Frequently Asked Questions
Real questions founders ask, answered plainly.
Do I still need an accountant if I understand all this?
Yes — but for different reasons. This guide makes you fluent enough to run the business, make decisions, and ask sharp questions. An accountant handles compliance, tax filing, payroll rules, and the things that get you in legal trouble if done wrong. Think of it this way: you should understand your numbers well enough that an accountant can't blindside you, but you shouldn't be the one filing taxes at 2am. Understand it yourself; delegate the regulated parts.
Why is my profitable business out of cash?
Because profit and cash are not the same thing. Profit (on the P&L) counts a sale the moment you earn it — but the customer might not pay for 60 days, while your suppliers and staff want paying now. Money also leaves your account for things that aren't expenses (loan repayments, buying equipment, inventory you haven't sold). A growing business often eats cash faster than profit appears. Watch the cash flow statement, not just the P&L.
What's a good gross margin?
It depends entirely on your business. Software/SaaS typically wants 70–85% (copies cost almost nothing). A services business might run 40–60%. Physical retail and hardware can be healthy at 30–50%. Restaurants live and die in the single-to-low-double digits. The real test: is your gross margin enough to cover all your fixed costs and still leave profit? A "low" margin business can thrive on volume; a "high" margin one can still fail on bloated overhead.
How much runway should I keep?
A common rule of thumb is to never let runway drop below 6 months, and to start raising or cutting when you hit around 12 months — because raising money or finding savings always takes longer than you expect. Running below 3 months is a genuine emergency. The exact number depends on how fast you can raise or become profitable, but the principle is universal: decide and act before the cliff, not at it.
Is it bad to be the cheap option?
Usually, yes. Being cheap attracts the most demanding, least loyal customers, leaves no margin to invest in the product, and signals "low quality" whether you mean it to or not. Almost every founder underprices at first out of fear. Competing on price is a race you win by going out of business slowest. Compete on value instead — and charge for it. The exception is when scale or cost-leadership genuinely is your strategy, but that's a deliberate, capital-heavy bet, not a default.
How do I know what to charge?
Start from the value the customer gets, not your costs. Cost tells you the floor (never sell below it); the customer's perceived value sets the ceiling. Test by actually raising prices on new customers and watching whether they still buy — most founders discover they had room to charge more. If nobody ever pushes back on your price, it's too low.
Should I raise money?
Only if you have a use for it that earns more than it costs — and remember equity is the most expensive money there is, because you sell a piece of every future dollar forever. Raise when capital will accelerate something already working (you've found product-market fit and more fuel means faster, profitable growth). Don't raise to discover whether the business works, to feel validated, or to delay hard decisions. Many great businesses never raise at all.
What's the difference between markup and margin? I keep mixing them up.
Both describe the same profit dollars but divide by a different number. Markup is profit as a percentage of your cost; margin is profit as a percentage of your selling price. Buy for $50, sell for $100: that's a 100% markup but only a 50% margin. The trap: a "50% markup" leaves you thinner than a "50% margin." Always know which one a number refers to before you price off it.
My revenue is growing — why are investors still worried?
Because revenue growth alone doesn't prove a healthy business. They're checking whether you make money on each customer (unit economics), whether customers stay (churn), how much cash you burn to grow each dollar (burn multiple), and whether growth plus profit clears the Rule of 40. Growth bought by selling dollars for ninety cents isn't growth — it's a countdown. Healthy growth is profitable, retained, and efficient.
What's the LTV:CAC ratio everyone talks about, and what should it be?
It compares the lifetime profit from a customer (LTV) to what you spent acquiring them (CAC). 3:1 is the classic healthy target — for every $1 spent winning a customer, you get $3 back over their lifetime. Below 1:1 you lose money on every customer (stop spending). Far above 3:1 can mean you're underspending and could grow faster. Also watch CAC payback: how many months to earn the acquisition cost back — under 12 months is generally healthy.
Do I need to understand all three financial statements, or just the P&L?
All three, because each answers a different question and they only tell the truth together. The P&L asks "did we make a profit?" The balance sheet asks "what do we own and owe?" The cash flow statement asks "where did the actual money go?" A founder who only reads the P&L is the one most likely to be surprised by an empty bank account. They're three windows into the same house.
What does "default alive" mean and how do I find out if I am?
"Default alive" means that at your current growth and spending, you'll become profitable before the cash runs out — without needing to raise more money. "Default dead" means you won't, unless something changes. Find out by projecting your revenue growth and burn forward month by month: does the profit line cross above zero before the cash line hits zero? Every founder should know this answer at all times. If you're default dead, you have a deadline whether you've acknowledged it or not.
How often should I actually look at my numbers?
Cash balance and burn: weekly, or even daily if runway is tight. Your core dashboard (revenue, margin, churn, CAC, runway): monthly, reviewed properly. Full statements: monthly once you're past the earliest stage. The goal is to never be surprised. Founders who check quarterly find out about problems a quarter too late.
What numbers will an investor expect me to know cold, off the top of my head?
Your monthly revenue (and growth rate), gross margin, monthly burn, runway in months, CAC, LTV (or LTV:CAC), churn, and your cash in the bank. If you fumble these in a meeting, it reads as "not in control of the business." You don't need every line memorized — but these you should be able to say instantly, like your own phone number.
Is profit the goal, or is growth?
It's a balance, and the right mix depends on your stage and strategy — which is exactly what the Rule of 40 captures (growth rate + profit margin ≥ 40%). Very early, growth and learning matter most; later, profitability must show up or the business isn't real. The wrong answer is ignoring one entirely: pure growth with no path to profit is a bonfire, and pure profit with no growth may be a job, not a venture. Know which you're optimizing for, and why.
I find spreadsheets and financial models intimidating — do I really need one?
You need a simple one — and simple is the point. A useful first model is just a few rows: how many customers, at what price, with what costs, month by month, ending in a cash balance. That's enough to ask "what if I double prices?" or "what if churn doubles?" before betting real money. You're not building a Wall Street model; you're building a flight simulator for decisions. Start small and grow it as you learn.