You To

By Stephanie Grey, Counsel & Capital

The goal of a legal audit is not to find problems, but instead to find what was never built in the first place. The vendor agreement with no data privacy provision. The contractor relationship with no IP chain of custody. The partnership agreement with no buyout clause. These gaps don’t announce themselves. They show up the day you need the protection that was never there, and by then the cost to fix what should have been built years earlier is always higher than it needed to be.

Counsel & Capital

1. Your Contracts with Clients and Customers

Pull your standard client agreement and read it as if you’re the other side’s lawyer looking for leverage. Review these four sections first.

Start with your payment terms. If your agreement says Net-30 but carries no consequence for late payment, you’ve written your clients a free line of credit. One founder I worked with had $340,000 sitting in receivables while payroll ran every two weeks. She was financing her best customers for free because her agreement had no late payment clause. Adding a 1.5% monthly interest clause on overdue invoices changes the incentive structure immediately and costs nothing to include.

Find your termination clause. If either party can walk without notice, you have no runway to protect your cash flow when a client decides to leave. If neither party can exit cleanly, you’re locked into relationships that have stopped working. A well-drafted termination clause gives both sides a defined exit with reasonable notice and the means to enforce it.

Look at your scope of work definition. Vague scopes create scope creep, payment disputes, and relationships that deteriorate because nobody agreed on what done actually meant. If your agreement describes deliverables in general terms without timelines and revision limits, it will not hold up when someone decides to push back on what they owe you.

Check your IP ownership clause. If you’re creating anything for a client, content, code, strategy documents, creative assets, the agreement should specify clearly who owns the work product and under what conditions.

Worth flagging: if you’re using a template you found online that has never been reviewed by a lawyer, it was written for average situations. Your business is not average and the gaps in a generic template tend to show up at the worst possible moment.

2. Your Contracts with Vendors and Suppliers

Pull your top three vendor agreements, the relationships your business depends on most, and look for three things in each one.

The auto-renewal clause. Most vendor agreements renew automatically with limited cancellation windows. One founder I worked with missed a 30-day cancellation window and was locked into another year at a 20% rate increase with no mechanism to exit. Find the renewal date and the cancellation window for every agreement you’re in and put them in your calendar before you finish this audit.

The data handling provisions. If your vendor has access to your client data, proprietary business information, or internal systems, their agreement should specify how that data is stored, who can access it, whether they can use it to train AI models, and what happens to it when the relationship ends. Most agreements are completely silent on the AI training question. That silence is not a neutral position.

The assignment clause. If you ever sell your business, bring on a partner, or restructure your ownership, your vendor agreements need to transfer to the new entity. A non-assignment clause means the vendor can walk the day your ownership changes. Check every major vendor agreement for this language before you assume the relationship survives a transaction.

This is also where the financial and legal audits overlap most directly. The vendor agreements that carry the highest financial risk to your business are the same ones where a missing clause creates the most legal exposure.

Worth flagging: if any of your critical vendor relationships exist on a handshake, a purchase order, or an email chain, you do not have a contract. You have a relationship that will be interpreted differently by each side the moment something goes wrong.

3. Your People Agreements

This section tends to carry the most expensive gaps, and the problems here compound quietly over time.

For contractors, find the agreement governing each relationship and check for two things specifically. An IP assignment clause confirming that any work product created for your business belongs to your business. And a confidentiality clause protecting your proprietary information, client relationships, and business strategy after the relationship ends. If either is missing, the contractor may own what they built for you and have no legal obligation to protect what they learned while building it.

For employees, check your offer letters and any agreements signed at hire for non-solicitation language, which prevents a departing employee from taking your clients or recruiting your team to a competitor. A $200 clause in an offer letter can protect a client relationship worth significantly more. Most founders skip it because they cannot imagine needing it at the time someone joins.

For both employees and contractors, check whether your agreements correctly classify the relationship. The IRS and most state labor agencies apply specific tests for employee versus contractor classification. If you’ve been treating someone as a contractor who legally qualifies as an employee, the liability for back taxes, benefits, and penalties belongs to you.

Worth flagging: if you have people doing regular, ongoing work for your business under no written agreement at all, that is your most urgent item on this list. Fix it before you address anything else.

4. Your Intellectual Property

Your brand, your content, your proprietary processes, and your technology are assets. Assets need to be owned clearly before you need to defend them.

Check whether your business name and logo are trademarked in the classes relevant to what you actually do. A trademark registration is the mechanism that gives you the right to stop someone else from using your brand in your market. Without one, your recourse when someone infringes is expensive, slow, and uncertain in outcome.

Check whether your domain, social handles, and any product names you’re building toward are secured. Brand assets you don’t own yet are assets someone else can register before you get there.

Check the chain of title on anything a contractor or agency created for you, logos, websites, software, creative assets. If the agreement governing that work had no IP assignment clause, the creator may still own the copyright. This surfaces in due diligence at exactly the moment you can least afford a complication, and it is far cheaper to resolve before a transaction than during one.

Worth flagging: if you’ve been operating under a business name for more than a year without a trademark registration, that is your most time-sensitive IP action item. The longer you build brand equity without protection, the more expensive a conflict becomes.

5. Your Corporate Governance

Check whether your operating agreement or shareholder agreement reflects how your business actually operates today. Agreements drafted at formation often don’t account for the complexity that comes with growth. If your equity splits, decision-making authority, or profit distributions have shifted informally over time, those changes need to be documented formally before they become the source of a dispute.

Check whether you have a buy-sell agreement in place. If a partner wants out, becomes incapacitated, or dies, a buy-sell agreement governs what happens to their ownership interest. Without one, the resolution is adversarial, slow, and determined by a court rather than by the people who built the business together. A $1,500 agreement at formation is worth significantly more than a $150,000 dispute at the moment you need it.

Check your minute books and annual filings. Most states require annual reports and certain corporate actions to be documented in meeting minutes. Leaders who ignore this create a paper trail problem that surfaces in due diligence and complicates any transaction at exactly the wrong moment.

Worth flagging: if your corporate documents are more than three years old and your business has changed materially since they were drafted, schedule a review. A document that no longer reflects your current reality cannot protect your current reality.

CFO Checklist: Proactive Actions to Scale with Ease

By Lauren Parla, The Creative CFO

Similar to what Stephanie shared, the goal of a self-audit or checklist in finance isn’t to find problems (unless you suspect fraud in your business, which is a whole different topic I’ll cover another time). It’s also not to confirm that the numbers are adding up correctly (because this is a given). It’s to identify what’s missing so you can be proactive in your business.

1. Books & Records

When it comes to your numbers, prioritize two things: accuracy and timeliness. Ask yourself: can you produce clean monthly financials within 48 hours, free of material errors?

If the answer is no, it’s time to take action.

I recommend every client have a separate business bank account paired with an accounting software. You don’t need to overdo it here. Bank of America and QuickBooks work fine for most businesses across most industries (I have a post coming on this soon).

Everything needs to reconcile to your business bank statement. Every transaction, even if you’re barely generating revenue, needs to be classified in the right expense category or as capital expenditure.

This matters for three reasons. First, if you’re planning to fundraise, institutional investors move fast, and you need your numbers ready to go. Is it tedious? It can be. Can you hire a bookkeeper or set up automations to make it easier? Absolutely. I don’t care how you get there, as long as you get there. Second, improper classifications could mean you are overpaying or underpaying in taxes. You don’t want to have to pay more taxes than you are obligated to and if you’re underpaying, even if unintentionally, has more consequences than what it’s worth. Lastly, banks will need this information if you are applying for some form of credit or bank loan and you want to demonstrate that your business is a reliable candidate so you can keep everything separate from your personal assets.

2. Cash & Runway

Do you know your burn multiple and your exact runway? If the answer is no, here is an old post of mine that tells you how to calculate them.

Cash is king, as we have all heard a number of times. Cash of course keeps the doors open but runway helps you predict how long your current cash balance can last you.

In the world of startups these numbers need to be front and center at all times because the opportunity costs can be grave to early stage businesses.

CFO Tip: I don’t recommend startups to stockpile cash because this could mean you are underspending on growth and you don’t want to be outpaced by the competition. Cash and runway should be monitored weekly.

3. Revenue Recognition

The IRS and other tax authorities (depending which country your company is registered to do business in) have different requirements to recognize revenue. How you recognize revenue may not necessarily be at the exact moment you receive the cash in your bank account. Revenue recognition can depend if you have client contracts, receive deposits, etc. If you are an enterprise software company and charge annually in advance, you don’t recognize the revenue at the moment you receive the customer payment, you recognize revenue over the length of the contract.

If you are a basic subscription model and charge a monthly recurring fee, then yes, recognize the revenue when you charge your customers. But if you have client contracts which involve deposits, milestones payments or deliverables, etc. it’s worth doing some research with Claude or calling your tax preparer to see if there is anything you should be made aware of.

This will impact the numbers on your reports, and will have a ripple effect on your tax returns and whether you plan on fundraising or even taking out a bank loan. Accuracy is a must. Again, you don’t want to paint the wrong picture for investors or loan officers and no one wants to over or under pay their taxes.

4. Cap Table & Equity

Do you know how your SAFEs or convertible notes will actually dilute you at the next fundraising round? Founder equity dilution is not talked about enough and something I am an advocate for preserving.

Did you sign any term sheets with preferred shares? (Never sign a term sheet with preferred shares).

The last thing a founder wants is to work for 10+ years building a business, sell it for a decent exit price and then walk away with a meager check that is then subject to capital gains tax. Check out this post I wrote titled 15 Things Venture Capitalists Don’t Want Founders to Know.

5. Forecasting & Metrics

Forecasts are a best guess but they are necessary and will be scrutinized if you plan on fundraising or taking on a bank loan.

Is your forecast strong enough and are you well versed to answer an hour or so of questions from prospect investors or loan officers?

Their questions are going to come down to how are you going to execute this plan and what happens when things don’t go according to plan. So if you are projecting 10% year-over-year growth in sales and they come back with “how do you plan on achieving that growth?” the answer needs to be more comprehensive than just “invest more in marketing to acquire new customers”.

They want to know how does this 10% growth track in accordance with your product roadmap, are you introducing new paid features, is there a piece of your core product or technology that you could white label and license out to generate free flowing cash? And again, always have a good answer prepped and primed for when they ask “what happens if things don’t go according to plan?” because they will ask this.

My recommendation is to have a forecast model that has three different scenarios: base, best and worst cases. Feel free to present best or base case but be prepared to answer the questions for the worst case when the time comes.

Besides forecasts, investors want to see your metrics. This is difficult for pre-seed businesses because there isn’t much data or any data to work with yet, but any traction you can show like email signups or a waitlist is beneficial.

Key takeaway: do you know your unit economics cold, the ones that investors actually ask about? Think burn multiple, profit margins, CAC, churn, etc. Any wavering in these conversations are certainly a deal killer.

These metrics are also important even for the bootstrappers who don’t plan to fundraise because they can reveal what is or isn’t working in your business. Is your CAC outrageously high? Pull back on marketing spend or concentrate on certain funnels. Why are so many customers churning after the trial period and is it a product issue or pricing issue? The metrics will reveal more about your business to make impactful decisions and this is how founders will be successful.

Subscribe now

What to Do in the Next 48 Hours

Go through both sections of this audit and write down every item that is either missing or needs updating.

Then do two things before the end of the week. First, identify the one item on your list that would cause the most damage if something went wrong tomorrow. Second, send your top three vendor agreements and your standard client contract to a lawyer for a one-time review, not to overhaul everything, just to find out what’s actually in them.

Most leaders who do this audit are not as far behind as they feared. They have more of the right things in place than they realized and a shorter list of real priorities than they expected. The audit tells you exactly where you stand. What you do with that information in the next 48 hours is what determines whether this exercise changes anything.

Counsel & Capital

This week, from Leadership in Change asked me to guest write on AI adoption this week, from a finance lens specifically. Not “should you adopt AI.” That is quite obvious at this point. The real question is: what happens to your numbers after headcount savings?

Joel coaches AI strategy for leaders at small and mid-sized businesses, so he’s in these conversations daily. His read going into this piece: the question leaders actually want answered isn’t which tool to adopt, it’s what AI is going to do to their numbers. Nobody’s having that conversation beyond headcount savings. He also put together a sharp set of follow up questions at the end of the post with straight answers. I am biased but it’s worth the read, I promise.

Read the full post

Here’s what I keep seeing in AI rollout plans. The cost savings get a full slide or two in the deck. The downside scenarios get a shrug. So that’s what I wrote about: the three financial blind spots that will show up later, not on day one. Below is a quick summary of the points mentioned in the article but the full article has a lot more meat to it and it’s worth checking out for better decision making. Read the full piece here: AI Financial Risk: What Leaders Aren’t Modeling Yet.

In Summary:

1. Vendor pricing isn’t fixed. Your AI subscription costs today are not your AI subscription costs in two years. Read the price increase language in those contracts before you build flat costs into a five year model.

2. The tax bill on headcount cuts. Salary savings become taxable income. Tax legislation around AI driven layoffs is still being written. If your board deck shows savings without a tax line, it’s not done yet.

3. Your customers might be somebody’s (former) employee. If AI eliminates jobs at scale, some of those people were your customers. Stress test what happens to revenue when your market shrinks, not just what happens to costs.

That’s the quick version. Each of the three items above get a full breakdown in the post, plus a CFO Tip telling you exactly what to do about it, not just what to worry about. Read the full post here.

If you’re a founder: this matters at fundraise time. If your projections lean on AI driven savings, expect investors to ask whether you’ve modeled the downside. Better to walk in having already done it. If you want help actually building that model instead of just thinking about it, that’s what my 1:1 office hours sessions are for.

If you’re a VC: this is portfolio level risk. Any company leaning hard into AI cost savings without pricing risk, tax exposure, or demand contraction modeled in has an incomplete forecast. Are you examining this enough?

Full piece, with the numbers, Joel’s leader-questions section, and what to actually do about each blind spot, is here → AI Financial Risk: What Leaders Aren’t Modeling Yet

And if this is your kind of thing, this is what I write every month at The Creative CFO. A few ways to go deeper:

Subscribe now

Paid: a monthly deep dive into the financial decisions founders actually face, with frameworks to navigate them. Plus the subscriber chat for your own finance questions, and full access to the archive. Month to month.

Upgrade to Paid

Founder’s Circle: a 12 month subscription, paid annually. Everything in Paid, plus a full 12 months of archive access and one 90-minute session with me focused entirely on your business.

Founder's Circle

The effort required to make your first dollar is not the same effort required to make $100K or $1M. But once you earn that first dollar, you’ve proven that your business has potential; it’s just a matter of how far you want to take it.

What follows is a breakdown of three revenue milestones on the road to $1M and the financial decisions that determine whether you make it through each one. The stages are not just about revenue. They are about whether your financial foundation is strong enough to support the business you are trying to build at each level. Most founders focus on the top line. This post focuses on everything underneath it.

Whether you are navigating these stages for the first time or looking to identify the gaps you might have missed along the way this post is written for both.

Share

$0 – $100K | The Proof Stage

Everyone talks about validation at this stage but almost nobody talks about what validation actually costs and whether the math works once you get there. This stage is about demonstrating that your idea has enough substance and value to get people to pay you for it consistently, not just once.

What Validation Actually Means Financially

There is a narrative in founder circles that scaling to $100K in recurring revenue means you have a viable business. The reality is more nuanced and as your candid CFO I would be doing you a disservice if I did not address it honestly.

$100K in revenue sounds significant until you run the numbers. At this stage your expenses are likely modest, think branding costs, AI tools and subscriptions, hosting, some early marketing spend, and maybe a contractor or two helping you build or deliver. But your biggest investment at this stage is your time, and most founders at this stage are not paying themselves yet.

Here is what the math actually looks like. If you are generating $100K in revenue and your operating expenses sit somewhere between $20K and $40K depending on your business model, you are left with $60K to $80K in gross profit before taxes. After taxes and the reinvestment required to get to the next milestone, the number left over is often uncomfortably small. And if you factor in what your time is actually worth the picture becomes even clearer. $100K is a proof point, not a destination. It tells you the idea works. It does not tell you the business is financially sustainable yet.

Understanding this math early is what separates founders who make it to $500K from those who plateau thinking they have already figured it out.

The Pricing Problem Most Founders Ignore

Pricing is the most consequential financial decision you will make at this stage and most founders get it wrong in the same way. They price based on gut feel, competitor research, or what they think the market will bear without ever calculating whether the number they land on can actually support a real business.

Before you focus on growth, marketing, or hiring, run the math on a single sale. Does the revenue from that transaction cover your direct costs, a fair value for your time, and a contribution toward your operating expenses? If the answer is no, your pricing needs to change before you scale anything. Scaling broken unit economics does not fix them. It amplifies them.

Your pricing also needs to account for your salary as a founder. This is not optional and it is not something you figure out later. If you want to understand how to build your salary into your pricing model from day one I break down the exact framework I use with clients in my founder salary post here.

The Financial Habits to Build at This Stage

The financial decisions you make at this stage create either a strong foundation or a problem you will spend the next two years trying to fix. Here is your financial priority list before you hit $100K:

• Create a legal entity before you make your first sale. Operating without one exposes your personal assets to liability and creates tax complications that are expensive to unwind later. I have a full breakdown of legal structures and what they mean for founders here.

• Open a separate business bank account immediately. Mixing personal and business finances is one of the most common and most costly mistakes early stage founders make. It complicates your taxes, obscures your true burn rate, and will create serious problems if you ever go through due diligence with an investor.

• Know your burn rate. Even if your expenses are modest right now knowing your monthly burn and projecting it forward is a non-negotiable habit. If you are not sure how to calculate it, my burn rate post walks through the formula and what to do with the number once you have it. Link here.

• Monitor your cash flow weekly. A 12-week forward looking cash flow view is the single most useful financial tool at this stage. It tells you where the gaps are before they become a crisis and gives you enough time to do something about it. I covered the exact system I use with founders in my cash flow post here.

• Separate your tax obligations from your operating cash from day one. Every time revenue hits move a percentage into a separate account earmarked for taxes. The exact percentage varies depending on your location and business structure but the habit is universal and will save you from one of the most painful surprises a first time founder can face.

If you want a second set of eyes on your numbers, my office hours sessions are designed exactly for this. One 90-minute session can surface the cracks before they become a crisis. Book here.

Office Hours

$100K – $500K | Where Most Founders Break

This stage is where revenue looks promising but the financial cracks start to show. What follows is what I see most consistently when founders hit this wall and what to do before it becomes a crisis.

Read more

Welcome back! This week’s post is starting off as a Debbie Downer but by the end you’ll have the insights necessary to be proactive in your business.

So here’s the truth: the vast majority of startups fail because they run out of cash before they run out of ideas. Some sources say 90% of startups fail, other research states that 75% of startups fail over a ten year period. Regardless of which source you go with, a high percentage of early stage businesses fail in large part due to cash (or lack thereof).

Burn rate is the metric that tells you how much time your business has left and most founders either do not know theirs or only look at it when it is already a problem. This post gives you the foresight needed for managing cash flow.

Share

Burn rate refers to the rate at which a business is spending its cash reserves before generating positive cash flow. Understanding and managing burn rate is essential for financial sustainability, regardless of industry, company size, or business model.

Types of Burn Rates

1. Gross Burn Rate: Total monthly expenses, including fixed and variable costs.

2. Net Burn Rate: Monthly expenses minus revenue, indicating whether a company has positive or negative cash flow.

What Is a ‘Good’ Burn Rate?

A healthy burn rate varies by business model, industry, and growth stage. However, as a general rule, a company should have enough cash on hand to cover 3-6 months of expenses, we refer to this as runway.

For venture backed startups however, things are viewed slightly differently and the 3-6 month rule doesn’t always satisfy VCs. Some VCs like to see 18 to 24 months of runway between funding rounds. The rationale here is because growth is prioritized over profitability and investors expect founders to deploy capital aggressively between rounds.

Tip: hoarding cash for a rainy day isn’t always the answer here. I have seen a handful of use cases where the founder received funding, were afraid to spend the cash, and instead the business was outpaced by the competition, stagnated and then eventually closed. There is an opportunity cost to everything and stockpiling cash to satisfy this 3-6 month rule may not necessarily satisfy your business goals.

How to Calculate Runway

Runway is the amount of time your business can continue operating before running out of cash. To calculate it:

Runway = Cash Balance / Net Burn Rate

For example: if your company has a bank balance of $500,000 and a net burn rate of $50,000 per month, your runway is 10 months ($500,000 / $50,000). This simple formula helps business owners understand their financial timeline and make strategic decisions accordingly.

When Is Burn Rate Most Relevant?

Always. While burn rate is typically calculated on a monthly basis, businesses should monitor cash at least weekly to identify trends and potential issues before they escalate.

A proactive approach includes:

• Scenario planning: Create multiple versions of your financial plan to prepare for best-case, base-case, and worst-case scenarios.

• Operational adjustments: If burn rate is too high, explore cost-cutting measures by doing an audit of your suppliers/vendors, renegotiate contracts for more favorable payment terms, and/or identify new revenue streams (ex: can you license a piece of your technology to generate free flowing cash?).

• Audit your founder compensation. Unplanned or inconsistent founder salary is one of the most common drivers of an unsustainable burn rate. If you are not sure what to pay yourself my founder salary post walks through the exact frameworks I use with clients. Link here.

Office Hours:

If you want to run through your burn rate and runway numbers together, that is exactly what my office hours sessions are designed for. One 90-minute session can tell you where you stand and what to do about it.

Office Hours

In case you missed it:

Why Your Bank Account is Empty Even Though You Are Making Money: The cash flow gap is one of the most common financial blind spots for early stage founders. Here is how to diagnose it and fix it.

15 Things Venture Capitalists Don’t Want Founders to Know: What I learned after a decade sitting across from VCs and private equity firms. Read this before you take a meeting.

The numbers above tell part of the story. What comes next is what separates founders who raise successfully from those who don't. If you are heading into a pitch room or planning to, this is the section you cannot afford to skip.

What VCs Actually Want to See

Read more

I spent over a decade sitting across the table from VCs and PE firms on behalf of the companies I worked for, first as an employee of their portfolio companies and now as a Fractional CFO for founders. Here is what most founders only learn after they have already signed something.

Everything in this newsletter is not intended to deter you from pursuing institutional capital, but rather to make sure you walk into the experience with your eyes open. The founders who do best with VC funding are not the ones who got the best deal on paper, they are the ones who understand the deal they were actually making.

Point six is the most critical point in this entire newsletter. If it appears on your term sheet, do not sign it. Accepting these terms can cost you millions at exit time after years (or decades) of building something extraordinary.

The key takeaway after reading this article is that you can, in fact, negotiate all of this.

Navigating a term sheet, preparing for a pitch, or trying to make sense of your cap table before a raise are exactly the kinds of problems I work through with founders in my office hours sessions. If you want a second set of eyes before you sign anything or walk into a room with a VC, that is what these 90 minute sessions are for.

Book a Session

1. Fundraising is a full-time job

On top of running your business, you’ll need to create a compelling pitch deck, network relentlessly, get warm introductions, pitch, and, if successful, navigate term sheets and exhaustive due diligence. The networking piece is the most important and really the only fast-track way to get yourself in front of VCs, however, relationships take time to foster.

Pro Tip: Focus on building relationships with Founders in a VCs existing portfolio to get the most impactful warm introductions.

2. Management Fees

Management fees are how VCs generate revenue to operate their funds. Typically these fees are around 2% annually, paid by the investors in the fund (not the startups). When a VC invests in your company, they may take a board seat or actively support you with advice and connections, but you do not pay them a fee out of the check you received.

3. They’ll ask for references

You’ll submit professional references to speak to the testaments of your career and also serve as character references that speak to your grit and determination. You’re essentially entering into a long-term relationship with the VCs and they want to ensure their money is safe.

They can and will discreetly contact people you didn’t list as references thanks to the information that is readily available on LinkedIn. They know your list of references are going to speak your praises, they want to find people that aren’t prepped and polished with answers.

4. Their loyalty lies elsewhere

VCs have a fiduciary responsibility to their investors (LPs), not to you. They are legally bound to prioritize their backers’ returns, even at your expense. So keep this in mind when inevitably tough times surface.

5. Due diligence goes both ways

Most founders think due diligence is something VCs do to them and they don’t realize they should be performing their own due diligence on the VC in return.

I recommend my clients to ask for founder references and speak with founders in the VC’s existing portfolio. In these conversations with portco founders, its important to understand what was the behavior from the firm when their company hit a rough patch or didn’t hit their targets.

The next 10 points are where founders can get burned and these are the term sheet and exit realities that rarely get explained before a deal is signed.

Read more

I have spoken with hundreds of founders and business owners and a popular question among many comes up regarding their compensation as the founder and owner of the business.

Most founders who are planning on fundraising put a modest salary in their projections. I’m talking modest as in: not enough to live on. Their rationale is that this level of modesty will be attractive to prospective investors.

This is utter bs.

The Creative CFO is a reader supported newsletter and the best way to support my work is to like, comment or share this post if you found it valuable. It is greatly appreciated.

Share

My main objective with this newsletter is to be a resource to founders. With that, I am thinking of implementing something new: allowing founders to submit their financials or pitch decks to me and I can provide feedback in future newsletters. Leave your feedback in the Chat or leave a comment on this post if this is something you are interested in.

A prospective investor isn’t going to invest in you for this reason alone and in fact, they are going to question this rationale. The reasoning here is this: investors are investing in the founder(s) more so than the business idea.

Investors want to ensure they are going to receive some sort of ROI on their money and the only way that is going to happen is if the founder can drive this venture forward with undivided attention.

Running a company is no small feat; it’s tiring, an uphill battle consisting of long days and years (maybe even a decade or more) building the plane as you’re flying it. If the founder is paying themselves minimum wage without any other form of compensation (i.e. if you have a trust fund or a partner who can support you financially, or some other form of investment or capital that you can live off of) then this level of modesty isn’t going to be appreciated. It will most likely lead to someone not investing in your start up because it isn’t sustainable.

How can a you, as the founder, go all in on a business if you barely have enough money to live off of (especially in this economy)? The last thing any investor wants is to see a founder have to go out and get a second job or take on consulting clients in order to pay their bills. This approach leads to higher risks of burnout and split attention which are key indicators that will kill someone’s ROI.

Before You Pay Yourself, Read This

And if you read this and you start thinking to yourself, “oh I will hold off on paying myself until the profits start coming in and once that happens then I will determine how much I can afford to pay myself”. This isn’t a strategy either.

Paying yourself is not an afterthought, it is a line item that belongs in your pricing model from day one just like you would with any other expense.

Before we get into the frameworks and tips I provide my consulting clients, a quick but important note on compliance. How you pay yourself is not just a strategy decision, it is a legal one.

Your company structure determines what payment methods are available to you and what taxes you are on the hook for. If you are not clear on your structure or your tax obligations, I have two archived posts that break this down in plain english specifically for founders. These are among the most referenced posts in The Creative CFO library and worth bookmarking before you make any decisions about your compensation. These posts are U.S. specific but are helpful for international founders who might be planning on opening a legal entity in the U.S. in the future (some U.S. based investors might require this). Access the archived posts here: Choosing the Right Legal Entity & Taxes Made Simple.

Share

The Two Salary Frameworks I Share With Every Client

Below I am breaking down the two salary frameworks I share with my clients depending on where you are in your business journey. Whether you are self-funded, planning to fundraise, or somewhere in between, these approaches will give you a starting point and the specific numbers to anchor your planning around.

It is also worth noting that in addition to company legal structure, geographical location is something to be considered when determining your salary especially in the early days. A founder in San Francisco is going to need a higher salary than a founder located in Austin, do your due diligence and take stock of your personal expenses and cost of living to see what is actually feasible. These are the benchmarks I start all of my clients with and we adapt depending on each individual use case. Use these numbers as your starting point, not your ceiling.

The framework you choose depends less on how long you have been in business and more on how you are funding it.

Framework One

Start with your income goal. Not the number you can afford to pay yourself now, but a comfortable wage that allows you to fund your lifestyle, contribute to savings and retirement, and then factor in your tax obligations. My baseline for my founders is $120,000 and we make adjustments as needed depending on their personal situation and geographical location.

(Goal Annual Salary + Annual Operating Expenses) X (100% + Target Profit Margin %) = Target Annual Revenue

Once you determine your ideal base salary, add in your operating expenses, then factor in your target profit margin (20-30% is a good starting point). That total becomes the revenue figure your business needs to generate and your pricing needs to reflect these numbers. If your business is just starting out, the revenue might not be there to support a six figure salary, which is okay and quite common. You can make the cash payments when your bank balance and cash projections support this (catch up on last week’s post where I share my top 5 tips for managing cash flow like a CFO).

The inputs will look different if you are a freelancer billing hourly versus a SaaS founder pricing a subscription, but the logic is the same: your salary is not what is left over. It is a line item you build the business around.

Appropriate salaries for founders who are fundraising and how to navigate those conversations in a pitch meeting are available to paid subscribers below.

Read more

On paper your business is profitable but when you login to your company bank account, the balance is low or overdrawn (we’ve all been there). And the main take away here is: profit doesn’t equal cash.

The Creative CFO is a reader supported newsletter and the best way to support my work is to like, comment or share this post if you found it valuable. It is greatly appreciated.

Share

My main objective with this newsletter is to be a resource to founders. With that, I am thinking of implementing something new: allowing founders to submit their financials or pitch decks to me and I can provide feedback in future newsletters. Submissions can be anonymous and key financial information can be changed for privacy reasons, but the goal is to provide use cases for other founders so we can grow as a community. Leave your feedback in the Chat if this is something you are interested in.

The Financial Statement Mechanics Behind the Problem

Before we dive into the solution to this week’s problem, here are some financial statement mechanics that could be useful to those that might not be familiar.

There are four core financial statements:

1. Balance Sheet

2. Income Statement (aka: Profit and Loss Statement or P&L, for short)

3. Statement of Cash Flows

4. Statement of Owner’s Equity

These four financial statements are the language of your business and if interpreted properly, will reveal all of the insights necessary into what has or hasn’t been working in your business. Now what the average person may not know is that all four financial statements are connected. I.e. if there is an error on one, then the others might be incorrect as well. It’s also important to note that these financial statements are meant to look back at your company performance and be used as a baseline for future projections and fuel insights into decisions made within the business. There are also regulatory factors at play here because these are what banks, investors, and stakeholders use to make decisions so it’s imperative for financial statements to be prepared properly (and these regulations can be country specific).

Financial statements are always a look in the rearview mirror of a business and cover a particular moment in time or a period of time.

In relation to today’s topic, “why your bank account is empty even though you are making money” we are focusing on three of the four financial statements: Income Statement, Balance Sheet, and Statement of Cash Flows and the main takeaway here is: they are not equal but rather interconnected.

Your Net Income / Net Loss reported on the income statement will never, ever match your bank balance (I have had clients not understand this concept before). And the cash balance displayed on the Balance Sheet, must tie in to the opening and ending cash positions at the beginning and end of your fiscal year displayed on your Statement of Cash Flows.

The purpose of the income statement is to understand the income or loss generated from business activities over the course of a period of time (monthly, quarterly or annually). While the Statement of Cash Flows shows all of the cash inflows and outflows over the course of a year. And the Balance Sheet looks at your net position on a particular date, usually the last day of the reporting period whether that is monthly, quarterly, or annually.

The income statement also needs to abide by certain regulatory requirements because there are rules associated with how some revenue and expenses can be reported.

Use Case

Here’s a use case: Company A is an enterprise SaaS company. Their fiscal year follows a traditional calendar year January 1 - December 31. In July, Company A sold their product to a new customer and the terms of the sale indicate the client must pay annually in advance. The cost of the contract was $100,000 and covers a period of July 1 - June 30 of the following year.

Company A’s Income Statement will now report $50,000 in revenue, only half of the contract value, because that’s what was recognized in accordance with revenue recognition principles (ASC 606 to be specific).

Company A’s Statement of Cash Flows will now report the full $100,000 because this is how much cash was received from the client within the fiscal year.

Company A’s Balance Sheet will reflect a cash position net any cash outflows incurred.

This distinction is key because it shows that profit and cash are not equal.

So What Does This Mean for Your Business

So where does this leave the founder staring at an empty bank account in a profitable month?

This problem is common (especially among early stage businesses) and is almost always caused by timing.

If you are looking at your numbers right now and feeling like you need a second set of eyes, my office hour sessions are designed exactly for this. 90 minutes of undivided attention. One session can surface a cash flow leak, a missed revenue opportunity, or a tweak to your pitch deck that makes your business easier to invest in. Book a session here.

These five habits work together as a system, starting with what you can implement immediately in your business and building toward more strategic recommendations that help you plan ahead. These steps are what a CFO would bring to your business if you were to hire one today.

1. Monitor cash flow weekly (I like to do this on Thursday afternoons). Create a simple waterfall cash report (ask AI to build one for you in Claude) that tracks the cash inflows and outflows and project it out 12 weeks so you can visualize where the money is going. When you see cash dipping below comfort levels, plan accordingly.

Read more

“I should probably know this by now.”

This is the most common sentence I hear from founders and business owners when the conversation turns to their finances.

It’s January, which means that if you have a December 31 year-end, your focus right now should be closing out the books for 2025 and preparing everything for your tax…

Read more

Last Saturday I deleted the TikTok app from my phone. Without getting into the details of my screen time or why it took me this long, here’s what I’ve noticed over the past week (and counting).

I’m more in tune with my body.
Whenever I felt stressed or uncertain, TikTok was my go-to numbing agent to avoid discomfort. Now I …

Read more

Whether you’re a Substack writer, content creator, founder, business owner, or freelancer, you can’t afford to misunderstand your finances.

I’m not talking about your investment portfolio or emergency savings account. I’m talking about reading your numbers, interpreting them, and understanding what drives them.

The realm …

Read more

I don’t know who needs to hear this, but if you’re a founder planning to raise VC dollars this year, your window of opportunity is quickly closing.

In the venture world, while investors technically accept pitches year-round, the real momentum happens twice a year in September and January. Things slow down considerably a…

Read more

To my existing subscribers, welcome back! And if you’re new here, benvenuti (welcome)! Below is a list of previous posts that I believe can help you on your founder/entrepreneurial/business owner journey.

This week’s topic is all about Free Cash Flow (FCF): what is it, how to calculate it, what this looks like in business, why FCF is your ticket to retaining your equity and avoid taking on debt. Jump to read about FCF.

Posts to Catch Up On

Managing Cash Flow for Startups (includes a rolling 12-week forecast and runway calculator)

Understanding the Exit Landscape: What Founders Overlook About Investors

The Art of Budgeting (includes a high-level budget template)

Founder’s Guide to U.S. Legal Entities & Taxes

13 Things Venture Capitalists Don’t Want Founders to Know (number 6 is the most important)

Run Your Business Like a Software Company Series - Key Metrics to Stay on Top Of: Revenue Per Employee , Burn Rate , Understanding Churn , Rule of 40 , Customer Acquisition Costs & Customer Lifetime Value.

Subscribe now

Weekly Updates

This week I had the opportunity to go to the Marche Region of Italy. Located on the Adriatic Coast with beautiful beaches, generous hospitality and home of shoe making. I am going to share more about this experience in a separate post because the visit was in part to see prospect suppliers for my brand PARLA and to meet with a prospect client who needs help on the finance side of things. This was definitely a pinch me moment as I shared a few weeks ago on my Substack that the goal is to grow and scale PARLA and then launch my on VC firm with the mission of investing in female founders since less than 2% of VC dollars goes to female founded businesses.

After returning to Milan, I had my first two days of calls with female founders from TikTok. I posted a video a few weeks ago asking to chat for 15 minutes with female founders, a time and safe space for them to vent about literally anything and everything. The response was overwhelmingly positive and received more views than usual. If you are able to, I highly recommend doing this in your space. The community building, knowledge sharing, insights and good conversation were beyond worth it. I will be doing this again in the future given the response this video received.

The downside to this is that I had to hit pause as my calendar is booked up for the next two weeks. There were also a few situations when people who reserved the time, didn’t show up. I don’t love the idea of implementing a refundable fee, if you show up you get it back, if you don’t show up then it’s non-refundable. TikTok suggested I just charge a flat fee for these 15 minutes but friends highly discouraged this. Oh the joys of building in public and getting unsolicited advice from people who are not your target audience.

In all of the conversations I had this week between site visits and founder calls, here is what I heard on repeat:

“I need investors for my business. I will use this money [hundreds of thousands of dollars/euro] and invest it in growth and marketing”.

I’m going to be blunt: this is an over simplified approach and I don’t agree with this method for 80% of the businesses I encountered this week.

Here’s what I recommend: find a way to generate free flowing cash and you will be golden.

Access to capital is a major concern for many founders, and even though I am not pro VC1, I do want to share resources that help create a bridge between founders and access to the right kind of capital. I am brainstorming different ways to bring this to light via my Substack.

I would love for this to be a place to connect founders to non-traditional investors. Think individuals who can write smaller checks to early-stage businesses as part of a family and friends round to help push off an institutional raise as long as possible.

Let me know what you would be interested in seeing both from an investor and founder perspective via comments or DM.

Free Cash Flow

Free Cash Flow, also known as FCF in the realm of finance. It’s the money that is left over after a business pays its operating expenses (OpEx) and Capital Expenditures (CapEx). Think of it this way: it’s the amount of cash generated that is free and clear of all internal or external obligations. (Pro tip: this is critical to consider when it comes time to Exit and is separate from EBITDA). Here’s how to calculate FCF:

FCF = Cash From Operations - Capital Expenditures

You might be rolling your eyes right now because this concept seems rather obvious. Some of the founders I spoke to this week didn’t want anything to do with this approach, they rather I just gave them quick tips for attracting investors.

How to Generate FCF

The easiest way to generate FCF is if you can create a MVP (minimum viable product) which can easily generate revenue without much costs associated with generating that revenue.

I’ll give you an example from my days working in corporate. I once worked for an enterprise software company, we had a SaaS business model. The software platform itself was an internal communications software, it was a software companies would use to communicate to their thousands of employees across many geos. The benefit of the software was that it delivered analytics that regular email couldn’t deliver in terms of open rates and who actually followed through with the calls-to-action. It also didn’t allow for employees to unsubscribe from important company announcements. Now, originally the company started off selling this software to companies to use as an email marketing software. We pivoted to the internal comms space after a decade or so in the business.

The platform was the same but had two different intended uses: external communications for companies using this as their marketing software and the second was our ICP who was using this to communicate with their employees.

The software from an external comms perspective was bare bones and we stopped making advancements to the platform for this purpose of marketing. We also stopped investing in ad spend and sales reps to sell the platform as a marketing software. Given this information, as long as the customers on the external comms side still paid and renewed their contracts, we were happy to still provide the software to them. Of course they received technical support and assistance as part of their contract but this was legacy money that just kept renewing year after year for us. There were essentially no costs with generating this revenue and this was our FCF which helped finance the business for so long without taking on debt or giving away equity too early. This is how we continued to advance our product on the internal comms side and allowed us to invest in growth and marketing for our ICP as a self-funded entity.

I spoke with a few founders this week and this was exactly my recommendation to them. This approach offers two major benefits as well:

1. Equity Preservation. Early-stage founders often overlook how much equity they give away early on. Without realizing the concept of equity dilution which means, after years and maybe decades of hard work, your check isn’t as big as you think it’s going to be. Don’t forget that whatever you receive is subject to capital gains tax as well.

2. Time Saver. Fundraising is no easy feat and you can’t predict when that money will come in. It’s a full-time job within itself, on top of all of your responsibilities as a founder trying to build the thing. And we haven’t even mentioned balancing personal responsibilities. People also don’t understand how long it takes to find the right investors, it can take months and even a year or more to get in front of the right people and get them to write a check.

Different Approaches to Generating FCF

Different business models will allow for different ways to generate FCF. You as the founder should get creative with this approach. Here are a few of my recommendations for generating FCF and you should select which one is best for your business model. This is not an exhaustive list but rather successful ones that I have used in business throughout my career.

Read more

The survival and longevity of your business depends solely on cash flow. That’s it. No other metric or fancy reporting matters because unfortunately, you can’t pay your bills with email signups, new free subscribers, and impressive waiting lists. If only it were that easy.

I want to preface this post with two things:

1. I don’t believe that every founder, business model or idea needs investors to back it. In some cases, I actually advise against it. I talk a little about this in regards to my own business in my last Substack post which you can read here: Understanding the Exit Landscape: What Founders Overlook About Investors.

2. You don’t need more money to throw at marketing. If you believe the reason for low sales or attracting paying customers is due to “a marketing issue”, I’m going to hold your hand when I say this: this is an oversimplified approach and quite ignorant coming from the founder. The issue isn’t your marketing and it’s not about investing in “experts” to dive into the psychology behind your brand colors. Focus on quality lead conversions rather than mass distribution and quality insights will come to you to move you forward towards cash flow.

A rolling cash forecast template & runway calculator are available to paid subscribers and can be found at the end of this post along with other paid subscriber resources.

Upgrade Membership

The Creative CFO is a resource for founders, business owners, and entrepreneurs to gain clarity around business finances so they can grow with intention. Paid subscribers get priority booking to my calendar to book 1:1 strategy sessions. On-demand CFO members receive 12 months of support through a private Slack channel and monthly office hour sessions via Zoom. These options are ideal for founders who need real-time, ongoing support with their business finances.

Cash Reporting

In the realm of finance you will most likely hear about to common reports: Statement of Cash Flows and a rolling cash forecast. These are two different things.

A Statement of Cash Flows is an official financial statement for your company’s fiscal year1. It is past looking and created after the fiscal year is over. (I’m gonna be honest with you here, don’t worry about the statement of cash flows for a startup, it’s noise. When your business reaches a stage where it will be required to have one, designated professionals will be preparing this for you.)

A rolling cash forecast is usually a 12-week projection focused on short-term cash management to allow immediate foresight into the ebbs and flows of cash in the coming weeks. This doesn’t have to be anything fancy, every rolling cash forecast I have ever seen has been done in excel. (An example template is provided at the end of this post for paid subscribers only).

Upgrade

Cash Metrics

There are three primary metrics that CFOs are always on top of when it comes to cash. If you’re a solo founder and you’re acting as your own CFO, these metrics are not negotiable.

Gross Burn Rate: Total monthly expenses, including fixed and variable costs.

Net Burn Rate: Monthly expenses minus monthly revenue, indicating whether a company has a positive or negative monthly cash flow.

Runway: The amount of time (in months) your business can continue operating before running out of cash.

Runway = Cash Balance / Net Burn Rate

Runway for Startups

In the realm of personal finance, we’re told to have 3-6 months of cash on hand for emergency savings. Of course if you can save more than this, the better off you will be in the case of an emergency.

In the realm of startups, the 3-6 month rule applies but it’s not always wise to stockpile cash for a rainy day. I.e. you’re not necessarily better off have 6+ months worth of expenses saved for your startup. I tell my clients a healthy runway for startups is 3-6 months worth of expenses and not more. Here’s why:

Read more

I’ve been quiet here on Substack for the last few weeks. This four week sabbatical I’ve (unintentionally) taken from Substack was in large part due to my creative endeavors picking up.

I’ve shared before that I transitioned out of the corporate world two years ago and wanted to pursue a path more fulfilling and one where I could indulge my creativity in pursuit of my childhood dream of becoming a fashion designer. So, two years ago I left behind a decade long career, my friends, my family and everything that was familiar to move to Milan, Italy in pursuit of that dream. I drastically underestimated the work it would take to get to where I am today.

During these two years I’ve tried my fair share of alternative ways to generate an income. Dabbling in the realm of fashion and content creation but ultimately realizing my passion for helping founders was a good way to launch fractional CFO and consulting services, which then sparked the creation of The Creative CFO. This work is something I’m truly passionate about as education and providing valuable insights to founders is at the core of what I do. I deliver my work through a partnership lens; not just a service provider.

Jump to resources for paid subscribers.

Subscribe now

Calling Women in Venture Capital and Private Equity

This fall, I will debut my first capsule collection of women’s suits in Milan, Italy. The event is invitation only. Please email ciao@parlaapparel.com if you would like to be included on the guest list and receive details.

Founder Update

At this point, I have invested significant time and money into creating a made-to-measure line of women’s suits, learning Italian, and navigating the bureaucracy of living abroad. Even Italians tell me how complicated their own system is. On top of that, I’ve been making friends in a new city, building professional connections, and working on positioning my personal brand as both a finance and fashion expert. I am still figuring out how to merge the two seamlessly.

The ultimate goal is to scale my brand, PARLA, and eventually launch my own venture capital firm so I can continue to invest in female founders.

These past few weeks have been a turning point. My fractional CFO work slowed as larger client contracts wrapped up for the summer, giving me the opportunity to focus almost exclusively on PARLA.

After five years, many false starts, pivots, and tens of thousands of dollars invested in consultants, prototypes, and inventory that delivered no ROI, I finally picked up my first collection. I am elated. I owe this success largely to my sartoria, a skilled artisan and high-tailor in Italy who took a chance on la ragazza americana che non parla bene italiano. What began as weekly three-hour lessons in tailoring (and a crash course in Italian) has grown into a partnership. She and her small team are now producing my capsule collections.

I’m choosing a soft launch for PARLA. I will travel to clients for private appointments in their homes or offices, followed by a more strategic launch with my network of personal stylists. What started as a creative outlet shifted after I learned more about the darker sides of the fashion industry and the precision required in high tailoring.

Raising Capital for PARLA?

People often ask what I plan to do about investors given my professional experience and network.

Not long ago, I seriously considered raising capital. I’ll admit this was partly out of desperation, as I made (yet another) withdrawal from my investment accounts to fund PARLA while still being months away from generating revenue, let alone profit.

In short, my business model does not appeal to traditional investors. Nothing about it is scalable. The value lies in craftsmanship, quality, and distribution. This is a long game to create the valuation of a luxury fashion house. The market is also saturated with clothing brands. Even with a unique value proposition, scalability is not the goal. True, sustainable luxury cannot exist in mass production. Everything in my line is customized for the individual client. Hand-finished details cannot be streamlined with machinery, which means efficiencies aren’t possible. That alone is a red flag for private equity investors.

Could I take on family and friends as investors? Yes. However, when I set up my company years ago, I created an LLC because raising capital was not part of the plan at that time. LLCs are pass-through tax entities in the U.S.. Honestly, I do not want the added burden of creating and distributing K-1s to shareholders at the end of each tax year. Could I change the legal entity type? Yes. Do I want to create that extra work for myself right now? Absolutely not. My focus is on launching PARLA and building the right sales and distribution channels; not adding more administrative hurdles.

Understanding the Exit Landscape

You need to understand the long game here. Most founders think, “I have an idea, I’ll get investors to fund it, and they’ll make their money back when we exit.”

The problem? Very few founders stop to understand what an exit actually requires; or whether it’s realistic for their business.

Here’s what investors really care about: return on investment. The only way they get that return is if someone buys their equity stake. The really big payouts come in the form of one of three ways:

1. Selling to a Private Equity Firm
   Private equity firms specialize in certain industries and have specific criteria for deals. To even get on their radar, you need to know who the major players are in your space and what growth milestones or market share targets they expect before starting conversations.

2. Being Acquired by a Mega Corporation
   Think PepsiCo acquiring smaller brands like Poppi. These kinds of deals don’t happen overnight. They require years of traction, capital investment, and intentional positioning to even attract the attention of a global corporation.

3. Going Public (IPO)
   This path is in a league of its own. Taking a company public requires millions in upfront costs to hire underwriters, complete regulatory filings, and pitch institutional investors. And once you’re public, the scrutiny and pressure only increase.

Most importantly, each exit strategy comes with tradeoffs. If you take investor money, you are no longer building the business just for yourself or your customers. You are also building it on a timeline and structure that serves your investors’ need for a return.

Pro tip: It’s also worth noting that founders can buy out an investor’s equity stake. This is typically only feasible when it involves a minority equity holder, such as a family member or friend who came in early. Even then, there are important nuances: you’ll need to determine the company’s fair market valuation at the time of the buyout and figure out how to fund it. A buyout isn’t as simple as returning the original investment amount; it requires offering a price that reflects the company’s current value, which the investor has the right to negotiate.

Merging Finance & Fashion

So in the case of PARLA, none of the above sounded remotely appealing to me during the early stages but who knows what the future holds. My ultimate goal for PARLA is to grow the business enough to bring production in-house. I want to deliver the highest quality tailoring possible by skilled craftspeople and restore integrity and ethical work standards in the fashion industry.

The dream is for PARLA to become something like Brunello Cucinelli but focused on women’s suiting. Brunello Cucinelli is known for paying employees above market and for its ethical practices, which is rare in luxury fashion. Interestingly, Italian press often notes that he also pays his taxes on time, a signal of his integrity (and insight into Italian culture).

Reaching this level is ambitious, but I believe we are moving into an era where society craves integrity and personalization over mass-produced, low-quality goods.

My goal is not to amass wealth for myself but to invest it in other female founders. Less than 2 percent of venture capital dollars go to female-founded businesses, even though they consistently deliver higher ROI than male-founded ones.

Share

Resources For Paid Subscribers

Read more

Even though this Substack has been growing and I’ve received positive feedback from the community, I found myself wondering: what do people actually need to read when it comes to business finances?

It’s such a broad topic, and it’s easy to go down a rabbit hole. So instead of assuming, I created an anonymous survey and asked you directly. I wanted to know what you want to learn about and how I can best support your business or career. I also respond to every comment on posts and inside the Chat, so if you ever have a question, comment or concern, I’m here as a resource.

Participate in Survey

I’m going live on Substack tomorrow, June 4, at 11am ET. Think of it as your CFO AMA. Come with all of your business finance related questions and I’ll be happy to answer them.

A sample budget template at the end of this post is available to paid subscribers along with other ongoing perks.

Upgrade Membership

The Creative CFO is a resource for founders, business owners, and entrepreneurs to gain clarity around business finances so they can grow with intention. Paid subscribers get access to my calendar to book 1:1 strategy sessions. On-demand CFO members receive 12 months of support through a private Slack channel and monthly office hour sessions via Zoom. These options are ideal for founders who need real-time, ongoing support with their business financials.

Now, let’s dive into this week’s topic, inspired by Wil A., who commented on my Writer’s Block post:

“I'm always interested in the budget process, both from an individual who creates and manages the budget along with the team the budget impacts. What questions should "I" be asking (both the budgeter and the impacted team)? How do budgeters manage budgets in Excel (let's be real... all budgets are managed out of a spreadsheet)? Thanks!”

I’ve spent over a decade managing corporate budgets ranging from $10M to $100M+ in annual revenue. And here’s the truth: budgeting is more of an art than a science.

Yes, the math needs to be correct, but at the end of the day, a budget is just an estimate and stakeholders rarely look at the detail but require a sound narrative to understand the numbers.

In the corporate world, budgets go by many different names: operating plan, annual budget, financial plan, fiscal year forecast, etc. to name a few. In startup and VC conversations, you might hear terms like runway plan, spend plan, 12-month forecast, or pro forma income statement.

All of it means the same thing: a forward-looking view of your business’s financial future.

The level of detail varies by company. In large corporations, budgets can get incredibly granular as they have dedicated team members whose job is to look after these budgets. But if you’re a founder, you don’t need to go overboard. What you do need is a basic understanding of your numbers so you can assess the health of your business. If you're planning to fundraise or apply for a bank loan, that understanding becomes even more critical.

Your finances are the language of your business. They tell you what’s working, what’s not, and where to focus.

For example, founders often tell me the reason they’re not selling more is because of a marketing issue. My response is always:
“Is that what your numbers are telling you?”

That question usually leads to a pause and a blank stare.

I recently told a group of tech founders at a Financial Foundations & Modeling Workshop that I hosted, that financial forecasts are always wrong. The real question is, by how much?

That might sound like heresy to a philosopher, but in finance, this is where the concept of materiality comes in. Materiality refers to the threshold at which missing or inaccurate financial information would affect a decision. Ex: if you forecast $1M in revenue and you end the year at $950k, that $50k difference likely won’t derail your business. But if you only bring in $50k, the $950k shortfall is material. That kind of gap means rethinking your business model, cutting expenses, or even halting operations.

Here are a few things to remember: there is no universal budget format or one-size-fits-all template companies use. Budgets are not regulated or standardized by any government or tax agency and every company handles them differently.

To answer Wil’s questions:

What to ask as the person managing the budget:

These questions are what I would ask Executives before creating a budget from scratch. The frame of mind is to ensure the budget will display information or outputs that are useful to the stakeholders that review them.

• What commitments were made to leadership or investors? Ex: did we promise to grow sales by 20%, or cut EBITDA margins by 10%?

• Are we planning to fundraise, or do we have existing debt obligations and debt covenants to meet?

• Are we making capital investments this year? If so, how are they tied to our growth goals?

• What did we do last year? What worked, what didn’t, and where can we improve?

• How often are we reforecasting: monthly or quarterly?

• Who approves expenses: the budget owner, the exec team, procurement team or both?

• Do we prefer annualized spending, or do we adjust for seasonality?

What to ask as the team impacted by the budget:

Most corporations will prepare department budgets that consolidate into the company’s overall budget. Each organization has a different way of managing these department budgets. I’ve worked for organizations where departments would submit their budget spend but Executives prohibited me from sharing what was approved. I’ve worked for organizations where myself and the department heads were responsible for tracking performance and managing under and over-expenditures. These are some questions I would ask if I were a department head or team responsible for managing our team’s budget to ensure we are maximizing results.

• Are we using accrual or cash accounting? When financial statements are prepared, companies need to follow certain regulatory requirements. Accrual or cash accounting are two different ways to record financial transactions I.e. spend, and this is important when reviewing budget-to-actual reports. This is important when marketing spends $10k with a supplier in May but that amount covers the next 12 months so accounting will take that $10k and spread it out over the next 12 months. So from month-to-month it might look like marketing has more money to spend than they actually do.

• What happens to unused funds? Is this a “use it or lose it” model or can we roll-forward underspend to next year’s budget?

• Who calculates ROI on our department’s spend: finance or our team?

• Do we need a PO (purchase order) to make purchases?

• How often will we receive BvA variance reports?

• Is software spend centralized under IT, or can our team manage it?

• Does the budget include headcount? If so, who owns the hiring plan: our team or HR?

• How is the learning and development budget managed? I.e. a flat fee per employee, or a percentage of salary per department?

How budgeters manage budgets in Excel:

I’ve worked with budgeting features built into accounting software and used expensive custom-built platforms. But no matter how sophisticated the system, everything always comes back to Excel.

As a budget owner, your main priority is to update the forecast with actuals and do a “roll-forward”, I.e. applying any over- or under-spending to the remainder of the year. Budgets are usually updated monthly. If sales are off track or major changes happen, it’s time to reforecast and reduce spending if things are materially off-track. In extreme cases, this is when companies start looking to cut excess spending and then start to model personnel changes like layoffs.

Budgets should evolve with the business. They’re not static documents. They help with scenario planning, investor conversations, capital spending, exit strategy, and even responding to macroeconomic shifts like tariffs or inflation. Budgets also forecast tax liabilities, bank covenants, KPIs, and performance metrics.

The main objective is to give you a holistic view of the business.

And remember: your financial model is only as good as the quality of your inputs. Garbage in, garbage out. Make sure your data is complete and clean.

Resources For Paid Subscribers

Read more

First, a quick note: I never recommend operating as a sole proprietor. Your tax ID in that case is your Social Security number, which you’ll need to share on W-9 forms with clients or customers. These forms are rarely handled securely, so your personal information could easily be exposed. Beyond that, sole proprietorships complicate tax filings and, most importantly, provide zero liability protection. If someone sues your business, your personal assets are fully at risk.

Upgrade Membership

There’s plenty of debate around what early-stage startups need in terms of accounting, finance, and legal infrastructure. Many founders take pride in being scrappy and may view these formalities as unnecessary overhead. I understand that perspective, but every decision comes with associated risks. The headaches that come later often aren’t worth the short-term savings. Something as simple as forming an LLC using a service like LegalZoom (I’m not affiliated with them but I am a customer) takes just a few minutes and a one-time fee. It gives you legal protection and positions your business to grow more smoothly. To me, that’s an obvious yes.

If you’re new here, I recommend reading my post CPA vs. CFO, where I explain the differences between accounting and finance professionals and when to bring each one into your business.

I created the following charts outlining the different types of legal entities in the United States, along with their liability and tax implications, ownership flexibility, and who they are best suited for (or not). Below the tables, you’ll find definitions for a few key terms mentioned in the chart for additional context.

For my international audience, if you plan on expanding to the U.S. market, this is a good place to start to familiarize yourself with different types of legal entities and what’s required from a compliance perspective. Of course, I personally respond to DMs, comments or the Chat if you have any questions.

Different Types of Legal Entities

KEY DEFINITIONS

Pass-through Entity: All income, deductions, and credits of the business are passed directly to the owners or partners. This means the business itself does not pay income taxes at the corporate level. Instead, profits or losses are reported on the individual tax returns of the owners, and taxes are paid at the individual level. Examples include sole proprietors, partnerships, S corporations and certain LLCs.

Liability Protection: Ensures that the owners’ personal assets (ex: their home, car or personal savings) are not at risk if the business incurs debts, losses, or lawsuits. Business entities like LLCs, corporations, and limited partnerships provide liability protection by separating the business’s financial obligations from the owners’ personal finances. Sole proprietorships and general partnerships do not offer this protection, meaning owners are personally responsible for business debts and liabilities.

Double Taxation: Double taxation occurs when the same income is taxed twice; once at the corporate level and again at the individual level. This typically applies to C corporations and happens in two stages:

1. Corporate Taxation: The corporation pays income taxes on its profits.

2. Individual Taxation: If the corporation distributes dividends to shareholders, those dividends are taxed again on the shareholders’ personal tax returns.

This differs from pass-through entities (ex: S corporations, LLCs electing pass-through taxation), where income is only taxed at the individual level, avoiding double taxation.

LLC Taxation Options

An LLC (Limited Liability Company) offers flexibility in how it is taxed. By default, a single-member LLC is taxed as a sole proprietorship, and a multi-member LLC is taxed as a partnership. In these cases, the LLC operated as a pass-through entity, meaning income and losses are passed through to the members and taxed at the individual level.

However, an LLC can elect to be taxed as a corporation by filing appropriate forms with the IRS. LLCs have the option to be taxed as:

1. C Corporation: Subject to corporation taxation (double taxation applies - taxes are paid at the corporate level and again on dividends at the individual level).

2. S Corporation: Subject to pass-through taxation but with stricter rules on ownership (ex: limited number of shareholders and no foreign ownership).

Pro Tip: Consider incorporating your legal entity in Delaware, even if you don’t live there or generate revenue in the state. You don’t need a physical address in Delaware to do this. Delaware is known for having the most founder, and investor-friendly, corporate laws in the U.S., offering strong legal protections and flexibility for shareholders. In fact, many venture capital firms require a Delaware C-Corp before they’ll invest.

Taxes by Legal Entity

Understanding tax obligations is critical when selecting a business structure. Here’s a breakdown of the main types of taxes and which legal entities are responsible for the various tax types.

Read more

I’m a little embarrassed to admit this, but I’m experiencing writer’s block today.

I have two pieces ready for paid subscribers this week, both packed with value and educational insights, but for some reason, I’m feeling completely uninspired. That’s probably because I write about financial content so it’s not the most …

Read more

Venture capitalists (VCs) are technically a subset of private equity. All VCs are PEs, but not all PEs are VCs. Unlike traditional PE, venture capital focuses on early-stage startups with high growth potential and equally high risk.

I have worked in corporate finance for over a decade and have dealt with many VCs and private equity firms. Here are some of the things they rarely want founders to fully understand.

Subscribe now

💡 Need a second pair of eyes on your numbers or your pitch?

If you're a founder, entrepreneur, or small business owner trying to make smart financial decisions without a full-time CFO, I got you. Book a free 15-minute call to see how The Creative CFO can support you as your on-demand or fractional finance partner. Whether it's understanding funding options, reviewing your pitch deck, establishing your pricing, or planning for growth—you can move forward in your business with clarity and confidence.
👉 Book your intro call here

1. Fundraising is a full-time job

On top of running your business, you’ll need to create a compelling pitch deck, network relentlessly, get warm introductions, pitch, and, if successful, navigate term sheets and exhaustive due diligence. The networking piece is the most important and really the only fast-track way to get yourself in front of VCs, however, relationships take time to foster.

Pro Tip: Focus on building relationships with Founders in a VCs existing portfolio to get the most impactful warm introductions.

2. Management Fees

Management fees are how VCs generate revenue to operate their funds. Typically these fees are around 2% annually, paid by the investors in the fund (not the startups). When a VC invests in your company, they may take a board seat or actively support you with advice and connections, but you do not pay them a fee out of the check you receive.

3. Bootstrapping means no institutional capital

True bootstrapping means no money from VCs, Private Equity or banks. It specifically refers to not taking any institutional capital. Many founders misunderstand this early on and assume those who ‘bootstrap’ their startups are funding the entire venture on a credit card, this isn’t the case. You can bootstrap your business and still ask family and friends to invest in your business. The exact bootstrap formula might look slightly different from founder to founder but ultimately it just means you didn’t take any money from institutions.

4. They’ll ask for references

You’ll submit professional references to speak to the testaments of your career and also serve as character references that speak to your grit and determination because you’re essentially entering into a long-term relationship with them and they want to ensure their money is safe. They’ll also discreetly contact people you didn’t list as references and this will be easy for them to do given the information that is easily accessible on LinkedIn.

5. Their loyalty lies elsewhere

VCs have a fiduciary responsibility to their investors, not to you. They are legally bound to prioritize their backers’ returns, even at your expense. Keep this in mind when inevitably tough times surface.

Read more

Since rebranding to The Creative CFO in early January, I have been thoroughly enjoying my time on Substack. Each week, I have shared one free and one paid post, and creating them has been a lot of fun. However, with client work ramping up and a…

Read more

There are only two core ways to finance a business: debt or equity.

This post excludes alternative funding options like crowdfunding and grants. While those can help you get off the ground, they aren’t infinite cash reserves. They often create even more pressure to begin generating income quickly. From an accounting standpoint, both crowdfunding and grants are classified as income. I.e. they’re taxable.

But let’s talk about debt and equity, the two most common, and most strategic, ways to raise capital.

When a company raises debt, it receives cash with the obligation to pay it back, typically with interest. When it raises equity, it receives cash in exchange for ownership, usually a percentage of the company.

💡 Need a second pair of eyes on your numbers or your pitch?

If you're a founder, entrepreneur, or small business owner trying to make smart financial decisions without a full-time CFO, I got you. Book a free 15-minute call to see how The Creative CFO can support you as your on-demand or fractional finance partner. Whether it's understanding funding options, reviewing your pitch deck, establishing your pricing, or planning for growth—you can move forward in your business with clarity and confidence.
👉 Book your intro call here

Quick Accounting Snapshot

Here are the basic journal entries for each scenario:

Debt (ex: borrowing $100,000 at 4% APR):

• When cash is received:

  Debit: Cash $100,000

  Credit: Notes Payable (or Loan Payable) $100,000

• When interest accrues (monthly or annually):

  Debit: Interest Expense

  Credit: Interest Payable (or Cash)

Equity (ex: receiving $100,000 in exchange for 10% ownership):

Debit: Cash $100,000

Credit: Common Stock (and/or Additional Paid-In Capital) $100,000

But the real decisions founders face go far beyond journal entries.

DEBT: Not All Debt Is Bad

Debt gets a bad rap, but it’s not inherently dangerous. It’s a tool.

A Few Rules of Thumb:

• Avoid variable-rate debt.

• Understand your repayment timeline. Payments are usually due within 30 days, so your burn rate is immediately impacted unless you're generating revenue quickly.

• Know your debt type. There’s more than just traditional bank loans:

Types of Business Debt:

• Bank loans

• Business credit cards

• Lines of credit

• Invoice financing

• Equipment financing

• Business mortgages

• Revenue-based financing

• Merchant cash advances

Each of these comes with unique terms, from collateral and repayment structures to personal guarantees and covenants.

What Are Bank Covenants?

If you’ve taken a loan from a traditional bank, you may be subject to loan covenants: contractual obligations that require you to meet specific financial benchmarks.

These might include:

• EBITDA thresholds

• Debt-to-equity ratios

• Limits on shareholder distributions

If you fall out of compliance, the lender can technically recall the loan. It’s serious, and it’s why consistent financial reporting and performance matter.

EQUITY: Ownership Isn’t Free

Many founders assume the only path to growth is through raising capital. But fundraising is time-consuming and distracting, especially if you don’t already have a strong network. Creating your pitch, networking, and presenting are all time you’re not spending building the business.

Two Hard Truths About Fundraising:

1. You need a strong valuation which can be tricky early on.

2. The earlier you raise, the more likely you’ll need to keep raising.

And while early checks are small (especially at pre-seed or seed), they come at the highest cost: your equity.

Not all investors are VC or PE firms, friends and family or angel investors can also be equity backers. But once institutional capital is involved, you’ve entered a long-term relationship.

What That Means:

• VCs and PEs are typically in for the long haul. I.e. 10+ years until exit.

• You don’t control the exit alone; they’ll likely require consent.

• Company culture can shift dramatically. When investors are involved, the focus often moves from product and mission to financial returns.

I’ve seen companies with vibrant, mission-driven teams lose their identity as soon as the ink dried on the deal.

Equity Dilution: A Real-World Example

Read more