This Week in Startups - How to simplify diligence & avoid fraud | Finance Basics with Kruze Consulting’s Scott Orn | E1321

Episode Date: November 8, 2021

In this hot funding environment, both investors and founders benefit from startups having all the finance basics covered. In this episode, Kruze Consulting COO Scott Orn joins to explain how to prepare for diligence and avoid fraud. They discuss common blockers in diligence (10:19), the benefits of tight financials (23:31) and more!

All right, everybody, welcome to this weekend startups. One of the things we try to do for the founder community is tell you about the basic things you got to get right when you're running a company. How do I know this? I've invested in over 300 companies. And as an early stage investor, we do something called due diligence. When we look under the hood, we make sure all of the T's are crossed, all the eyes are dotted, and you did things right.

And you know what we find? Sometimes mistakes are made. Some of those mistakes are easy-peasy to clean up. Other ones take years and can kill a deal. You might be trying to raise money. You might be trying to get acquired. And your books or your legal or your HR is not right. And if it's not tight, it's not right.

And then you could absolutely get crushed. It's very important for founders to get things right from the beginning. And you as one of the founders in the company should know HR, accounting, legal, these type of things are critical for you to know how to do perfectly. There is no negotiation on this. You're going to have to get it right at some point. See, you might as well get it right from the beginning. That's my philosophy.

If you're starting a company, you don't want unforced errors. You know, you don't want the car to flip for no reason because you didn't change your tires or rotate them or checking the air pressure. Okay, enough metaphors. With me today, again, my friend Scott Orne, who is the COO of Cruise Consulting? Scott and I have worked on a lot of companies together, some that come to mind. Density,

Hum, superhuman, you know, these All-Star companies that have been lucky enough to support from the beginning. Well, you know, behind the scenes, Scott has worked with them to make sure their books are tight. Scott, welcome back to the program.

Hey, thanks for having you, Jason. Really appreciate it. Yeah, and so we did this like a year ago or something, and we went over a bunch of basics. And for people who don't know,

you can see all the basics at this week in startups.com slash basics, whether it's with Cruz or Wilson Sincini, we did legal. All of that is outlined on that page. You can see the old episodes and some of these new ones that we're doing. And you can go to cruise consulting.com slash twist to connect with Scott directly. Or you can follow Scott on Twitter, Scott ORN. Now, since we last met, we've been in this crazy pandemic.

Business has boomed in Silicon Valley in the tech industry. What has business been like for you? over the last year or two in this crazy pandemic. Yeah, we've been super fortunate as well. So we're up to 570 clients as of today. I think we recorded last year's episodes. We were at like 275, something like that. So it's been crazy growth.

We have 125 people. And clients have raised this year already over a billion dollars. So we're seeing the same thing you are. And I think one of the, the pandemic was horrible for many, many reasons. but one of the kind of slightly good things that came out of it was people started taking their finances and legal and tax compliance way more seriously. I think that moment in March of 2020 where all the VCs were like, what's your burn rate, how many months of cash you have, what's your plan, how are you going to get through this,

kind of woke everybody up. And so we see early, early stage companies now coming to us, you know, two people in an idea kind of thing. Maybe raise 500K million bucks from launch or someone like you. And we're able to get them set up correctly like you said to start because why mess around. And then those companies can scale to 100 employees easily with all the systems and the tax compliance we put in place. So business has been good. And I think generally speaking, people take this just so much more seriously now. It's actually really good. Yeah. It's great that they're taking it seriously because when funding is happening at this rate, that means there's going to be a lot of diligence.

We see people, instead of raising money every two years, we're seeing people raise money twice a year. In other words, they might be raising three or four times more often than they were because it's a vibrant market right now. And the winning companies are being offered their Series A right after doing their seed or their Series B preemptively. It's a lot of weird stuff going on. And I think the most important thing is to get things right. And we also, you know, let's be honest, there are some bad actors there.

And there are sometimes, you know, people who will bend the truth and they will bend numbers. They'll shape numbers. It could be painting the best possible picture. It could be charitable. Yeah. It could be outright fraud. And we literally saw a fraud recently by one of these app development companies or app metrics companies where they just lied about their reoccurring revenue. We have other instances where a founder doesn't understand.

The difference between accrual and cash-based accounting, they tell us cash-based accounting, and they include some two-year deal in there. And it just makes it seem like, you know, for us, that you were lying or you don't know what you're doing and you're incompetent. And boy, both of those are bad. The lying is the worst. Incompetent is we can fix it. Okay.

So let's go right back to today's topic, which is how can VCs avoid fraud and all of these mistakes that we see in a fast-moving fundraising environment because we're asked sometimes, hey, the deal's closing, get on the train, trains leaving the station, and you don't have time for diligence. What should we do as investors? Yeah. Well, and the interesting thing is there's three or four trends we can talk about, which are making the fundraising pay. It's literally faster than I've ever seen it. And I started my career in 1999 doing investment banking for hamburger. So you saw the dot-com boom, which was pretty hot too. This is even hotter. This is so hot. And a couple of things we're seeing now.

The first major one is I feel like Tiger Global or and folks like them are out there. Basically building like an index fund in venture capital. And they are super quantitatively focused. And they're doing diligence like in a week or two weeks. There's a whole class of investors who are doing this. And so that's what's really kind of shifted things into overdrive. And they're doing huge dollar amounts. So that's the first one.

And then maybe like a second order ramification of that is the Sandhill VC mega funds are now either being forced to compete with that or they're looking at their portfolio and basically doubling down on their winners. And it used to be like I know you remember this. Like you'd always get an outside lead to come into the next round and price the deal, right? And why did people do that if you could explain to people? Yeah, because the limited partners, the endowments that found. foundations, the pension funds that invest in VC funds want like a second set of eyes and want to make sure there's a fair market value there, that they're not just like, the VCs aren't just like writing up their portfolio, basically.

It's good hygiene, right? Yeah, exactly. I made the seed investment in density. Mark Suster did the series A. Founders Fund did the series B. It's just but one example of public information you get on Crunchbase. If anybody comes in to do the series C, they're going to look at and go. Okay, J-Cal, he's good at what he does in the early stage. Oh, Mark Seuss, a very good Series A fund. Oh, Siam Bannister, Founders Fund getting involved in the B. Wow, this is a nice story. And they each did their diligence. So now we got three people's reputation on the line. If you look at a certain investment, I won't mention the fund, but a very hot startup during the pandemic, they did $100 million, a billion, $4 billion for one company, same lead. Maybe LPs or other folks go, hey, how much diligence was done?

there and are you marking up your original investment 40x so that your fund looks really good? Yep. And you can raise another fund to get more fees. It's really like scary sometimes when you see that happen. That's exactly it. But I feel like, I don't know if you're seeing this, but like in the last six months, the velocity of the fundraising market is making, and I'm sure the funds are talking to their LPs and getting waivers and things like that, but they're actually doing like the A and the B. That's so weird. And it's, it is weird. It's weird. But they're doing it. and I think it's just everyone's kind of trying to keep up with the velocity. And so, of course, you already have a existing relationship.

And for the founders, it's not such a bad thing. I do think it's helpful to have some of these other investors who are really smart around the table, but at least they know the fund they're taking money from again the second time. But that's been really fascinating. And then the third thing we're seeing is like pension funds going direct or endowments or family offices. Family offices. And they're dropping down.

they have such big pools of capital that they don't even think twice about putting in like 20 million bucks or 30 million bucks because eventually they want to do 200. And so this is, these are the three things that are kind of lean towards like it just is so hot. It's actually mind blowing to me. It's mind blowing. It was literally just on with a founder before we got on to tape this episode. And it was a private call about investment.

And they had closed around in the nine figure range, 100 million or so. Wow. before they had launched. And one of these big, you know, top tier, you know, hedge fund type people coming down and playing was offering them a Series B at 3X before they launched.

Yeah, that's like, how do you not take that as a founder? But what's the diligence there? Because the product's not even launched. So really interesting stuff going on. Let's talk about how we can reduce risk in the venture community. What do you advise?

You know, because sometimes, like I said, there's this tension around diligence. and maybe some people are relying on the previous person's diligence, that seems a little risky to me. It's definitely risky. I mean, every VC fund should be doing their diligence. And what we do see when there's enough time, they'll often hire like a big four accounting firm to actually get in there and interface with us when we're kind of representing

the company that's actually having the diligence done on us. So they're doing operational accounting diligence. They're doing financial projections diligence and they're doing tax diligence. all three of those are actually pretty important. And we can get into some of the, you know, the things that founders should be aware of, like the traps that you kind of talked about, whether they're doing it. Tell us about some of those traps that a founder might find themselves in where all of a sudden there's a blocker, there's a red flag, and they didn't anticipate it because I didn't actually, I mean,

I get projections. I get the current accounting. I actually didn't even think about like looking at the tax stuff. So explain to me what are some of the blockers that you've seen happen when people are trying to close around and all of a sudden something gets discovered. Yeah. The classic is like, you actually mentioned one of them at the beginning, over-inflating your revenue.

So just a couple quick things. Like sometimes, especially if they're on cash, they will, you know, send out an invoice, count that as revenue. And then they'll actually count the cash they collected as revenue, which is like a very simple double counting. The other thing, which people do is they, they basically collect like a $200,000 deal up front and then they annualize that into their ARR when that's just a one-time payment, right? That's not reoccurring revenue.

Right. That is the biggest thing. Like, you probably have a, you have a coffee meeting with somebody asking what their MRR or ARR is. And if they're overinflating that, you don't know they've overinflated it. You're getting excited. You're getting ready to issue a term sheet, do the diligence. Meanwhile, the emperor has no clothes, right?

And they have to go, they're not going to be able to go find just another one of those deals to replace it every month. it's going to be a problem for them. And revenue is, for better or worse, is a very strong signal for startups. And so, like, that's the thing that everyone's going to focus on. I mean, it's for better generally. Like when we as investors, you know, see revenue, we say, hey, that's hard to fake, right? But there are things on the margin.

Like we're talking about, oh, you sent it invoice, you booked it, but you didn't actually come in. Oh, you sold them a year, but it doesn't have in the contract that their credit card gets hit us, you know, on January 1st. Again, so you said it was reoccurring. We give you the benefit for reoccurring of a 20, 30 times revenue when we shouldn't give you that, right? We should give you two or three times that revenue. What about actual fraud? Like, you get to see things.

Obviously, I can't ask you to talk about specific situations. We're not trying to kill anybody here or get them investigated. But broad strokes, you know, give us a composite of bad behavior you're seen over the years. Yeah, the biggest one that comes to mind is when companies are faking their bank statements. What? Oh, totally. There was like a $4 billion fraud in Germany. And we actually had a company last year that signed up with us and we hadn't gotten them onboard yet, hadn't started work yet.

And one of their investors kind of was like, hey, you need to really check this thing out because I think some weird stuff's happening here. and before we could actually like really dig in, the SEC took action. And it turned out the founder have been downloading the bank statements using Adobe to manipulate the numbers and showing like millions of dollars in the bank when really there are thousands of dollars in the bank. What is the best practice there then as an accounting firm or as a diligence firm? Yeah. To make sure that's not happening because people may not want to give you their login, but do some of the best practice there? of these banks provide like a login where you can't do anything but it's view only or do you log in over their shoulder and like have them pull up the bank statement on a computer or

on a shared screen sharing and zoom or something? It's the view only access which we get for every single client because we want to be able to pull that down ourselves so that we can validate it. Instead of the oh because like Jason you may hear like the oh I'll send you those bank statements. I don't really want to give anyone access or for whatever bad reason. And so that's that point where they could actually manipulate it. And once they manipulate a bank statement, you can make quickbooks look however you want to make it look just by journal entries and things like that. But that's actually the biggest thing. And so just having the only, your accountant should download it directly. Your accountant should also reconcile the accounts, which means tying QuickBooks

into the bank statement and literally checking off every transaction. You do that inside of books. Easy peasy. Yeah, but people, sometimes people think this because they entered transactions that it's reconciled, but you actually have to tie everything out and make sure there's not kind of like hidden transactions that someone kind of covered up. That's also a big, big area. Wow. It's just so crazy that people would do this. And I think what people need to realize about this kind of behavior, you know, 98% of the people listening right now would never even, would never even cross their consciousness, but there are people who will do it. So this really is a mess. for the people who are doing diligence on the other side.

Also, just there are things that are even that are borderline, right? And sometimes people will make a mistake. I'll give you one that comes up and you may have seen this. Oh, we have this great customer. You know, let's pick a company. GE is using our software. Now, GE says, can you consult? Okay, great, we'll give you the $10,000 for the software.

Hey, by the way, would you do a consultation with us? We'll give you $25K a month just for the next six months to get the software dialed in. And we're GE. We have money laying everywhere. We don't want to do the work. we want you to go. They're like, oh, 25K a month, six months, 150 dimes, let's do it. But they put services revenue into the bucket and they don't make it a separate line

item. This happens all the time to me. And when we catch somebody doing this, we're like, oh, we based your evaluation in the whole negotiation on 35K and MRR, not 10K. That's a three and a half times difference. Well, also the services revenue is low margin. So that's not software. Or no margin.

Yeah, or no margin. And so the valuation is completely different. A twist on that is booking free pilots as paid. And then just so like what people do and this is never, this is the stuff we catch is they book revenue because it's a free pilot. And then they book a discount lower in like the GNA or something like that that offsets that revenue. So they tell themselves they're doing something correctly. But it's clearly misleading to the investor like you.

Like you see the revenue. You don't see the discount. That's dirty. The discount should be booked as a contra account against the revenue, and you should show a net revenue number. But the free pilot thing or free months of service or things like that is like a really big issue. So don't do not take revenue for months or services you're doing for free. That's like a huge no-no. I mean, if people are on a free trial, they're on a free trial.

They're not paying you $10,000 a month in this example. Then you discounted them $10,000. because once we see that, now we think we can't trust you. Just speaking for an investor. And when those red flags come up, it just says to me, well, if you're willing to do that, what else are you willing to do? Yeah. Well, there's also, I'm sorry, I didn't mean to talk over you.

There's another thing, which you use the GE example, especially enterprise deals, make sure you have kind of your champion on the bat phone because we had a company recently that was having diligence. And the investor actually called the, the customer and the customer said like, oh, I don't actually think we signed a deal with them. I don't think we're actually using them. Wow.

And so of course, the investor was spooked. Luckily, the entrepreneur was like, wait a second. Cruz, can you actually send the detail over to this investor? So we actually pulled the invoice, pulled the cash hitting the bank account, sent that to them. And it turned out the investor was talking to the wrong person at that company. So that's a great save. Yeah, it was great.

Perfect reverse save. Yeah, it was lucky, but like you just got to be really, really careful and make sure you have your champion. Because that's what's a lot of, you know, early stage companies are not just selling the software, but they're usually asking that big enterprise to be a reference customer for them. We'll call them a lighthouse customer, right? Yeah, exactly. They basically shine this great light across the ocean for other customers to show up in the GE example. Okay, GE is using it.

Maybe IBM, you know, and Walmart will be the next to embrace your software. Another thing I see people getting confused about or maybe making up, you know, in the worst case scenario, is LTV and CAQ. Lifetime value and your customer acquisition cost. Let's just drill into these for a minute, double click on them because a lot of decisions in startup land are made based on, oh, you have a KAC of $50. Your product has a lifetime value of $10,000. If we give you a million dollars, you can put that to work and you're going to have that

many customers show up and we're all going to get rich and this thing's going to IPO. and then it doesn't happen, and then people go, what happened? So let's double click on those. Yeah, so long-term value of the customer. Oftentimes, this is a slight little thing, but oftentimes investors will just use revenue when kind of like the correct way would be to use gross profit because obviously there's some costs associated with delivering that service. So you want to use gross profit on the top.

And you're going to basically look out three to five years, really as long as the customer is staying with that, or excuse me, as long as the vendor, staying with that customer, and you want as long as possible. It's exactly as you said, you're investing in customer acquisition, and if you can get a really high long-term value, this could be a really great company. So the top of that equation, the LTV should be the long-term value of the customer should just be a gross profit number. And then the bottom of the number should be all the marketing and advertising costs that went

into acquiring those customers. And oftentimes founders get a little bit confused. is this is actually why accounting is helpful because typically you'll break things out, advertising, marketing. You're also breaking out the payroll entry so you can see the headcount that works in advertising and marketing, right? But it should be, you know, if you're doing Google, Facebook, maybe Apple Ads, and then also you have a marketing director, and maybe you have an agency that's doing advertising,

and then you're actually buying the advertising. All those things need to go into the denominator, which is the customer acquisition cost. It also gets a little choppy if you look at it only. only on a month basis. So you're going to want to take kind of, you're going to basically want to present investors with not only a longer period of time, but you're going to want to show them vintages.

So, you know, someone like you would be. Cohort data. Exactly. I want to see what January and what happened to those customers. Sure. I want to see what happened to February.

And one little trick, which I don't endorse that founders sometimes will be tempted to do, is on that gross profit number, instead of using kind of the actual gross profit, they'll put an estimated, hey, we're going to get their gross profit number, right? No, no, Bueno. Yeah, so they might be at like a 50% gross margin just to make things kind of simple, but they project out 80%. And so, of course, that juices the LTV, which makes the investment look better to you. So don't do that.

And also don't kind of accidentally forget to include the salaries or some of the marketing costs. Yeah, I mean, this is, I think, one of the, when you. actually look at the customer acquisition cost, a lot of times founders tell me, yeah, our customer acquisition cost is 40 and the lifetime value is 10,000. And I'm like, how much money do you have in the bank? And they're like, we have $300,000. I'm like, immediately spend $100,000 and get more customers. And they're like, yeah.

And I'm like, what's the hesitation? You should, what did you spend last month? Do you spend $2,000 less month? Why not spend $50,000 a month? Yeah. And I see that hesitation. And I realize, okay, maybe there's something wrong here with the cap. And then it turns out, let's just take a little hypothetical early stage example here.

they have a thousand customers, they spent 100,000 on Facebook and Google ads to get them $100 a customer. But they hired an agency to do the work and they've got a CMO and the CMO has two people working for them. So they actually spent $400,000 and it's a $400,000 acquisition cost. They just left out 75% of the cost because they just took the number that they spent on Google and Facebook and none of the other associated costs. And that's where people get themselves in trouble.

You're totally right. Also, sometimes. if someone wasn't being honest, they might forget to factor in the churn, right? Right. And so they're kind of extra- How many people left every month? Exactly. They might be in year one of this acquisition strategy. And so they actually don't have great data on what the churn's actually going to be.

And so they make an estimate. And they kind of like understate the churn, which then overstates the long-term value. So you get the overstated long-term value, the understated cost acquisition. And you've got on paper, works like the greatest company of all time. but under the hood it's not as strong as you might think. It's basically like people are giving themselves credit, you know, in some places and then taking out the cost in other places. And you do that three or four times for 10, 20% each and this stuff compounding.

And it's a completely different looking business. And you get a savvy investor like myself who has been through, you know, tens of thousands of these conversations and has 300 investments and reads the monthly updates. And you're just going to hit a wall when you hit the savvy investor. investors, and then the ones who are even beyond me, I have a diligence team, but there are some places that have associates who just build business models. And they're going to go in there and then tell you, these people don't know what they're doing. So either you're going to look, again, incompetent, or you're going to look like you're lying. These are the two worst places to be

as a founder. I'm sorry, and we're dwelling on the negative side, but the positive side is if you have these metrics dialed in and you're updating it every month, and if they have coffee with you and everything's dialed in. I mean, how impressive is it to you if an hour after you've had coffee with someone, they send the whole financial package, they send the LTV CAC, they send the business plan, and you can make a decision right there. It's amazing. Beautiful. Beautiful. I mean, that is the upside, right? We're talking about the downside a lot, but there's a super upside to having this stuff be tight, be conservative, or even have an open conversation of it. Hey, listen, our CACs very low right now. We think that's because, you know, there's a gap in the market. There's not a lot of

competitors, it's a new product. And we don't know our churn. So the CAC's certainly going to go up if we take out that churn, if we define our ideal customer as somebody who uses superhuman for more than a year. And so the looky lose will be gone. You know, the people who are window shopping will be gone. They're just testing the product. And so we've really got to think that through. Man, your credibility goes up. Another thing I see that kills credibility is when founders are doing self-dealing. Oh, God, yeah. This is to me, and listen, I'll be. totally honest, when I was starting my career as a magazine publisher, I didn't pay myself. And I just took a draw when I needed money. So I didn't know how accounting worked.

I had a Bank of America account for my company. I had a Bank of America account for me. If I ran out of money, I would just wire myself some money. I didn't know how to do anything. It was just a company of one. And then I finally got an accounting. It was like, hey, dummy, pay tax, payroll tax on that? And did you have a payroll provider? Kind of break. And I was like, oh, how do we clean that up? So there I was cleaning shit up. But let's talk about the self-dealing issue. What are you seen? What are the big, big no-nose?

The biggest one is the one you talked about, which is kind of feeling like it's one thing to do all this stuff when you're bootstrapping and kind of getting going. But once you've raised that VC money or angel money from someone like you, you are fiduciary. There is no self-dealing that is legal. It's illegal. You go to jail for this kind of stuff. The first one is like, oh, I need to make, I'm not paying myself, so I got to give myself a little bit of cash this month.

And like you said, they forget to run payroll taxes through it. The board probably didn't authorize it. And they go down this path of tons of IRS notifications, penalties, all this kind of stuff for the payroll tax problems. But more importantly, they broke in the trust with someone like you. Yeah. When they could have just paid themselves out of the gate and no one would have had a problem with it.

The second one is, it's kind of sad. but sometimes people think like, this is my company, it's my money. And so they use the credit card for their own stuff, right? And we've had some unfortunate moments where we've actually had to like report a founder to a board because it's like, hey, this person is not buying poker chips. Yeah, yeah, or hotels. Strip club, accounting. Close, whatever, you know.

These guys are all of a sudden, it's like, yeah, you really can't go to scores and buy funny money. Like, what are you doing? It's not 1990. I literally in the 90s, remember, people would go to gentlemen's club in New York and take out their corporate card. And, you know, like, it's a different world. Now you can't do this kind of stuff. Like, that's not

how the world works. And you just have two cards in your wallet at all times. If your personal card stops working and you need to buy yourself a sweater when you're in, you know, New York because it got cold and you forgot your sweater and you put it on your corporate card, you immediately Yes.

Just email somebody on your team. My card went off. Please make sure I'm billed. I do that to this day because I forget and I don't ever want to get dinged. And I'll say to somebody on my team, you're going to see, you know, I use the corporate card because I forgot the wrong card or something. That happens. Or you accidentally order something on Amazon and you didn't switch the card. Okay, no big deal.

Just immediately document it and say, please make sure I get charged for this. Period. End of story. That's absolutely correct. And then the other little thing we see around credit cards is sometimes there might be like an office manager or operations person who kind of like there's no there's not a lot of a second set of eyeballs like it may be an outside accounting firm like us on this. And so that person kind of conveniently starts paying their own personal credit card with the company's money because they have access to the company's bank account and can set that up. And so we see that when a company comes to us and we're like, hey, there's a credit card that you haven't given us the transactions for.

We can see the money coming out, but we're not seeing the matching transactions. That's when that person gets in trouble. But it happens because there's not a lot of oversight. So that's having a second set of eyes can be very, very helpful. This is why I love these new credit cards. I won't mention any specific one. But there are a new class of credit cards that you can set up for employees. I'm not giving anybody a free ad here or picking a favorite.

but you can pick credit cards. You assign it to an employee. You give them a certain amount of money. They get the number. They get the card. And it gets reported on immediately. And you can turn it off at any time. You could put it at $500 limit, et cetera.

It's nice and easy. We didn't have those back in the day. Back in the day, you had to be personally responsible for your corporate card, which was a scary thing. And then you had to wait to get reimbursed. And then you might get a penalty on your American Express corporate card, yada, yada. So I highly recommend people research that. I'm assuming you do too.

We love those. And they also make the accounting easier because those firms, and we don't have to give any free advertising here, but they integrate, you should have them on the podcast because they're actually great products. They integrate into QuickBooks and actually make the accountant's life easier. Oh, that's great. And you don't have to file expense reports if you give your employees those little,

you know, what I recommend is a small. It's basically got it built in. Yeah, totally. You can create, we create a card for subscriptions. So if we have like journal subscriptions, Wall Street Journal, New York Times, whatever we're doing, substacks.

We put that on one card. We then take that card, what's great about it is. We can then turn the card off every year just for hygiene, have all of those expire, and that if people want to renew them, then they say they're going to renew them. So that's just a little tip. I just tell everybody, turn off all those old cards. And then if people bought SaaS subscriptions, they're no longer at the company, you know, trust me, if you're lost on an island somewhere,

these SaaS companies will find you to make sure they get your new credit card. So just a pro tip. If you're ever like, you know, cast away and your Tom Cruise lost on an island, you know, the SaaS companies will find you to get the new credit card. They've got their LTV and Kack ratio to worry about. Yeah, they've got to bring you. They're emailing. Like, literally, I've had people email me like, you know, is this person still at the company?

Because your SaaS ran out. And I'm like, yeah, they haven't been here for eight months. And like, we don't even know they were using this software. Yeah. That's where those cards come in super handy. And there's a couple of them now that I've used personally where you can make, they'll fire up a credit card number for you for one person. Yeah, it's great.

Which is freaking fantastic when you think about it because now you have the control. All right, listen, I think that we crushed it on this one. There was one final one. Just making sure tax filings match the books, right? Yep. People do check that. So make sure your taxes are tight. It's actually the first thing the diligence will cover.

because if those are off, it tells the VC that like something's wrong, either in the accounting or the taxes were not done correctly. Which is worse. Yeah. Yeah. And so in and it sounds simple, but having your tax and not just like your tax return matching your financials is super important, but having your Delaware C Corp in good standing, paying that every month, New York, California, Texas, Florida, wherever your company is based, having

that all taken care of. because if you let that lapse, you actually lose your corporate liability shield. And the last thing you want to do is like get sued by somebody and not have your liability shield there. So it's like super basic stuff, but it's really important to keep it just up to date. All right, listen. Great job again. This important stuff, everybody. You can go to cruis consulting.com slash twist. That's K-R-U-Z-E consulting.com slash twist. If you want to get touch with Scott, O-R-N, you can slide into his DMs. I'm assuming open DMs. if you're a service provider always willing to check those open DMs.

Business only, please. Business only, yeah. I wasn't insinuating anything. You don't slide it to his DMs for any other reason. He's a handsome man, but let's take it easy, okay, everybody? And you can go to this week at startups.com slash basics to see all these basic episodes. And we'll be back with more on the next episode of Startup Basics.