What Startups Get Wrong (and Right) About Financial Modeling

Financial modeling is an essential tool for startup founders, and yet so many misconceptions cling to it. I run introductory sessions designed to help founders understand what goes into a model, why it matters, and how to build one. Every session brings a lively mix of questions, curiosities, and the same handful of challenges. Here are the themes that come up again and again.

Most founders rate their confidence a 1 to 3, and that is fine

Ask the room, and most people put themselves around a 1 to 3 out of 5 on financial modeling. There is usually one person at a 5 who can share insights with the group, but most are there to build confidence and gain clarity. If you are struggling with financial models, you are in good company. This is a skill, not a personality trait.

Everyone knows spreadsheets, almost no one has built a model

Everyone has used or seen a spreadsheet for a budget or a forecast. But a financial model goes beyond a static table. It lets you test your assumptions and visualize different growth scenarios in ways a spreadsheet alone often cannot capture. The spreadsheet tells you what you typed. The model tells you what happens if you are right, or wrong.

"Pro forma" gets used a lot and understood rarely

"Pro forma" gets tossed around constantly, and many founders are not clear on what it actually means inside a model. So, plainly: pro forma statements are the end products of a financial model. They are the projected Income Statement, Balance Sheet, and Cash Flow that show where the company might go based on your assumptions and forecasts. The model is the engine. The pro formas are what it produces.

Unit economics is where it clicks

One of the big "aha" moments is realizing that a financial model can break down your unit economics: customer acquisition cost, lifetime value, gross margin per sale. Seeing those numbers, and seeing how much they move the rest of the model, almost always leads to more thoughtful growth strategies. It is the difference between "we'll grow" and knowing what each new customer actually costs and earns.

A model is not one and done

Many founders assume a financial model is something you set up once and then forget. In reality, it is an evolving tool, something you revisit and refine as you gather more data and understand your business better. Modeling is dynamic. It is both a map and a compass, helping you stay oriented as you explore new growth opportunities.

The point

A well-built model does more than forecast. It becomes a foundation for smarter, data-driven decisions, and it gives you something solid to stand on when you are talking to investors or making a hard call about cash. Financial modeling does not have to be overwhelming. It has to be honest, and it has to stay current.

This is the part of my work I genuinely love, and it is something I take on one to one. If these points resonated and you want a model built around your actual business, that is what my one-on-one consulting is for.

Systems Before Software: Choosing the Right Apps for a Job-Based Business

The trouble with cloud software is not that there is too little of it. There is too much, and it can be daunting to know which apps to actually use. Every tool promises to be the one that finally pulls your business together, and most job-based firms end up with a drawer full of half-used logins instead of a system.

The collection of apps you choose to run your business is commonly called a software stack. For a job-based firm, an architecture studio, an agency, a consulting practice, that stack has to do something specific: carry a job cleanly from the quote all the way through to getting paid. Before you can pick the tools, you have to be honest about a few things that sit above the software.

Start with mindset

A mindset is your philosophy about how things work. A fixed mindset says your skills and your systems are what they are. A growth mindset says they can be developed. The second one matters here, because you will learn new tools, and technology will keep moving. If you stay open to that, you can surf the anxiety of the unknown to smoother water instead of freezing every time something changes.

Then look at skills

Next, take an honest inventory of your skills and your team's. These are the things you are each actually capable of carrying out to a finished result. When you review this carefully, you see what you have, you admit where the gaps are, and you decide where to spend time and resources building ability or bringing in help. A tool cannot fix a skill you do not have. It can only speed up one you do.

Then map your process

Here is where you grab a pen and paper. Before you list a single app, look at what actually happens in the real world when you deliver your work. Map the flow of a job through your firm: how a quote becomes a scoped project, how time and costs get tracked against it, how it gets invoiced, how money comes back in. Then map how information moves between the people and stages along the way.

Process is senior to software. Always. Knowing what tools exist can help shape your thinking, but the workflow is the thing you are designing. The software just executes it.

Now, the software

Once you can see the flow, the stack almost picks itself. For a job-based business, it usually has three layers.

Job management is the spine. A tool like WorkflowMax is built for project work specifically: quoting, scoping, tracking time and costs against a job, and invoicing from what actually happened. This is where you see whether a job is making money while you can still do something about it.

Accounting is the financial layer underneath. Xero is my preference for this. QuickBooks can work, but it is the less preferred option for the firms I work with. This is where the money itself is tracked: what you have spent, what is owed, what is coming in.

Payroll and subcontractors are the third layer. Gusto handles both, running payroll for your team and paying and filing for your subcontractors, so the people doing the work get paid correctly without you keeping it in your head.

The reason to be deliberate is that apps are built in a vacuum, each one assuming it is the center of your business. Functions overlap. Two tools in your stack might both send an invoice, but only one lets you get paid the way your system actually needs. When you already know your workflow, it becomes obvious which tool wins that overlap, and why.

That is the whole point. The stack is not the strategy. It is the execution layer for a workflow you have already designed on purpose. Get the order right, mindset, skills, process, then software, and the tools stop being a source of anxiety and start doing what you hired them to do.

At Verte, this is the work: designing how a job-based firm runs behind the scenes, then choosing the software that fits it. If your stack feels like a pile of apps rather than a system, that is usually a sign the workflow underneath never got designed.

The Year-End Financial Close for Project-Based Firms

The end of the year can feel overwhelming when you are balancing growth with financial housekeeping. The work is not complicated, but it is easy to put off, and the cost of putting it off shows up later as cleanup. Here is a checklist to simplify the close and start the new year with clarity. Every business is different, so treat this as a map, not a mandate.

1. Tax positioning

Work through this with your tax advisor before year-end, while you can still act on it.

• Review your numbers to analyze potential liabilities, deductions, or credits, and make any final adjustments.

• For cash-basis businesses, consider accelerating expenses. Prepaying software, rent, or contractor invoices can lower taxable income for the current year.

• Also for cash-basis, consider delaying income where you can, pushing expected payments into January to manage taxable revenue.

• Confirm your retirement contribution amounts. Some plans allow contributions after year-end, but knowing the numbers now helps you finalize your strategy and plan for cash flow.

• Check for tax credits you may qualify for, such as R&D credits or energy-efficient deductions.

A small adjustment can matter more than it looks. Cleaning up deferred revenue and timing a few expenses well can meaningfully change where a firm lands heading into the new year.

2. Clean up your books

If last year's books are not wrapped up, this is the priority.

• Reconcile all accounts. Bank accounts, credit cards, loans, payroll, and any intercompany balances should match your books.

• Resolve outstanding invoices. Chase overdue payments and finalize unpaid bills.

• Write off bad debts. Clear uncollectible invoices so your receivables reflect reality.

• Review fixed assets. Adjust for purchases, disposals, and depreciation.

• Clear out stale liabilities and suspense accounts. Catch-all accounts like "Ask My Accountant" are not your friend. Empty them and aim to keep them empty.

3. Performance and project profitability

This is where project-based firms either learn something or leave money on the table.

• Compare budget to actuals. Look at revenue, margins, and expenses to spot trends and surprises.

• Review project profitability directly. Did you hit the margins you planned for, job by job? Use what you find to refine pricing and future bids.

• Build next year's budget from what you just learned, factoring in hiring, investments, and cost changes.

• Update your forecasts. Stress-test best case and worst case so you can plan for cash flow needs rather than react to them.

4. Owner and team considerations

• Decide on owner draws, distributions, and bonuses while you can still align them with your tax strategy.

• Confirm payroll compliance. Make sure wages, benefits, and contractor payments are properly recorded for year-end reporting, including W-2s and 1099s.

5. Systems and processes

This is the part most firms skip, and it is the part that prevents next year's mess.

• Review your software stack. Make sure your tools are integrated and actually working together rather than each holding a piece of the truth.

• Prepare for 1099 filings. Confirm vendor details are current and flag anyone who needs a 1099. Collecting W-9s from contractors upfront makes this painless.

• Check your internal controls. Review approval, expense, and reporting workflows so the same errors do not repeat next year.

• Audit subscriptions. Subscription creep is real. Cancel what you are not using, consolidate overlapping tools, and renegotiate annual contracts where you can.

For accrual-based firms

If you recognize income and expenses when they are earned or incurred, year-end is about accuracy, not just timing.

• Review revenue recognition. Recognize revenue in the correct period, monthly for retainers, at project milestones for longer engagements. Aligning revenue with delivery keeps your financials accurate and investor-ready.

• Audit deferred revenue. For prepayments covering next year's work, make sure that income is deferred to the right period.

• Accrue year-end bonuses and expenses you plan to pay early in the new year, so costs land in the fiscal year they belong to.

• Spread prepaid expenses. Large upfront annual costs like insurance or software should be spread across the periods they cover, not recognized all at once.

Cash-based versus accrual-based, quickly

Cash-based businesses recognize income when cash is received and expenses when cash is paid. Year-end planning here focuses on timing: delaying income and accelerating expenses to manage taxable income.

Accrual-based businesses recognize income and expenses when they are earned or incurred, regardless of cash flow. Year-end here focuses on accuracy: making sure revenue, expenses, and liabilities are recorded in the correct period.

Taking the time to close these out means fewer surprises when January hits, and a clean foundation for smarter decisions all year. The best year-end strategy depends on your firm's goals and how your work is actually structured. If you are looking at this list and wondering where to start, that starting point is usually the same: get visibility into your numbers before they become historical cleanup.

Bookkeeper, CPA, or CFO? What a Professional Services Firm Actually Needs

"When do I need an accountant for my professional services business?" is one of the most common questions I get. Underneath it is a real decision: whether to outsource your accounting, bring someone in, or hire at the top. The right choice streamlines your financial operations and means you are not just surviving but actually running the firm on purpose. To answer it, you have to understand that "accountant" is three different jobs.

The bookkeeper

This is usually a data-entry-level role. It varies, but in general a bookkeeper assigns the activity of your business to the right accounts: office supplies, marketing, revenue, and so on. They might help create invoices and bills, assist with collections, and handle a few filing tasks. The defining feature is that they are looking backward, organizing what already happened for the most basic record-keeping purposes. Useful and necessary, but historical.

The CPA or EA

A CPA (Certified Public Accountant) or an EA (Enrolled Agent) is well versed in tax law that the IRS accepts. That is their lane, and only their lane. They do not deal with the day-to-day of your business unless it relates to something you have to comply with. They prepare and file your tax forms, and sometimes advise on entity structure or related questions, though that varies. This is a relationship you have a few times a year, not a partner in how the firm runs.

The CFO

A CFO is usually a C-suite role, or in our case, fractional and outsourced. The CFO does a few things the other two do not. They bridge the gap between CPA-speak and the owner and bookkeeper, translating needs across the whole picture. And they look forward, using the accuracy of the past to forecast, budget, and advise, keeping an eye on the business so it stays profitable. The bookkeeper records what happened. The CPA files on it. The CFO decides what it means and what to do next.

Where the systems come in

Here is the part that gets left out of the usual version of this answer. Roles alone do not make a firm run well. The handoff between them does.

In a professional services firm, the financial story starts in operations: a job gets quoted, scoped, staffed, tracked, and delivered. By the time numbers reach the bookkeeper, the most important decisions have already been made. If operations and accounting are not connected by a clean system, the accounting team spends its time reconstructing what happened instead of telling you what it means. You end up with historical cleanup rather than visibility.

This is why I stopped thinking of this as purely an accounting question. I have been a CFO since 2005, and in 2013 I realized the technology was not optional. The software stack around the business, and the way it connects to the accounting system, is what makes the whole thing work. When it is designed well, it significantly reduces admin time, errors, and delays in getting to real analysis. When it is not, you can hire all three roles and still be flying blind.

So the better question is not just "which person do I hire," but "do my operations hand off cleanly to my accounting." A bookkeeper keeps the record. A CPA keeps you compliant. A CFO keeps you pointed forward. The systems underneath are what let all three actually do their jobs, and they are the foundation you cannot overlook if you want to run your firm by the actual numbers.

If you are trying to figure out which role you need next, start one layer down: look at where your operations stop and your accounting begins, and how much gets lost in the gap between them.

The Government's Job Isn't Profit, It's Stability

The government is not a business. It never has been, and it never should be.

When tens of thousands of federal workers are pushed toward buyouts the government has not even been authorized to pay, that is not cost-cutting. It is chaos. These workers ensure aviation safety, food inspections, and other essential services. Stripping agencies under the guise of "efficiency" weakens the very foundation society and businesses rely on.

The purpose of government isn't profit, it's function. Government exists to maintain stability, uphold infrastructure, and provide essential services that make modern society (and business) possible. The private sector operates within the system government maintains: roads, courts, currency, national defense, regulatory frameworks. Cut government too far, and business suffers. A government that prioritizes "efficiency" like a business doesn't get lean, it gets fragile. Weakening agencies today leads to expensive disasters tomorrow.

As an accountant working with both bootstrapped and VC-funded businesses, I focus on financial sustainability. Businesses balance short-term realities with long-term stability. Yet people apply business logic to government, ignoring that they operate on fundamentally different principles. That confusion leads to decisions that hurt both the economy and society.

This thinking has roots. Milton Friedman's doctrine that businesses exist only to maximize shareholder value has seeped into government, turning public service into a cost-cutting exercise rather than an investment in stability. But governments aren't startups, and slashing budgets like a ruthless CEO doesn't create efficiency, it creates instability.

From a broader systems perspective, Friedman's approach is incomplete because it ignores externalities, costs that aren't reflected on a financial statement but impact society long-term. Governments exist to balance those externalities, ensuring businesses don't prioritize short-term gains at the expense of broader societal health. Without that balance, we get boom-and-bust cycles, extreme wealth concentration, and weakened public trust, all of which destabilize economies and, ultimately, democracies.

For the U.S., the challenge is that capitalism is deeply embedded in national identity, making it hard to separate market principles from governance principles. The Friedman doctrine is particularly harmful in public policy because it assumes efficiency is always good, but in government, some degree of redundancy and resilience is necessary for stability. A purely profit-driven mindset leads to fragile institutions: hollowed-out agencies, underfunded infrastructure, and reactive crisis management instead of strategic long-term investment.

Citizens aren't customers. Unlike businesses, where customers can opt out, citizens rely on government for stability and fairness. Government's role is to create conditions where responsible businesses can thrive. Businesses belong in the marketplace. Government, beyond protecting against threats, ensures that marketplace stays competitive and accountable.

Public trust erosion is a slow-moving disaster. Businesses can pivot when they lose customers. Governments that lose trust risk democratic stability.

"Business-style efficiency" in government is a myth. In business, cutting "inefficiencies" can boost profits. In government, it often hollows out agencies, leading to costlier failures down the road: disaster response, regulatory failures, infrastructure neglect.

A well-functioning government isn't a competitor to business. It's the foundation that enables business to operate responsibly in the first place. When leadership forgets that, things break.

Sources

Harvard Business Review. (2017). The U.S. Cannot Be Run Like a Business. https://hbr.org/2017/03/the-u-s-cannot-be-run-like-a-business

PBS NewsHour. (2024). Federal Workers Worry Buyout Offer Is a Trick as Deadline Looms to Accept Elon Musk Deal. https://www.pbs.org/newshour/politics/federal-workers-worry-buyout-offer-is-a-trick-as-deadline-looms-to-accept-elon-musk-deal