Earlier this year I asked our Founder’s Squad subscribers and my Twitter followers what topics they wanted me to write about in the upcoming months. Personal finance for Founders won hands down.

personal finance for entrepreneurs

I can’t say I was surprised — my friend, Calm Company Fund Founder, SureSwift Alumni Founder (he sold us Storemapper in 2017), and co-conspirator at Founder Summit, Tyler Tringas has been pointing out that solid financial advice for Founders is a major content and services gap in our little corner of the entrepreneurial world for awhile now.

how bootstrapped founders should think about personal finances

I am not a personal finance expert, but as the CEO and Founder of a private equity (ish) company, I tend to meet a lot of folks in the finance world, so convening experts in this area is something I can do. And while it might seem like a bit of a departure from our normal focus on SaaS exits, I think of a dream exit as one step in a successful bootstrapped Founder’s financial journey. So, talking about the steps that come before and after that makes a lot of sense to me.

I got to have a live version of this conversation at Founder Summit in Mexico City in October 2021 along with Travis Woods, Co-Founder of Maybe. From the questions and discussion we had that day with a group of about 60 bootstrapped Founders I could tell that there’s an appetite in the Founder community to have this conversation.

Before we get to the good stuff, let’s get the legal disclaimers and fine print out of the way.

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That was fun, wasn’t it? Now that we’ve all agreed you aren’t going to sue me or our panel, let’s get to it.

Meet Our Panel

Ryan Tansom gives SureSwift Capital personal finance advice for founders

Ryan Tansom
President & Co-Founder @ Arkona

Bruce Langer gives SureSwift Capital personal finance advice for founders

Bruce Langer
Managing Partner @ EPIQ Partners

Troy Wiebler gives SureSwift Capital personal finance advice for founders

Troy Wiebler
Managing Director–Wealth Management & Financial Advisor @ UBS

Tim Griffith gives SureSwift Capital personal finance advice for founders

Tim Griffith
Founder @ Constance Wealth Advisors


Personal Finance for Founders: Common Questions by Business Stage

Early-stage Founders:
How to get a mortgage without a W-2?

This question comes up all the time — at least for U.S.-based Founders. Since mortgage regulation shifted after The Great Recession, it’s even harder for entrepreneurs to get a home loan compared to peers who receive a regular W-2 paycheck.

This is partly because the mortgage industry is behind the times, and partly because the vast majority of mortgages in the U.S. are ultimately sold to Fannie Mae and Freddie Mac and either held in their portfolio, or bundled up into mortgage-backed securities.

This means the vast majority of underwriters are approving loans that they know Fannie and Freddie will buy, and Fannie and Freddie are driving the policy on preferring paychecks to self-employed income.

So what can you do if you want to get a mortgage as an entrepreneur?

I’m going to show a little bit of bias here in sharing the answer that worked for me, because I had this issue when SureSwift was a pretty new company and my family and I wanted to buy a house.

Ryan: “Work with a local bank that understands the viability of your fundraising, and how you’re meeting your obligations through cash flow via investments, capital raised, or funds you’ve accumulated through selling your services.”

When I couldn’t find a lender who didn’t act like entrepreneurs were radioactive biohazards, I turned to a local banker that I’d met through an entrepreneur network. Once he understood my business, he was willing to go to bat for me with his underwriters and lending committee. But it took that personal relationship to get it done. That relationship also came in handy a few years down the road when we wanted to refinance some company debt at a better rate. So my lesson learned from that experience was local bankers make amazing friends.

Here are a few other pieces of advice from the rest of the crew that ring true, too.

Bruce: “You may be limited on lender options and you should expect more paperwork.

Alternative financial measurements include:

  • Tax returns with qualifying income levels and credit score from last 2 years
  • Bank Statement Loan focusing on deposits / draws taken in last 2 years

You can improve your chances with a low debt:income ratio, a larger down payment, or getting a co-signer.

If a mortgage is really the desired path, be patient and be prepared to shop around. There are institutions that will work with you. However, be open to alternative living solutions (i.e. renting). For many Americans, a home is their largest asset and some leverage makes sense. For entrepreneurs, the hope is typically that the business will create wealth and the housing conversation becomes ‘how many?’”

Troy: “This isn’t an easy one. Most banks require income to be 2x your debt load (i.e. 10k/month of income could qualify for 5k/month in mortgage, taxes, insurance costs). Most startups are obviously not managed for a profit as all of the income is going back towards growth, so using the business profit and loss as a back up to a W-2 will likely also not suffice.

I think that if an entrepreneur is looking to buy a home, it likely has to be after they have been able to establish the business and have begun to take a salary in the form of a W-2 (albeit usually a very low one relative to what a typical business owner/CEO would take).”

My key takeaways for me from this conversation are:

  • The mortgage industry could really use some innovation from smart entrepreneurs.
  • Try to build a relationship with a local lender — it may come in handy for more than your mortgage down the road.
  • Be patient, and expect that if you want a mortgage, especially if you’re in the early innings of your business, it’s going to take extra time, frustration, and paperwork. Do the footwork and research to see if/how much you can borrow and from who/at what rate before you set your heart on a specific dream house.
  • Understand that your business is an asset, and you may need to prioritize it and be flexible on other assets like houses while you build it.

How to think about saving for retirement or diversification of investments when the best ‘investment’ is probably reinvesting in one’s business?

I hear a lot of bootstrapped SaaS Founders — especially younger ones — ask questions like, ‘Why would I lock up money I can’t access until I’m 65 in retirement funds when I can get a better return by investing in my business now?’ And it’s a legitimate question if your business is growing at a healthy rate, because you’ll probably beat the market by reinvesting.

BUT – as an owner of a portfolio of bootstrapped SaaS businesses, I have to tell you I personally haven’t seen many that can continue to uphold the craziest compounding rates over the very long-term.

And SureSwift has owned businesses for long enough to see things like market or technology shifts and native competition come up as issues. For us, our portfolio approach hedges the risk on individual products. For a bootstrapped Founder, that risk is really all on you, so at a certain point it might make sense to think about both retirement planning and diversifying.

(And pay attention to Tim’s definition of retirement below, because I know most entrepreneurs have no intention of retiring in the traditional sense of the word.)

Tim: “Retirement planning (defined as “when will I have the ability to not work for earned income”) is a combination of financial risk and reward. For entrepreneurs, it is often true that the best ROI comes from investing/reinvesting into your own business. It is also true that any concentrated, illiquid investment likely carries the highest risk of failure.

At a high level, the first consideration is who is affected by this level of risk? A single business owner with no partner or dependents relying on the business income or valuation to maintain a lifestyle can afford to take a higher level of risk.

As the concentric rings of financial dependents broadens, failure of the business can negatively affect the lifestyle of those not directly working in the business.

From a planning perspective, broader diversification and a more marketable investment portfolio serves to reduce the impact of potential negative outcomes from the business.

Said another way, a younger single business owner can better afford significant concentration in their business because the risk of failure affects them alone.

As the business owner ages and has others in their life who rely on them financially, it makes sense to allocate savings/investment to a more broadly diversified portfolio that carries less risk and can provide liquidity to cushion the impact of a business failure on their family lifestyle.”

Ryan: “Try to take a common sense approach. Think of your business as an asset to help you understand how you want to diversify based on the risks that your business has, as well as other opportunities in front of you. Some people’s industries are becoming more risky and they aren’t sure if they’ll get a return. So instead of reinvesting, they’ll put money into commercial real estate, for example. You can typically get lucrative returns by investing in your company, but at some point if you’re looking and measuring and monitoring the value of your business going forward, you can make a logical decision that it’s time to diversify.”

Is it wise to look for debt or lines of credit vs. reinvesting your own money in your business?

Like the previous question, this one’s really about both risk and liquidity. Here’s what our panel says.

Tim: “Each investment decision should be weighed on its unique merits. One thing is always true by definition: leverage increases potential return and also increases absolute risk.

This is partially true because using borrowed money allows the owner’s capital to be used for other investment opportunities. This allows for the owner’s capital to grow away from the business and build a financial foundation separate from the business success/failure.

If the ROI is sufficient to cover the carrying cost of debt, this might be a “best of both worlds” scenario. Specific to the types of borrowed capital, I often suggest establishing lines of credit when available even if they are not immediately used — it’s always good to have choices.”

Bruce: “This may depend on the capital structure and legal entity of your business. If there are other Co-Founders or shareholders involved, reinvesting your own money may cause dilution problems.

If you choose to be a sole proprietor, taking a loan legally allows the bank to tap into your personal assets if repayment is necessary.

If you are the 100% owner of your business as a separate entity, the answer may depend on the life-stage of your business. In the very early days where consistent revenue hasn’t been established, it may be difficult to get a loan without forfeiting a high interest rate. On the flip side, we are living in historic times where it’s never been cheaper to be in debt.

EPIQ advice: Work with your team of advisors and determine the best path for working/growth capital. Outside creditors can be helpful and there is potentially a healthy arbitrage on the cost of capital. However, keep in mind any possible administrative burdens to meet and report on the covenants, too.”

Troy: “My feeling is that debt is so case-by-case specific it’s hard to give ‘general’ advice. If I had to give it, I’d say — debt is dangerous. The risk of a forced sale is one of the biggest threats to wealth destruction.”

How do you maximize the opportunities of being a business owner when it comes to things like taxes?

Tim: “This is not my specific wheelhouse but decisions with the largest financial impact tend to center on the legal structure of the business.

Tax laws continue to change but the decision of S Corp, C Corp, LLC or partnership can have a significant financial impact.

I have two client businesses that are just completing the transition from C Corp to S Corp to receive the financial benefit of passthrough income.

Expense deductions are another opportunity for business owners that are severely limited for individual taxpayers. For example, sponsorships and charitable donations are far more financially attractive on business tax returns than for individuals.”

Bruce: “Each type of legal entity has different tax consequences, so make sure to choose the option you’re most comfortable with. Consulting with a CPA or attorney may be worth the money if you’re feeling unsure.

These different options include:

  • Sole Proprietor: business assets/liabilities are on your own personal taxes
  • LLC: business becomes separate entity, and your personal assets aren’t at stake
  • S-Corp: same as LLC and taxes are passed through to shareholders
  • C-Corp: same as LLC and business pays corp. taxes and then shareholders pay income taxes.
  • Depending on the business and shareholders’ tax brackets, both S-Corp and C-Corp have their advantages.

Entrepreneurs get to deduct many expenses others don’t, which helps decrease the amount of taxes they have to pay.

The major areas of these deduction are as follows:

  • Home Office: figures are found by taking the % of your residence used for your home office and deducting that same % of house expenses (mortgage, insurance, utilities, repairs, depreciation). Deductions qualify as long as you use the space “substantially and regularly to conduct business.”
  • Business Expenses: the IRS doesn’t make it super easy to know which expenses qualify vs. don’t qualify for the deduction but consulting a CPA and reviewing IRS Publication 535 is where these are found (for U.S. based Founders).
  • Health Insurance: medical, dental, and long-term care can all be deducted if you meet one of four requirements, also found in IRS Publication 535.
  • Your Compensation: depending on the legal structure of your business, how you pay yourself can help decrease the amount of taxes you pay.

EPIQ advice: Get a trusted team of advisors and make sure they work in concert. Proper coordination and planning on the front end can lead to significant savings down the road.”

Another important thing to note when it comes to taxes is that if you’re thinking about a sale (even if it’s just a remote possibility) in the next 5 years or so, you’ll want to understand the implications of your business structure on a sale. For more on that topic, check out this post from Creative Planning.

Mid-stage Founders:
How to approach profit sharing with employees?

Hiring and incentives is another topic I talk about all the time with Founders. Hiring is Hard with a capital H, and if you’ve hired someone amazing the question becomes how do you hang on to them for as long as possible?

Profit sharing comes in many shapes and sizes, and it’s worth considering as a retention tool when you’re at a stage where you’re really dependent on key team members to continue fueling growth and business value. In addition to our panel’s thoughts, I’d encourage you to check out Nathan Barry’s handbook on profit sharing for ConvertKit, which he’s generously made available on github.

Tim: “If we have learned anything in the past two years it’s that good employees are more expensive to attract and train than they are to retain.

This is overly simplified, but goal alignment for key employees must include financial reward for a desired outcome. Each business has its own unique characteristics, but equity compensation is an effective way to engage and reward key employees without carrying the full burden against cash flow.

The discussion of profit sharing vs. equity comp vs. salary/bonus is specific to each situation and employee group but employee retention and continued focus has become more important during this time when good talent is being aggressively recruited to other opportunities.”

Ryan: “If you know the value of your business and have key employees who are crucial in helping you grow value — not just revenue or other vanity metrics — tie your employees compensation to future equity growth. This can be done by rewarding employees with phantom stock or equity based on the additional value they have created. This is possible by monitoring the value of the business, the risk of the cash flow, and the growth in equity value. The key employees literally pay for themselves. They’re creating wealth from the additional value they’re creating.”

Bruce: “It’s worth noting that you don’t have to offer profit sharing to someone immediately, since the profits today reflect years of work building up. The IRS allows restrictions on who receives this bonus, as long as it’s consistent throughout. These restrictions may include age of employee and time served with the company (for example, at least 21 years old and 2 years of service.)”

Estate planning for entrepreneurs — are there considerations that are different if a lot of your net worth is tied up in a business?

Like retirement planning, this is a topic I think a lot of younger Founders don’t spend a lot of time on. And if you aren’t married and don’t have kids, that’s fair. But if you do have a family and a lot of the funding for your future plans and wishes for them are tied up in your business, I’d encourage you to set aside some time to really button this one up.

At Founder Summit, we heard from someone who was taken out of his business for health reasons very unexpectedly for 6 months, and his simple statement on that was a good reminder for all us. “You’re healthy, until you’re not.”

Bruce: “As the owner of a business, you need to think about the succession of your company as well as your family. A unique piece to entrepreneurs’ estate planning is key person life insurance and buy/sell agreements.

Key person life insurance is a policy the business or you and your Co-Founder(s) purchase to receive a benefit if one of you were to pass away. These funds are typically used to buy your spouse/kids out of the business, as well as to help the business’ revenue as a key person needs to be replaced.

A buy/sell agreement puts into writing a plan for your Co-Founder(s) to give your spouse/kids the fair amount for your share of the business.”

Tim: “Estate planning for entrepreneurs has many unique aspects but includes two primary themes: 1) managing the size of the eventual taxable estate and 2) ensuring sufficient liquidity within the estate to facilitate implementation of the estate plan.

Estate tax laws are not static and have become a matrix of federal and state limitations. Business owners can often utilize ownership structures that remove a portion of the ownership stake from their taxable estate. This often involves moving shares of the business to a Trust while still at relatively low valuation and allowing all future appreciation to occur outside their taxable estate.

Ownership transfer can be accomplished in a way that dictates Trust assets, including future appreciation, to benefit family members and achieve philanthropic/legacy goals. Estates often require liquid cash at the time of the business owner’s death to efficiently implement all facets of the estate plan.

Two common situations requiring cash in the estate (including Trusts) are tax obligations and evening out distributions to beneficiaries. If the estate/Trust has limited cash on hand due to illiquid assets or hesitation to sell assets, life insurance policies can provide a cash influx to meet immediate obligations and provide a runway for longer-term decisions to be made.”

Late-stage & Exiting Founders
When is it okay to start angel investing — and at what percentages of income or net worth?

We all want to share a tweet like this, right? But how do you actually know it’s the right time to start angel investing?

Troy: “In my humble opinion, you start long after you have achieved true financial independence, which means you have money that you could live without, and thus can take on the risks of investing in very early-stage startups.

The risks are extremely high that many of these investments yield no return, and it can take a lot of “at bats” to make this type of investing work.”

Bruce: “Due to its high-risk nature, becoming an angel investor often requires the status of “accredited investor” which (at the time of writing this) means you must meet one of these three requirements:

  • Individual income of $200k/year
  • Household income of $300k/year
  • Net Worth of $1M excluding your house

Typical allocations for “private investments” hover around 20-30% of an accredited investor’s portfolio allocation. While angel investing is one type of private investing, participating in private equity or hedge funds can be a good diversifier in this asset class.

Most would recommend including your own business in the calculation of your asset allocation. This step helps evaluate where exposure may be over/under weighted, and if new private investments would be appropriate.”

How do things change when you get a big exit? How early should people plan for that?

I told you we’d tie it back to exits eventually. (If you’re a SaaS Founder looking for one, please reach out — we’d love to have a conversation and be on your radar.)

Tim: “Liquidity events are filled with opportunities for the business owner and their family. Unfortunately, those include the opportunity to make financial mistakes.

It is certainly wise to plan for liquidity events in advance but the chickens don’t hatch until the cash actually hits the bank. The most common mistakes include purchases/investments that are illiquid (oversized real estate) or that have little or no potential for appreciation (cars, boats, planes, etc).

Especially for folks experiencing their first liquidity event, a strong recommendation is to wait a minimum of 12 months before making any significant non-recourse investment/spending decisions.”

Bruce: “The biggest change is finding purpose post-exit. Much of a Founder’s identity is tied to the business and having a lot of money certainly does not guarantee happiness. Be mindful of the things that bring joy and make time for those as early as possible.”

Any other ideas/advice you have for entrepreneurs that is different from the ‘standard’ advice for corporate folks?

Tim: “Business owners often become so engrossed in building and running their business that planning for financial life beyond the business becomes a lower priority. Establishing the “big goals” becomes more important without the corporate structure of 401k, equity compensation and benefits. Creating a relatively simple means to monitor and adjust these goals is also important.”

Ryan: “Having a business is one of the most amazing vehicles to take that vision you have, make it a reality, create wealth, enjoy work, and make an impact. If you put intentional focus behind it, I believe you can accomplish anything you want. But it’s the people who don’t take the time to learn this stuff and do the right things every day who won’t accomplish it due to distractions. Stay focused and keep learning.”

I love leaving this post on that note — I hope this helps you get a little more clear and focused on your financial life, and that you learned something (I definitely did!)

I want to thank Tim, Bruce, Troy, and Ryan for contributing their time and thoughts, and if you have thoughts you want to add to the discussion, or more questions you think we should cover here, please shoot me a note on Twitter.



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