🚀 Stuff Every Founder Should Know: Training Guide

Cash Flow First

A profit and loss statement, also called an income statement, shows revenue and expenses for a period. The difference is profit or loss for that period. It does not show cash available.

Cash flow measures actual cash received and cash paid. A loan brings in cash but does not create sales revenue.

A business can be profitable on paper and still run out of cash. Customers may not have paid yet, and things like inventory or loan principal payments use cash without showing as ordinary expenses at the same time.

A cash flow projection estimates future cash receipts and payments. A cash flow statement is historical. Projections can reveal a cash shortage before the month arrives.

In the FDIC Money Smart projection, equipment purchases and loan principal go in the non-operating use of cash section. Taxes, inventory, and owner draws also appear there in that example.

Each month's ending cash becomes the next month's opening cash. A negative projected ending balance warns that funding or timing must change.

Cash Runway and Burn

The main purpose of a cash flow projection is to plan whether cash covers bills. It gives time to adjust spending, collections, or financing.

Monthly burn rate usually measures the average monthly net decrease in cash. Founders should say whether they mean gross spending or net burn after cash receipts.

Cash runway is estimated by dividing cash by monthly burn. If cash is $240,000 and burn is $20,000 per month, the estimate is 12 months.

Pricing and Profit Margins

Gross profit for a product business is net sales minus cost of goods sold. First subtract returns and allowances to get net sales. Gross profit is not net profit because overhead still must be paid.

Gross margin percentage uses net sales as the denominator. Divide gross profit by net sales. A $40 gross profit on $100 net sales is a 40 percent gross margin.

Markup divides gross profit by cost. A $100 item sold for $150 has a $50 gross profit and a 50 percent markup on cost. Margin uses the selling price, so the two percentages differ.

Cost-plus pricing builds a price from the cost to make and deliver the offer. The added amount must support overhead and profit. Cost-plus can miss what customers value or what competitors charge.

Value-based pricing considers the outcome or benefit the customer believes the offer provides. Costs still matter because the price must support the business.

Break-Even and Customer Economics

The break-even point is where total revenue equals total cost. One more unit may add profit if its price exceeds its variable cost.

To calculate break-even units for one product, divide fixed costs by unit contribution. If fixed costs are $10,000 and unit contribution is $25, break-even is 400 units.

Contribution margin per unit is unit price minus variable cost. It shows how much one sale contributes toward fixed costs and then profit. A positive contribution margin does not guarantee overall profit because fixed costs remain.

Customer acquisition cost, or CAC, measures acquisition spending per new customer. Teams must define which marketing and sales costs they include so comparisons stay consistent.

Customer lifetime value should estimate value across the customer relationship. A revenue-based LTV can overstate value when delivery costs are large.

The LTV to CAC ratio is calculated by dividing LTV by CAC. Both measures must use consistent definitions. A high ratio can still hide a long wait before acquisition spending is recovered.

Money Records and Invoices

Accounts receivable represents amounts customers owe from credit sales. It is an asset, but it does not become cash until the customer pays. An allowance for bad debts estimates receivables that may not be collected.

A useful customer invoice includes a description, quantity, unit price, extended price, and payment terms. Number invoices and send them promptly.

A small business recordkeeping system must clearly show income and expenses. Keep invoices, receipts, deposit records, payroll records, and bank statements.

Keep records that support a bad debt deduction for seven years. The correct retention period depends on the event and tax claim the record supports.

Customer Contracts

Customer terms should explain what is offered, what each side must do, and when payment is due before acceptance. Under federal warranty law, a service contract must list all its terms conspicuously in simple, readily understood language.

A contract should define scope and deliverables, responsibilities, acceptance, and timing. A written change process can adjust price and schedule when requested work changes.

A limitation of liability clause tries to limit defined contractual exposure. It is not magic immunity. A federal contract example says it does not protect willful misconduct or lack of good faith by managerial personnel.

SBA Loan Programs

The standard SBA 7(a) loan maximum is $5 million. You apply through a participating lender, and SBA usually guarantees part of the loan rather than lending directly.

The SBA 504 loan maximum is $5.5 million. The 504 program offers long-term, fixed-rate financing for major fixed assets through Certified Development Companies.

SBA 504 loans cannot normally finance working capital or inventory. Those needs may fit other products, such as eligible 7(a) options.

The SBA microloan maximum is $50,000 through an intermediary. Microloan proceeds cannot be used to buy real estate or pay existing debts.

For covered SBA 7(a) and 504 loans, individuals owning 20 percent or more must provide an unlimited personal guaranty. That can expose personal assets if the business defaults.

SBA Lender Match connects businesses with lenders. A match is not approval, and founders should compare rates, terms, fees, and repayment conditions.

Business Insurance Basics

Workers' compensation for private and state or local government workers is run by each state. Federal programs cover federal workers and a few special groups.

In most states, coverage rules depend on employer size or industry. Texas makes workers' compensation coverage optional for most private employers.

Employee or Contractor

The IRS sorts evidence into three categories: behavioral control, financial control, and type of relationship. Together they show how much control the business has.

A remote worker can be an employee if you control what they do and how. Where the worker sits does not matter, and this holds even if the worker chose to work remotely.

No set number of IRS factors decides employee status. You weigh the whole relationship and the right to direct and control the worker.

Either the business or the worker can file IRS Form SS-8 to ask for an official status decision. It can take at least six months to get an answer.

If you treat an employee as a contractor with no reasonable basis, the IRS can hold you liable for that worker's employment taxes. Section 530 relief also requires consistent treatment and reporting.

The Labor Department's economic reality test asks whether the worker is economically dependent on you or in business for themselves. Factors include profit or loss chances, worker investment, permanence, and control.

Paying a worker on a 1099 or calling them a contractor does not decide their status under the FLSA. The real working relationship decides.

W-4 and I-9 Paperwork

A new employee's Form W-4 tells the employer how much federal income tax to withhold. The IRS suggests filling out a new W-4 each year and whenever life or finances change.

If a new employee never turns in a completed W-4, withhold federal income tax as single or married filing separately with no other entries. That usually means more tax withheld.

Keep each signed W-4 for at least 4 years. The IRS can send a lock-in letter telling an employer to ignore a W-4 that withholds too little.

Section 1 of Form I-9 is due no later than the employee's first day of work for pay. You may not ask for it before the person has accepted a job offer. Section 2 is due within three business days after the employee starts work.

Keep each Form I-9 for three years after the hire date or one year after the job ends, whichever is later. Never mail Forms I-9 to USCIS or ICE. You must be able to show them within three business days of an inspection request.

E-Verify and New Hire Reporting

E-Verify checks information entered from an employee's Form I-9 against government records. It is free and can provide results in as little as three to five seconds.

Most employers use E-Verify voluntarily. Federal contractors and subcontractors with the FAR E-Verify clause must use it as a condition of the contract.

Arizona law requires every employer in Arizona to use E-Verify after hiring an employee.

If you use E-Verify, create a case no later than the third business day after the employee starts work for pay. If you miss the deadline by mistake, create the case right away.

Federal law requires reporting new and rehired employees to the state within 20 days of hire. Include name, address, Social Security number, and hire date.

Pay Rules and Records

The federal minimum wage is $7.25 per hour. If your state minimum wage is higher, you must follow the higher rate.

Under the FLSA, a nonexempt employee earns overtime at one and one-half times the regular rate for hours over 40 in a workweek. Federal law does not require extra pay just for weekends or holidays, and it puts no limit on weekly hours for employees 16 and older.

Overtime is calculated week by week. A person who works 50 hours one week and 30 the next is owed 10 overtime hours, not an average.

Job titles do not determine overtime exemption. White-collar exemptions require the right job duties and, generally, a salary of at least $684 per week.

When federal tip-credit rules are met, the lowest cash wage for a tipped worker is $2.13 an hour. If tips fall short, the employer must make up the difference to reach minimum wage. California does not allow employers to count tips toward minimum wage.

Employers must keep payroll records for at least three years. Time cards and other records used to figure wages must be kept for two years.

Payroll Tax Rates

Below the Social Security wage cap, the employer's combined Social Security and Medicare tax rate is 7.65 percent. That is 6.2 percent for Social Security plus 1.45 percent for Medicare.

Only Social Security has a yearly wage cap. Medicare has no wage cap.

Employers must start withholding the 0.9 percent Additional Medicare tax once an employee's wages pass $200,000 in a calendar year. Unlike regular Medicare, the employer does not pay a matching share.

The FUTA tax rate is 6.0 percent on the first $7,000 paid to each employee each year. With the full credit for state unemployment taxes, the rate is 0.6 percent. Only the employer pays FUTA.

Reporting and Payments

Most employers report withheld income tax plus Social Security and Medicare on Form 941 every quarter. Returns are due one month after each quarter ends, with an extension to the 10th of the second month after the quarter when deposits were timely.

For 2026 wages, employers must give employees Form W-2 by February 1, 2027, and file with the Social Security Administration by the same date. Employers who file 10 or more information returns must file Forms W-2 electronically.

The Trust Fund Recovery Penalty can apply to a responsible person who willfully failed to collect or pay trust fund taxes. The penalty equals the unpaid trust fund tax, and a title alone does not decide responsibility.

Paying Contractors

Before paying a contractor, get Form W-9 with their name and taxpayer ID. If a contractor will not give you a taxpayer ID as required, you must withhold 24 percent from reportable payments as backup withholding.

Keep each completed W-9 in your files for four years.

Self-Funding and Early Investors

Bootstrapping means using your own financial resources to support the business. It can preserve control, but the founder carries the financial risk.

Calling a sale a friends-and-family round does not create a securities exemption. Even that sale must be registered or fit an available exemption.

Angel investors usually invest their own money directly. Venture capital funds pool capital and often invest across multiple companies and rounds. Most angel investors are accredited.

Accredited Investors and Offering Rules

An individual can qualify as an accredited investor with income over $200,000 individually or $300,000 jointly in each of the prior two years, and a reasonable expectation of the same in the current year.

Another accredited investor path is net worth over $1 million, excluding the primary residence, alone or with a spouse or partner.

Rule 506(b) bars general solicitation. It may include up to 35 nonaccredited purchasers who meet an investment sophistication standard, with added disclosure duties.

Rule 506(c) permits general solicitation and advertising. Every purchaser must be accredited, and the issuer must take reasonable steps to verify that status.

Form D is due within 15 days after the first sale in a Regulation D offering. After filing, Form D is publicly available on EDGAR, and the SEC charges no filing fee.

Regulation Crowdfunding allows an eligible company to raise up to $5 million during a 12-month period through a registered funding portal or broker-dealer.

SAFEs, Notes, and Priced Rounds

A SAFE gives an investor a right to future shares after conversion. It usually converts automatically in a priced equity round, and it generally has no interest or maturity date.

A SAFE valuation cap sets the highest valuation used to convert the SAFE. On a post-money cap SAFE, ownership sold can be estimated as investment divided by the cap.

A SAFE discount gives the early investor a lower conversion price per share. An MFN SAFE has no cap or discount and takes the terms of any SAFE the company issues later.

A convertible note is debt that can convert into equity. Debt is generally due at maturity and typically bears interest.

A priced equity round sells equity at a set valuation and full stock terms. Preferred stock, investor rights, and sometimes a board seat are negotiated at closing.

Vesting, Taxes, and Cap Tables

Vesting releases equity over time or conditions. Common startup vesting is four years with a one-year cliff. Leaving before the anniversary usually means nothing vests, and reaching it usually vests one quarter.

An 83(b) election chooses to include restricted property income at transfer rather than later vesting. If you pay full fair market value for the stock, the amount included in income can be zero.

The federal deadline for an 83(b) election is within 30 days after transfer. If day 30 falls on a weekend or legal holiday, a postmark on the next business day counts as on time.

Issuing new equity usually shrinks a founder's percentage because the total ownership denominator increases. A new or increased option pool can also dilute existing holders.

A startup cap table tracks ownership interests and capitalization. Update it after grants, financings, exercises, and conversions.

Trademarks and Trade Secrets

A trademark identifies the source of goods or services. Federal registration creates nationwide rights, while unregistered trademark rights only reach the area where you provide goods or services.

A federal trademark registration can stay alive indefinitely with continued use and timely filings. Renewal is due during years 9 to 10 and every 10 years after that. A separate declaration of use is generally due between years 5 and 6.

Business information is a trade secret if it has economic value from not being generally known and the owner uses reasonable efforts to keep it secret. Trade secret protection needs no government registration.

Trade secret protection can last with no fixed limit while secrecy requirements continue. It ends if any required element, such as secrecy or reasonable protection efforts, ceases to exist.

Copyrights and Patents

Copyright protects original work fixed in a tangible form, such as code, text, art, music, or video. It does not protect the underlying idea or method, and it generally begins automatically.

Copyright for most modern individual works lasts for the author's life plus 70 years. Works made for hire last 95 years from first publication or 120 years from creation, whichever comes first.

A utility patent covers a new and useful process, machine, manufactured article, or composition of matter. A utility patent generally lasts up to 20 years from the first nonprovisional filing date, and a current design patent generally lasts 15 years from grant.

A U.S. provisional patent application stays pending for 12 months. It is not examined and is automatically abandoned after 12 months, so a nonprovisional application must arrive within that time to claim its benefit.

A U.S. grace period may cover an inventor's own public disclosure made one year or less before the effective filing date. Foreign rights may follow stricter rules.

An employee's creation is generally a work made for hire when created within the employee's job scope. Certain commissioned works can also qualify only under specific categories and with a signed written agreement.

When someone outside your company creates something, they usually own the copyright from the start. To move that ownership to your business, you need a written document signed by the person who owns the rights. Without this, the creator keeps the copyright.

Privacy and Marketing Rules

Section 5 of the FTC Act requires businesses to live up to their privacy promises. A business can act deceptively by saying one thing about data and doing another, and unfair practices can also violate Section 5.

Under CAN-SPAM, commercial email recipients must have a working opt-out method. The sender must honor an opt-out request within 10 business days, and the method must work for at least 30 days after the message is sent.

COPPA's core online privacy protections apply to children under 13. Covered operators generally need notice and verifiable parental consent before collecting a child's personal information.

An influencer must disclose a material connection to a brand when consumers would not expect it. The disclosure should be clear and close to the endorsement.

The FTC Safeguards Rule requires covered financial businesses to maintain a written information security program. A business counts as a financial institution if it does activities that are financial in nature, not just banking.