With the constantly shifting realities that come with owning a business, it’s essential to stay vigilant about your financials and create systems that can support you. As a mentor and investor, I have seen companies constantly struggle with managing their finances and being able to make decisions based on their numbers. I wanted to hear fractional CFOs' best advice for entrepreneurs and the common mistakes they've seen.
One thing I always tell founders is to visualize what they want their business to look like in the near future. Think about the real-life business activities—where will your facility be? Who will you hire? What will your team look like? What are they doing day-to-day?David Steinley
To shed light on this topic, I asked for three experts to help me: Lisa Grandbois, David Steinley and Billy Lai. While our conversation often focuses on scale-ups looking to raise capital. Their principles apply to all entrepreneurs, no matter what stage of business you’re at.
Lisa Grandbois is a distinguished financial consultant with a wealth of experience in guiding startups through the complexities of financial planning and strategy. Her insights have been instrumental in helping emerging companies establish solid financial foundations.
David Steinley brings a pragmatic approach to financial management, emphasizing the importance of accurate bookkeeping and realistic financial modeling. His expertise aids startups in navigating the financial challenges inherent in early-stage business development.
Billy Lai offers a nuanced perspective on financial systems, advocating for early implementation of accounting frameworks and the critical role of scenario planning. His guidance assists startups in creating adaptable financial models that can withstand the uncertainties of the market.
Through my conversations with these experts, I hope you’ll gain a deeper understanding of early-stage financial systems and how to build a path toward sustainable growth and success.
When should an entrepreneur start thinking about implementing financial systems? Are there any specific ones you would recommend?
Lisa: That's a good question. So, we're talking about the really early stage—when founders are first coming up with their business idea. I think understanding their cash position and how much they're burning is key early on.
It doesn’t make sense to get too sophisticated with a five-year forecast if you’re still figuring out whether you even have a product that can be sold. I've seen cases where people invest heavily in hiring experienced fractional CFOs to build sophisticated models—and that can be an unfortunate use of resources early on. But understanding what you’re spending, what your cash position is and the milestone that you’ll raise funds for—that piece is really important. It helps you gauge how much you’re going to dilute, what valuation you can get and where that will position you for your next milestone. I’d say that’s one of the most important things to grasp early on.
David: Financial systems in general—well, I think the very first thing they should have from the outset is professionally managed books. That's non-negotiable. Everything else in finance stems from accurate bookkeeping and having foundational data right is so important. So I'd say you can start that anytime, as soon as you start your business.
It probably makes sense to get into budgeting as a first system, maybe around the time they're planning for their first pre-seed round or even a few months before. They’ll need that for the use of funds in the pre-seed round and cash is managed on a month-to-month basis at that stage. So yeah, there's really no such thing as starting too early—especially when it comes to bookkeeping.
Billy: When we think about financial systems at the core—and I think this applies to both early-stage and even growth-stage companies—you need some form of accounting and record-keeping system. QuickBooks Online and Xero are great platforms. I have a slight bias for QuickBooks Online, but ideally, you’d want to set this up as early as day one.
The reality is that most founders handle accounting, finance and bookkeeping off the side of their desks. But setting up a system early makes life a lot easier a year or two down the line when you're preparing to raise capital. It may not be as necessary for a pre-seed round, but by the time you're raising a seed round or certainly Series A, investors will expect to see clean financials that clearly explain where you’ve allocated capital and what revenue you’ve generated, if any.
Having an accounting system in place from the start also simplifies things like Scientific Research and Experimental Development filings (SR&ED) in Canada, or other corporate and government-related compliance requirements. So, I strongly encourage founders to implement this from day one.
I get it—doing the books sucks. It’s hard to find a good bookkeeper; nobody enjoys taxes and nobody wants to maintain financial documents. But that boring, nuts-and-bolts work is what enables all the useful financial analysis to even existDavid Steinley
What steps should startups take to ensure their financial models are realistic and adaptable?
Lisa: There are two key pieces here. First, build your financial model in a way that aligns with your actual financial statements so you can compare apples to apples. What often happens, at least in our work at Tier Siva, is that seed-stage startups preparing for Series A tell us, “I can’t trust our books—our bookkeeper doesn’t really understand what we do, so we just build everything separately.” But no matter how much time you spend on a forecast, if you can’t compare it to what’s actually happening, you have no way to know if it’s accurate.
Second, do a variance analysis every month. Look at what actually happened versus what you forecast and analyze the differences. Forecasting is an iterative process. Over time, you learn—maybe you’re too aggressive in estimating sales or, conversely, too conservative. By tracking this monthly, you refine your forecasting skills and improve accuracy.
David: I’ll take 'realistic' first. The farther along they are, the more data they’ll have, which makes the model more realistic. It’s a sliding scale—you can start forecasting whenever you want, but until there’s actual revenue coming in and a clear go-to-market strategy in place, the model will be more speculative.
As you gain clarity on things like contract terms, pricing and execution, your financial model will naturally become more accurate. These factors evolve as the business becomes more real and the modeling improves along with it.
Billy: Yeah, that’s an interesting one. The way I think about a financial model, especially at an early stage, is that it’s essentially an attempt to quantify your business formula. By that, I mean: for every $10,000 or $100,000 invested in sales, marketing or research and development (R&D), how much revenue do you expect to generate from that investment, and over what period?
We also need to factor in expected general and administrative (G&A) overhead expenses required to support that investment. There are key principles to keep in mind when building financial models. One of the most important is using a bottom-up approach.
What you don’t want to do is say, “The market size is $10 billion; I’ll capture 1% in five years, so my revenue will be 1% of $10 billion.”
Instead, you should map your financial model based on how you actually plan to generate revenue.
For example, if your strategy is product-led growth or marketing-driven, you might model out:
- Expected organic web traffic
- How many marketing-qualified leads that traffic generates
- The conversion rate from leads to sales-qualified leads (SQLs)
- The rate at which SQLs convert to closed deals
If you're following an outbound B2B strategy, you’ll need to factor in hiring and ramping up an account executive or a business development representative, reasonable quota expectations and the time required for them to ramp up.
The reality is that your financial model probably won’t be very accurate, especially if you're pre-revenue. But the value of the exercise is in building the discipline to define:
- What you believe your business formula to be
- What assumptions you're making
- What conversion rates you need to hit for the business to be sustainable
From there, it’s an iterative process:
- Build the model and set your hypothesis
- Test it in the market by selling
- Adapt based on actual results
How important is scenario planning—and what are some effective ways to get started with that strategy?
Lisa: I think scenario planning is very important, at least in terms of a high-level, back-of-the-envelope understanding.
For example, if you’re considering launching a second product, sketch out a quick scenario: What’s the potential price point? How big is the market? How many resources would it take to roll it out? Before committing significant resources, visualizing whether it even makes sense is crucial.
That said, in the early conceptual stages, I wouldn’t recommend hiring someone to build a $20,000 robust model if there’s a chance you’ll abandon the idea a few months later.
David: I actually don’t think it’s important. In a large, established business, scenario planning makes sense because things don’t change as frequently. But at a startup, everything is variable all the time.
The idea of scenario planning assumes you can hold a couple of variables constant, but that doesn’t work when everything is in flux.
What I do instead is create a base case with my clients—something we feel really good about, what we might call the primary document. The only adjustment I would make for a different scenario is to remove margins from sales.
So, you end up with two situations:
- The base case thattells the business story moving forward.
- A really conservative scenario where we assume no revenue over the next two years.
This approach gives you the maximum and minimum amounts you need to raise. I just stick with those two scenarios because the expense side is relatively predictable over a two-year period—it’s really the revenue side that’s open to the most change.
Billy: Scenario planning is incredibly important, especially when you're an early-stage company with limited runway and resources.
I recommend running at least two models:
- A scenario that assumes flat revenue—meaning no new deals and minimal churn
- A worst-case scenario with no revenue or cash inflows
This is particularly useful if you haven’t yet figured out your churn rate, or if your contracts are short-term and customers could leave quickly.
At the early stage, you're always managing cash. A more conservative approach is to assume zero growth, zero new revenue and see what that means in terms of runway. That’s a good way to stay prepared.
What are the most common financial mistakes you’ve seen early-stage entrepreneurs make?
Lisa: One big mistake is not defining what success looks like for key decisions.
For example, when hiring their first salesperson, many founders don’t set clear targets. What sales numbers should they hit and by when? Without that, how do you know if the hire is succeeding?
The same applies to marketing. If you launch a new advertising strategy, what are you expecting from it? At what point do you cut your losses if it’s not working? Defining success before taking on a new risk or initiative is crucial.
David: I'm very passionate about this one. Going back to bookkeeping—everyone wants sophisticated planning, charts and data-driven insights, but nobody wants to do the foundational work of getting the data right.
And I get it—doing the books sucks. It’s hard to find a good bookkeeper; nobody enjoys taxes and nobody wants to maintain financial documents. But that boring, nuts-and-bolts work is what enables all the useful financial analysis to even exist.
There’s nothing more important than doing the foundational work first, and then you get to enjoy the fun, high-level financial strategy.
If you don’t have proper bookkeeping, you run into issues like:
- Applying for a grant and realizing you don’t have the necessary financial data
- Wanting to raise money but not having clear financial records
- Needing to check your cash balance but lacking accessible information
Without solid bookkeeping, nothing else is possible.
Billy: I’ve seen all sorts of wild things. The biggest mistake is not focusing on cash and failing to manage it closely.
We’ve talked about scenario analysis, but another powerful tool is a rolling 13-week cash flow.
This involves:
- Mapping out all accounts receivable (AR) and when you expect payments
- Identifying government grants and any late-stage pipeline deals likely to close
- Listing key outflows—salaries (biweekly or monthly payroll), consulting fees, and other major accounts payable (AP) costs
It’s easy to estimate runway in a financial model, but those forecasts aren’t always done on a per-account basis. If a company has less than six months of runway, I strongly recommend implementing a 13-week rolling cash flow.
I’ve worked with clients who were blindsided by a delayed payment from an AR customer, and that significantly impacted their runway. Not tracking cash closely enough is one of the biggest mistakes founders make.
Are there any particular funding or budgeting pitfalls that are easily avoidable?
Lisa: Absolutely. I’m also a general partner at Syndicate, and one common issue we see is startups choosing the cheapest bookkeeping option—often on a cash-basis system—just for compliance reasons—essentially to file a tax return at the end of the year.
But accurate accounting isn’t just about compliance; it’s about understanding key metrics and margins. Some founders don’t realize that proper accounting is crucial for calculating earned revenue, understanding unit economics and making informed business decisions. Without this, they often lack visibility into essential financial metrics.
David: Well, since I handle the budgets myself, I like to think I help avoid a lot of these issues.
One thing I always tell founders is to visualize what they want their business to look like in the near future. Think about the real-life business activities—where will your facility be? Who will you hire? What will your team look like? What are they doing day-to-day?
This is much easier to conceptualize than just coming up with numbers.
The mistake founders make is starting with a revenue target and then trying to reverse-engineer their way to it. For example, they might say, 'I want to hit $1 million in revenue by year three—how do I get there?' But that top-down approach doesn’t work because too many variables contribute to that number, making it nearly impossible to deconstruct accurately.
Instead, it’s more effective to develop a qualitative plan for how the business will operate and then figure out the financial implications of that plan. The budget should reflect what you foresee happening—not be forced to fit an arbitrary revenue goal.
Billy: Yeah—just be conservative.
When using a rolling 13-week cash flow, you should aim to be pleasantly surprised every week—meaning your forecasted cash should come in lower than actuals.
Also, be honest with yourself. Don’t bake in revenue from a customer that only has a 50% chance of converting. When managing cash, only count confirmed inflows from AR or government grants. And be realistic about outflows.
Are there specific metrics or KPIs that new business owners often overlook but should focus on?
Lisa: That’s a good question. Generally, startups do track important metrics, but they don’t always have an accurate way to measure them.
For example, metrics like churn rate and customer acquisition cost can be tough to calculate accurately in the early days. But even if they aren’t perfect, it’s still important to track them.
Another shift I’ve seen recently is a greater emphasis on efficiency metrics. For a long time, the focus was purely on growth—burning cash to scale as quickly as possible. But now, investors and founders are placing more importance on efficiency. How effectively is capital being deployed? How sustainable is growth? Even if these numbers don’t look great early on, tracking improvements in them is key.
David: The biggest one is the runway. Ultimately, every CEO wants to ensure they’re not about to run out of cash.
For pre-revenue startups, runway is the most critical metric. Post-revenue, the key metrics depend on the industry. For example, software companies have widely known SaaS metrics, whereas hardware or long sales cycle businesses require different tracking.
But up until the time when revenue is steady, runway is the most important metric. Founders should know their cash runway as accurately as possible.
Billy: One important metric is leading indicators for churn.
When you're starting out, all your focus is on annual recurring revenue (ARR) and growth. That’s understandable. But you also need to track customer health.
For many SaaS companies, a leading indicator of churn is engagement. If you’ve signed customers to year-long contracts but notice that no one is logging into your platform or using your product, the likelihood of them churning at renewal is very high.
Growth is great, but if you’re churning 20% to 35% of customers year-over-year, that becomes a major headwind. So, track engagement and ensure customers are getting value from your platform—otherwise, they’ll cancel when their contract is up
What role does hiring a financial professional (even part-time) play in the success of a startup?
Lisa: I’ve seen time and time again how much of a difference it makes. The biggest impact is clarity—it gives founders the ability to make better decisions.
Most founders don’t come from a financial background, so all this data being thrown at them can be overwhelming. A CFO or financial advisor helps lay it out clearly: “Here’s what’s happening, here’s what it means and here’s how we create a financial roadmap to get where you want to go.”
That clarity helps founders sleep better at night. It gives them confidence that they’re making informed decisions, ultimately leading to better outcomes.
David: I like to think I help founders make decisions. They come to me with questions like:
- “Is this a good deal?”
- “If we pursue this strategy, is it better than the alternative?”
I take what they want to do in their business, run it through my experience filter—qualitative and quantitative—then back it up with analysis.
Many founders think in qualitative terms. A fractional CFO adds the quantitative side, bringing substance to decisions.
At the end of the day, I see my role as being a professional right-hand. I’m someone founders can run ideas by to ensure they’re not totally off track.
And of course, they’ll still do what they want. But having financial backing for their decisions gives them confidence moving forward. They feel better knowing the analysis supports their plan.
Billy: A seasoned financial professional—whether an investor or operator—has seen these situations before. They understand volatility and know how to react when things don’t go as planned, that’s crucial for startups because almost nothing goes as planned.
At a fundamental level, you need someone who can take your business hypothesis and turn it into an actual financial model with trackable metrics.
Later on, when raising capital, a fractional CFO can help determine whether to pursue equity or debt and which investors or institutions to approach. Not all capital is equal and having someone experienced can help you find the right funding sources.
Ultimately, most founders are working toward an exit—IPO, acquisition or building a self-sustaining business. A good financial leader helps founders understand how to get there and make informed capital allocation decisions.