Capital

What investors actually check before they wire.

The five things in your data room that make or break diligence — and how to get ahead of them.

Most founders think the pitch is the hard part. It isn't. The pitch gets you a term sheet. The data room decides whether the money shows up — and at what price.

I've sat on both sides of that table. As an operator I've raised capital; as a buyer and a board member I've done the checking. The questions investors ask in diligence are remarkably consistent. What changes is how prepared the company is to answer them.

Here are the five areas where deals stall, re-trade, or quietly die.

1. Do your numbers tie?

The first thing a good analyst does is reconcile. Does the revenue in the deck match the P&L? Does the P&L match the tax return? Does cash on the balance sheet match the bank statement?

If those numbers don't tie, nothing else you say will be believed at face value. Every subsequent answer gets double-checked, and the process slows to a crawl.

Get ahead of it: Before you open a data room, reconcile the deck, the management accounts, the tax returns and the bank statements for the last three years. Document every difference and why it exists.

2. Is revenue what you say it is?

Investors will rebuild your revenue from the bottom up — by customer, by contract, by month. They want to know how much is recurring, how much is one-time, how concentrated it is, and whether it's recognized correctly.

The common surprises: a top customer that's 30% of revenue, contracts that renew annually but are reported as recurring, or revenue booked when invoiced rather than when earned.

Get ahead of it: Build a customer-level revenue schedule that ties to the P&L. Show cohorts, churn, and concentration before they ask.

3. Can the forecast survive a hard question?

Every forecast is wrong. Investors know that. What they're testing is whether you understand what drives it.

A credible model is built on a small number of explicit assumptions — conversion rates, pricing, headcount, cycle times — that can be traced to historical performance. A model that's a top-line growth rate with costs as a percentage of revenue tells them you don't know your business at the unit level.

Get ahead of it: Every major assumption should have a source and a sensitivity. Know what happens to cash if growth comes in 30% lighter.

4. Where does the cash actually go?

Profit is an opinion. Cash is a fact. Diligence teams look hard at working capital: how long it takes to collect, how long you take to pay, how much inventory or WIP is tied up, and whether any of that has been managed into the closing date.

They'll also look at the quality of earnings — owner expenses, one-time items, and adjustments that make EBITDA look better than it is.

Get ahead of it: Prepare a monthly cash bridge and a defensible list of EBITDA adjustments. If an adjustment needs a long explanation, it probably won't survive.

5. What's sitting outside the financials?

The things that kill deals late are usually not on the P&L: unclear IP ownership, missing customer contracts, cap table errors, unpaid sales tax in other states, misclassified contractors, or pending disputes.

These are rarely fatal on their own. They become fatal when the investor discovers them rather than being told.

Get ahead of it: Run your own diligence first. Assume every document will be read, and disclose problems early with a plan to fix them.

The point

Investors don't expect a perfect company. They expect a company that knows itself. Every answer that comes back fast, clean and consistent builds confidence. Every answer that takes a week erodes it.

The work to get ready takes 60 to 90 days if you start before the raise. It takes much longer — and costs much more in valuation — if you start after the term sheet.

If a raise is on your horizon, let's talk about where you stand. Start a confidential conversation →

Transactions

Your EBITDA isn't the buyer's EBITDA.

What happens to your adjusted earnings in a quality-of-earnings review — and how to protect your price before it starts.

Every sell-side process starts with a number: adjusted EBITDA. It drives the valuation, anchors the letter of intent, and shapes every conversation that follows.

Then the buyer's accountants arrive and build their own number. The gap between the two is where sellers lose money. I've been on both sides of that review, as a seller and as a buyer, and the pattern is consistent: the deal price is set on the seller's EBITDA and closed on the buyer's.

What a quality-of-earnings review does

A quality-of-earnings (QoE) review is not an audit. An audit asks whether the financial statements are fairly presented. A QoE asks a narrower, harder question: what does this business earn on a normal, ongoing basis, under new ownership?

Every adjustment you made gets tested against that question. So do the ones you didn't make.

The addbacks that usually survive

• Owner compensation above market, if you can show what a replacement executive would cost.
• Truly one-time costs — a lawsuit settlement, a facility move, a failed system implementation — with documentation.
• Personal expenses run through the business, if they're clearly identified and won't recur.
• Transaction costs from the sale process itself.

The addbacks that usually get cut

• "Non-recurring" costs that recur. If there's a one-time item every year, it's a cost of doing business.
• Pro forma savings. Headcount you plan to cut, a price increase you plan to take, or a contract you expect to win. Buyers pay for what the business has done, not what you think it will do.
• Run-rate revenue. Annualizing your best month or quarter rarely survives.
• Under-investment. If you deferred maintenance, hiring or capex to lift earnings before the sale, the buyer will add the cost back in.
• Below-market related-party arrangements. Rent paid to an entity you own, or a family member on payroll at less than market, gets normalized — often against you.

The adjustment sellers don't see coming: working capital

Most deals include a working capital target, sometimes called a "peg." At closing, the price goes up or down dollar for dollar by how far actual working capital lands from that target.

The peg is usually set from a trailing average. If receivables were collected unusually fast before close, or payables were stretched, the buyer will argue the normal level is higher. A few points of revenue in working capital can move the price as much as a disputed addback.

Sellers focus on the multiple. Buyers focus on the peg.

How to protect your number

1. Run a sell-side QoE first. Commission your own review before going to market. You find the problems on your schedule, not theirs, and you present an EBITDA that has already been tested.
2. Document every addback. Invoices, contracts, board minutes. An adjustment without support is a negotiating point for the buyer.
3. Clean up related-party arrangements early. Put them at market or end them at least a year before a sale.
4. Know your normal working capital. Analyze it monthly over two to three years, including seasonality, before anyone proposes a peg.
5. Don't manage earnings into the sale. Cutting costs that the business actually needs shows up in diligence, and it costs you credibility on everything else.

The point

A buyer will reconstruct your earnings whether you prepare or not. The question is whether you've done it first. Sellers who arrive with a defensible EBITDA negotiate price. Sellers who don't spend the deal defending it.

If a sale is two or three years out, now is when to start. Start a confidential conversation →

Leadership

Fractional vs. full-time CFO: how to know.

A simple framework for founders weighing executive finance help against the cost of a full-time hire.

Most founder-led companies reach the same point somewhere between $10 million and $50 million in revenue. The bookkeeper and outside accountant who got you here can't take you further. You need someone who thinks about the business, not just records it.

The question is whether that person needs to be full-time. Often the honest answer is: not yet.

What a full-time CFO really costs

An experienced CFO is one of the most expensive hires a growth-stage company makes. For a private company with $25 million to $100 million in revenue, 2026 benchmarks put base salary at $275,000 to $375,000, salary plus target bonus at $330,000 to $500,000, and total compensation including equity at $400,000 to $700,000.¹ A second 2026 guide puts private mid-market CFO total compensation at $350,000 to $650,000.²

Those figures don't include payroll taxes or benefits. Then there's the search itself. Retained executive search firms typically charge 25% to 35% of first-year total compensation, and a search usually takes 90 to 120 days.³ On a $450,000 package, the fee alone is roughly $110,000 to $160,000.

That's money well spent if you need that person five days a week. Many companies don't.

The cost of getting it wrong

The bigger risk isn't the salary. It's hiring the wrong person — and a full-time CFO is an employee, which makes the mistake slow and expensive to undo.

In a survey of 444 North American organizations, 42% said a bad hire cost them twice the employee's annual salary; 11% put it at five times.⁴ At the CFO level the damage compounds: a lost year of financial direction, turnover on the finance team, and decisions that have to be redone.

Unwinding a senior hire also carries real exposure:

• Severance and release. Executive separations usually involve severance paid in exchange for a release of claims — more if the offer letter promised it.
• Claims risk. Any termination can draw a wrongful termination, discrimination or retaliation claim. Even a weak claim costs legal fees and management time.
• Equity. Vested options or shares leave with the executive and stay on your cap table.
• State rules. In California, for example, final wages are due immediately on termination and accrued vacation must be paid out. Obligations vary by state.
• The restart. A new search, another three to four months, and the business runs without a finance leader in the meantime.

A fractional engagement carries none of that. It's a services contract with a defined scope and a notice period. If the fit is wrong, either side can end it cleanly. That makes it a lower-risk way to learn what the role actually requires before committing to a full-time hire.

General information, not legal advice. Talk to employment counsel before structuring an executive hire or separation.

Four questions to ask

1. Is the need continuous or episodic?
A capital raise, an acquisition, a lender negotiation or a turnaround is intense for a few months and then subsides. If the hardest finance work comes in waves, you're paying a full-time salary for a part-time peak.

2. Do you need a builder or a manager?
If the finance function doesn't exist yet — no close process, no forecast, no KPIs — you need someone to build it. Once it's built, the ongoing work is lighter. A fractional CFO can build it and hand day-to-day operation to a controller.

3. Can the business absorb the cost?
A useful rule: if a full-time CFO's loaded cost would be more than a few percent of revenue, or would materially change your runway, the hire is probably early.

4. Who's going to manage them?
A strong CFO needs a CEO and board who know how to use one. If the founder isn't ready to share decisions about capital, pricing and investment, a full-time hire will either be frustrated or underused.

When fractional is the right call

• Revenue is growing but the finance function is still tactical.
• A specific event is coming: a raise, a sale, a refinancing, a board build-out.
• You have a capable controller or bookkeeper who needs senior direction, not replacement.
• You want executive judgment now and a full-time hire later, once you know what the role needs.

When it's time to hire full-time

• Finance decisions come up daily and can't wait for the next scheduled day.
• You're managing multiple entities, lenders and investor groups at once.
• You're preparing for an IPO or institutional ownership that expects a dedicated officer.
• The finance team has grown large enough to need a full-time leader.

The honest middle

Fractional isn't a cheaper version of the same thing. It's a different model: senior judgment applied where it matters most, without paying for the hours where it isn't needed.

The best fractional engagements also make the eventual full-time hire better. By the time you need one, you'll know exactly what the role is, what good looks like, and how to measure it. Often I help write that job description.

Not sure which you need? A 30-minute conversation is usually enough to tell. Start a confidential conversation →

Sources

1. JRG Partners, CFO Salary Guide 2026 (July 2026)
2. KORE1, CFO Salary Guide 2026
3. Hyring, Executive Search: fee structures and timelines
4. PLANSPONSOR, Bad Hires a Big Cost to Employers (Right Management survey)

Governance

Board confidence is built long before the meeting.

What a credible board package looks like — and what quietly erodes trust.

Boards rarely lose confidence in a single meeting. They lose it slowly, one late package, one unexplained variance, and one surprise at a time. By the time a director says it out loud, the damage is done.

The good news is that the reverse is also true. Confidence is built the same way: through small, repeated proof that management knows its numbers and tells the truth early.

What a credible board package does

A board package isn't a data dump. It's a management team's argument that the business is under control. The ones that work share a few traits.

It arrives on time, every time. Directors should have the package at least five business days before the meeting. A package that lands the night before tells the board you're scrambling — or that you don't want them to read it closely.

It opens with a one-page summary. What happened, what it means, and what you need from the board. If a director reads only one page, it should be this one.

It compares actuals to plan and to last year. Every material variance gets a plain-English explanation. "Timing" is an acceptable answer once. Twice in a row, it's a forecasting problem.

It leads with cash. Cash position, burn or generation, runway, and covenant headroom belong near the front. A profitable company can still run out of money.

It tracks the same KPIs every quarter. Changing metrics from meeting to meeting makes trends impossible to see — and looks like you're choosing the flattering ones.

It names the risks. A short list of what could go wrong, how likely it is, and what you're doing about it. Boards are far more comfortable with a known risk than an unknown one.

What quietly erodes trust

• Surprises. Bad news delivered in the meeting rather than before it. Directors should never learn something material for the first time in the boardroom.
• Numbers that change. Last quarter's figures restated without explanation, or the same metric shown differently in two places.
• Forecasts that are always wrong in the same direction. Consistent optimism tells the board management isn't calibrated.
• Volume instead of insight. A 90-page package with no summary signals that no one has done the thinking.
• Defensiveness. Treating hard questions as attacks rather than the board doing its job.

Between meetings

The board meeting is the visible part of governance. Most of the work happens between them:

• A monthly flash report — one or two pages — keeps directors informed without waiting for the quarter.
• A call to the chair or lead director before bad news goes into a package.
• A clean, consistent close process, so the numbers in the package are final, not provisional.

The point

Investors and lenders read board materials as evidence of how the company is run. When it's time to raise capital, refinance, or sell, the history of those packages either supports your story or undermines it.

Institutional-grade governance isn't about size. It's about discipline — and it's much easier to build before you need it.

If board reporting is on your list, let's talk about where you stand. Start a confidential conversation →

Growth

You outgrew your finance function. Now what?

The warning signs that tactical bookkeeping is holding your growth back.

Nobody decides to outgrow their finance function. It happens gradually. The bookkeeper who was perfect at $3 million is still doing the same job at $25 million, and the business has quietly started making big decisions on incomplete information.

This isn't a criticism of the people. Bookkeeping and finance are different jobs. One records what happened. The other tells you what it means and what to do next.

The warning signs

If several of these sound familiar, you've likely outgrown what you have.

• The books close late. If you don't see last month's numbers until the middle of this month — or later — you're steering by looking in the rear-view mirror.
• You manage by bank balance. Checking the account to decide whether you can afford something is a sign there's no forecast you trust.
• You don't know which customers or products make money. Revenue is growing, but margins aren't, and nobody can say why.
• Cash surprises you. Profitable months that still leave you short, or a payroll that's tighter than expected.
• Every question takes a week. A lender, investor or board member asks something simple and it triggers a scramble.
• Your accountant is your strategist. Your CPA is excellent at tax and compliance, but nobody is looking forward.
• The founder is the finance function. Key numbers live in your head or a personal spreadsheet.

What it costs you

The cost isn't the bookkeeper's salary. It's the decisions made without good information: underpriced contracts, a hire made three months too early, a line of credit negotiated from weakness, a buyer who discounts the business because the numbers can't be trusted.

These costs don't show up as a line item. They show up as slower growth, thinner margins, and a lower valuation.

What to build, in order

You don't need to fix everything at once. The sequence matters.

1. A reliable monthly close. Accurate books, closed within 10 business days. Everything else depends on this.
2. A 13-week cash forecast. Updated weekly. It's the single most useful tool for a growing company.
3. A short KPI dashboard. Five to eight numbers that actually drive the business, reviewed monthly.
4. Margin and unit economics visibility. Profitability by customer, product or service line, so you know where growth helps and where it hurts.
5. An annual plan and rolling forecast. A budget the leadership team owns, compared to actuals every month.
6. The right team structure. Often a strong controller plus senior part-time direction, before a full-time CFO.

Where to start

Start with the close and the cash forecast. They take weeks, not months, and they change the quality of every conversation that follows — with your team, your bank and your board.

The goal isn't more reports. It's control: knowing where the business stands, where it's heading, and what to do about it.

If this sounds like your business, let's talk about what needs to happen first. Start a confidential conversation →

Lending

Your lender reads your covenants more closely than you do.

How to forecast covenant headroom, handle a miss, and negotiate from strength.

Most owners read their loan agreement once — at signing — and then file it. The bank doesn't. Your lender's credit team tests your covenants every reporting period, and they know exactly how close you are to the line.

When a covenant breaks, the conversation shifts from relationship to leverage. The goal is to never let it get there by surprise.

What covenants actually measure

Most commercial loans carry a short list of financial covenants. The common ones:

• Leverage — total debt divided by EBITDA. It tests whether you've borrowed too much for what you earn.
• Fixed charge or debt service coverage — cash earnings divided by required payments. It tests whether you can pay the bank.
• Minimum liquidity or net worth — a floor on cash or equity.
• Capex limits — a cap on what you can spend before the lender is paid.

The critical detail is in the definitions. "EBITDA" in your loan agreement is rarely the EBITDA in your management reports. It has its own list of allowed addbacks, exclusions and caps. Build your covenant calculations from the agreement's language, not your P&L.

Forecast headroom, not just results

Knowing you passed last quarter tells you nothing about next quarter. A disciplined finance function calculates covenants forward:

1. Build covenant tests into your monthly forecast. Every month, project each ratio for the next four quarters.
2. Measure headroom in dollars, not just ratios. "We're at 2.8x against a 3.25x limit" is abstract. "EBITDA can fall $1.2 million before we breach" is a number the leadership team can manage to.
3. Run the downside. Test what a lost customer, a margin squeeze or a slow quarter does to compliance. If a realistic downside breaks a covenant, you need to know now.

If you're going to miss, call first

The worst way for a lender to learn about a breach is from your compliance certificate. The second worst is from a late one.

If the forecast shows a likely miss, contact the lender before the quarter closes. Bring:

• The number and the cause. What will miss, by how much, and why — in plain terms.
• Whether it's temporary. A timing issue, a one-time event, or a change in the business.
• Your plan. What you're doing about it, with a revised forecast that shows compliance coming back.
• The ask. A one-time waiver, a covenant reset, or an amendment — be specific.

Lenders deal with misses all the time. What they don't forgive easily is being surprised, or being given a plan that doesn't hold up.

Negotiating from strength

The best time to negotiate covenants is before you need anything:

• At signing, push for definitions that match how your business actually runs — seasonality, add-backs for growth investments, and an equity cure right that lets owners inject capital to fix a breach.
• During good quarters, build the relationship. Regular, clean, on-time reporting earns credibility you'll draw on later.
• Before a transaction or expansion, bring the lender in early. A covenant reset is easier to get as part of a growth plan than as a rescue.

The point

A lender is a partner with a contract. Treat the contract as an operating tool, forecast against it, and communicate early. The companies that do this get flexibility when they need it. The ones that don't get a reservation of rights letter and a higher rate.

If your next renewal or covenant test has you uneasy, let's talk. Start a confidential conversation →