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As a founder, managing personal finances can feel like a juggling act—especially when you're balancing the pressures of building your company with ensuring your financial future is secure. The financial landscape for entrepreneurs changes dramatically before and after raising capital, and understanding how to navigate this shift can make a huge difference in both your personal and professional life. Here are some tips I’ve picked up over the years on how to manage personal finances pre- and post-raise. Keep in mind that strategies can change over the years so plan for a long horizon. In 5-10 years, your life might look quite different; you may have a partner and family so it’s important to plan accordingly.
Pre-Raising: Setting the Stage for Long-Term Financial Health
Before you’ve raised any capital, you’re likely dealing with a leaner budget and tighter financial constraints. This is the time to set up the structures that will make your financial life easier in the long run. Here’s what I recommend:
1. Spend a Little Extra Time on Set-Up
Whether you’re considering something more complex, like transferring your shares into a dynasty trust, or something simpler, like setting yourself up for Qualified Small Business Stock (QSBS) treatment, spending a little extra time on these foundational steps can pay dividends. The earlier you establish these structures, the smoother the process will be later, and you can avoid costly mistakes.
For example, setting yourself up for QSBS treatment can offer tax advantages down the line. Making the right choices at this stage can ensure you’re in a much better position when it’s time to exit your business or raise further rounds of funding.
2. Avoid Credit Card Debt at All Costs
When cash flow is tight, it’s easy to lean on credit cards. But I cannot stress this enough: avoid it. The interest rates on credit cards are sky-high, and there are always other, cheaper financing options available. Whether it’s through personal loans or even taking on debt secured against the business (if that’s an option), credit card debt should be the last resort. Keep your finances as clean as possible and save yourself the headache of compounding interest.
3. Defer Your Salary—Don’t Skip It
This one can be tricky. You may be tempted to simply not draw a salary in order to save funds for the business, but deferring your salary is often a better move. By deferring, you can take your salary later when your financial situation is more stable—such as after you’ve raised capital or the business has gained more traction. Of course, make sure you’re not deferring indefinitely, but within reason, this strategy allows you to benefit from back pay when the time is right without sacrificing too much in the present. (Only do this when it’s just the founders - deferring employee salary can create a legal obligation for the company directors).
Similarly, track any company expenses you pay for out of your own pocket, so that you can reimburse yourself when the company's financial situation changes.
Post-Raising: Protecting Your Financial Future
Once you’ve raised your first round of funding, you likely have more personal financial flexibility. But with that newfound freedom comes the responsibility to manage your finances wisely. Here are the steps I recommend for post-raise entrepreneurs:
1. Take a Real Salary
One of the most important things you can do after raising capital is to pay yourself a real salary. This will depend on your company’s stage and revenue numbers, but Deel’s framework should set you up for success. VCs may encourage you to take a smaller salary in the early stages, but they understand that in order to be effective as a founder, you need to have some level of financial stability. Without a steady income, you might find yourself distracted or worried about personal expenses, and that can take a toll on your ability to run the business.
Taking a fair salary also sets the right tone with your investors and employees—it shows you’re committed to building a sustainable business and are in it for the long haul. As your business grows you will also be able add more benefits to your business - such as 401k and FSA plans and perhaps even tuition reimbursement.
2. Adopt a Simple, Low-Risk Investment Strategy
As a founder, you’re already sitting on a highly risky, illiquid asset—your company. This means your personal finances should be more conservative. Even if you have a high-risk tolerance, the fact that you’re so heavily exposed to one asset means it’s important to balance that with low-risk investments elsewhere.
I suggest focusing on simple, low-fee index funds. These funds offer diversification without the need for active management, which is critical because, as a founder, you won’t have the time or bandwidth to constantly monitor your investments. A simple, diversified portfolio will help mitigate some of the risks tied to your startup while still allowing for long-term growth. Invest at least 20% of your income in index or money market funds to help add stability to your portfolio.
3. Diversify Your Income Pool
Once you have a salary and some savings, it’s time to think about diversifying your income streams. Pooling your income into different assets, whether it’s real estate, dividend-paying stocks, or other low-risk investments, can help cushion you in case of market volatility or unexpected business challenges.
It’s easy to get caught up in the excitement of your startup’s growth, but it’s also important to maintain financial security outside of the business. Building multiple income streams now can help ensure your financial stability, even if things don’t go exactly as planned with your company. To learn more about Pando’s income pooling, schedule a time with an expert here.
Why it Matters
As an entrepreneur, managing your personal finances might not be the first thing on your mind, but the way you handle your finances both before and after raising capital can have a lasting impact on your overall success. By taking the time to set yourself up with smart tax structures, avoiding high-interest debt, paying yourself a reasonable salary, and diversifying your investments, you can ensure that both your personal and business finances are on solid ground. As you begin to pay greater attention to your personal finances, it will also help you better structure your company’s finances.
By following these simple principles, you’ll be in a better position to weather the ups and downs of entrepreneurship, stay focused on growing your company, and ultimately achieve your financial goals—both inside and outside the business.
Stay tuned for more recommendations around personal finances for founders! In some of our next content, we’ll be covering the best tools to manage your finances, how you can restructure finances between capital raises, and much more!
As a founder, managing personal finances can feel like a juggling act—especially when you're balancing the pressures of building your company with ensuring your financial future is secure. The financial landscape for entrepreneurs changes dramatically before and after raising capital, and understanding how to navigate this shift can make a huge difference in both your personal and professional life. Here are some tips I’ve picked up over the years on how to manage personal finances pre- and post-raise. Keep in mind that strategies can change over the years so plan for a long horizon. In 5-10 years, your life might look quite different; you may have a partner and family so it’s important to plan accordingly.
Pre-Raising: Setting the Stage for Long-Term Financial Health
Before you’ve raised any capital, you’re likely dealing with a leaner budget and tighter financial constraints. This is the time to set up the structures that will make your financial life easier in the long run. Here’s what I recommend:
1. Spend a Little Extra Time on Set-Up
Whether you’re considering something more complex, like transferring your shares into a dynasty trust, or something simpler, like setting yourself up for Qualified Small Business Stock (QSBS) treatment, spending a little extra time on these foundational steps can pay dividends. The earlier you establish these structures, the smoother the process will be later, and you can avoid costly mistakes.
For example, setting yourself up for QSBS treatment can offer tax advantages down the line. Making the right choices at this stage can ensure you’re in a much better position when it’s time to exit your business or raise further rounds of funding.
2. Avoid Credit Card Debt at All Costs
When cash flow is tight, it’s easy to lean on credit cards. But I cannot stress this enough: avoid it. The interest rates on credit cards are sky-high, and there are always other, cheaper financing options available. Whether it’s through personal loans or even taking on debt secured against the business (if that’s an option), credit card debt should be the last resort. Keep your finances as clean as possible and save yourself the headache of compounding interest.
3. Defer Your Salary—Don’t Skip It
This one can be tricky. You may be tempted to simply not draw a salary in order to save funds for the business, but deferring your salary is often a better move. By deferring, you can take your salary later when your financial situation is more stable—such as after you’ve raised capital or the business has gained more traction. Of course, make sure you’re not deferring indefinitely, but within reason, this strategy allows you to benefit from back pay when the time is right without sacrificing too much in the present. (Only do this when it’s just the founders - deferring employee salary can create a legal obligation for the company directors).
Similarly, track any company expenses you pay for out of your own pocket, so that you can reimburse yourself when the company's financial situation changes.
Post-Raising: Protecting Your Financial Future
Once you’ve raised your first round of funding, you likely have more personal financial flexibility. But with that newfound freedom comes the responsibility to manage your finances wisely. Here are the steps I recommend for post-raise entrepreneurs:
1. Take a Real Salary
One of the most important things you can do after raising capital is to pay yourself a real salary. This will depend on your company’s stage and revenue numbers, but Deel’s framework should set you up for success. VCs may encourage you to take a smaller salary in the early stages, but they understand that in order to be effective as a founder, you need to have some level of financial stability. Without a steady income, you might find yourself distracted or worried about personal expenses, and that can take a toll on your ability to run the business.
Taking a fair salary also sets the right tone with your investors and employees—it shows you’re committed to building a sustainable business and are in it for the long haul. As your business grows you will also be able add more benefits to your business - such as 401k and FSA plans and perhaps even tuition reimbursement.
2. Adopt a Simple, Low-Risk Investment Strategy
As a founder, you’re already sitting on a highly risky, illiquid asset—your company. This means your personal finances should be more conservative. Even if you have a high-risk tolerance, the fact that you’re so heavily exposed to one asset means it’s important to balance that with low-risk investments elsewhere.
I suggest focusing on simple, low-fee index funds. These funds offer diversification without the need for active management, which is critical because, as a founder, you won’t have the time or bandwidth to constantly monitor your investments. A simple, diversified portfolio will help mitigate some of the risks tied to your startup while still allowing for long-term growth. Invest at least 20% of your income in index or money market funds to help add stability to your portfolio.
3. Diversify Your Income Pool
Once you have a salary and some savings, it’s time to think about diversifying your income streams. Pooling your income into different assets, whether it’s real estate, dividend-paying stocks, or other low-risk investments, can help cushion you in case of market volatility or unexpected business challenges.
It’s easy to get caught up in the excitement of your startup’s growth, but it’s also important to maintain financial security outside of the business. Building multiple income streams now can help ensure your financial stability, even if things don’t go exactly as planned with your company. To learn more about Pando’s income pooling, schedule a time with an expert here.
Why it Matters
As an entrepreneur, managing your personal finances might not be the first thing on your mind, but the way you handle your finances both before and after raising capital can have a lasting impact on your overall success. By taking the time to set yourself up with smart tax structures, avoiding high-interest debt, paying yourself a reasonable salary, and diversifying your investments, you can ensure that both your personal and business finances are on solid ground. As you begin to pay greater attention to your personal finances, it will also help you better structure your company’s finances.
By following these simple principles, you’ll be in a better position to weather the ups and downs of entrepreneurship, stay focused on growing your company, and ultimately achieve your financial goals—both inside and outside the business.
Stay tuned for more recommendations around personal finances for founders! In some of our next content, we’ll be covering the best tools to manage your finances, how you can restructure finances between capital raises, and much more!
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