Accounting for Startups: The Founders Guide 2025

Available to answer questions, available to update numbers as new data is produced, available to set up the right systems for a high growth company. Payroll taxes are taxes that ALL companies with payroll pay – even money losing, early-stage companies. This is a massive tax credit that your company should take advantage of. We’ve put together a calculator to help you estimate the cost of preparing your business’ return. We recommend QuickBooks Online (“QBO”) as the right bookkeeping software for startups and high-growth small businesses.

Chart of Accounts for Startups

Bookkeepers should monitor invoices, ensuring they’re sent out promptly and following up if there are any payment delays. Efficient invoice management helps maintain healthy cash flow, which is vital for covering essential operational expenses and investing in growth opportunities. You get full-time accountants who are just as capable as local talent but at a fraction of the price. Plus, interviews are free, so you are never out of pocket unless you make a hire​.

Does my startup need an accountant?

Make sure that your startup accountant is a good fit with your existing team. Company culture is very important to productivity, so you want to make sure you have someone that can contribute to the cohesion of your team. This means not only in terms of how long they have been a practicing accountant, but also the volume of their work and how close it comes to your business.

Documentation of employee wages, hours worked, taxes withheld, and benefits provided. Detailed records of goods sold or services rendered, including customer information, payment terms, and amounts owed. Tracks the flow of cash into and out of the business, highlighting your liquidity and ability to meet financial obligations.

Double-check your bank feeds

CPAs are legally allowed to provide tax services above and beyond what other accounting professionals can do. CEOs of early-stage companies have a tremendous number of things to accomplish. GAAP is better for running your business, as it helps you match your expenses and revenues with the timing of those activities.

i. Bank Statements

You might know which federal income tax returns you need to file — but what about the other forms? For instance, Morgan says it’s easy for startups to forget to distribute W-9s to vendors and contractors. You don’t need to file W-9s with the IRS, which is why they’re easy to miss. But they provide your startup with the information it needs to file 1099s at the end of the year.

A controller will help relieve your accountant of a lot of the administrative burden. By generating your financial statements and reports, the accountant can focus on ensuring clean books. Kruze’s team of professional bookkeepers will work with you to find the financial delivery date that meets your needs. Our CPAs are experts in startup accounting, and are experienced in leveraging AI accounting tools and automation. Many of the top AI companies are Kruze clients, which gives us unique insights into the latest AI technologies and trends. So we don’t recommend that level of complexity for your seed stage model – just the IS and the cash position (maybe working capital or inventory).

Before hiring an accountant, you are likely to weigh their employment costs against the services provided. Mixing personal and business finances can make it difficult to track expenses, file taxes, and prove legitimacy to investors. Open a dedicated business bank account and consider obtaining a business credit card to make transactions easier to manage. If you’re spending more time on spreadsheets than strategy, it’s time to bring in help. A Fractional CFO can offer high-level financial guidance without the full-time cost.

Starting a business is exciting, but handling accounting for startups is a whole other world. It is easy to get caught up in everything else and push accounting to the back burner. But that is a risky move because messy numbers can cause cash flow issues, missed tax deadlines, or worse.

Burn Rate and Cash-Out Date

One tip is to set up a dedicated system to record financial transactions. With all the financial data you’re handling, it’s best to go the digital route and have a stable backup. Aside from being a cost-effective measure, you will also gain access to expert accountants. It reduces the administrative burden of keeping financial records with an outsourced accountant, ensuring that your business complies with policies and mitigating financial risks. Setting up an accounting system for your startup is a crucial step in ensuring financial transparency, compliance, and effective decision-making.

Kristen Slavin is a CPA with 16 years of experience, specializing in accounting, bookkeeping, and tax services for small businesses. A member of the CPA Association of BC, she also holds a Master’s Degree in Business Administration from Simon Fraser University. In her spare time, Kristen enjoys camping, hiking, and road tripping with her husband and two children.

• The content in this article is for general information and education purposes only and should not be construed as legal or tax advice.
• Instead, they are small enough to DIY their accounting, with the exception of filing a tax return – using a legit CPA for a startup tax return is a very, very good idea.
• However, maintaining accurate financial records is essential for your venture’s long-term success and stability.
• It is used as a proxy for cash flow while being focused on the income statement.

These non-traditional revenue recognition methods require careful accounting and compliance with revenue recognition standards, such as ASC 606 in the United States. Startup businesses also experience rapid growth and scaling, which can lead to changes in revenue forecasts, asset impairment, and adjustments to financial statements. Accrual accounting is more complex than cash accounting, but it provides a more accurate picture of a startup’s financial health. The method recognizes revenue when it’s earned and expenses when they are incurred, not necessarily when the money changes hands. Accrual accounting is a recommended method for startups to have a more realistic view of what’s happening in the business.

• Then, set categories for your expenses and income to keep everything in order.
• Choosing the right accounting software for your startup is a critical decision that can significantly impact your financial management and overall efficiency.
• Moreover, venture capitalists and angel investors often scrutinize your financials before offering funding.
• Startups sometimes find this somewhat challenging due to limited resources, lack of experience, cash flow constraints, and rapid growth.

Keep in mind that internally developed intangible assets (like your proprietary software) are typically expensed as incurred, rather than capitalized. This can significantly impact your profit and loss statement in the short term. In the cash-strapped early days of a startup, equity compensation can be your secret weapon for attracting top talent. ‍Failing to comply with tax regulations can lead to penalties and audits, which are both time-consuming and costly. Rockwell adds that automatic bank feeds may record transactions twice, too — especially if you’re using a payments integration. Morgan suggests scanning your paper receipts with your accounting app at least once per week.

Which Financial Statements Do You Need?

Accountants’ specialized knowledge can support your startup business in many ways. We’ll cover the various  services startups need from accountants and the things accountants look out for while doing their work. Oftentimes, accounting for startups is left to whoever is best at managing data in the company – or if no one – one more job for the founder. However, a lack of accounting experience and knowledge can be a hindrance, especially for startups which need to be agile and primed for rapid growth. Mastering the basics of financial statements will help you make informed decisions.

To make the right choice of software, it’s important to assess your business needs. Consider the size of the team, the complexity of financial transactions, and other features you require. Accounting is a critical aspect of any startup’s operations, as it helps you track and manage your financial resources, make informed decisions, and stay compliant with tax regulations. The process involves making financial statements and understanding taxation policies.

QuickBooks Live Bookkeeping Review & Pricing in 2024

For most startups, you don’t need 40 hrs/wk of work from an internal finance hire or team, especially when you first hire them. As a startup, one of the first accounting decisions you’ll make is whether to use cash or accrual accounting. In cash accounting, you record revenue when you receive it and expenses when you pay them. However, accrual accounting for startups the ultimate startup accounting guide accounting records income and expenses when they are earned or incurred, offering a more accurate financial picture. However, with the current economic slowdown, some startups that may experience slower than projected growth are choosing to “re-outsource” their financials. At Kruze, we would argue that a VC-backed startup should have an accountant/CPA (and not just a bookkeeper).

The best startups use a cloud-based accounting software like QuickBooks Online to do basic bookkeeping, which includes tracking income, expenses, and other financial transactions. They may DIY their books, but should work with a CPA firm to file taxes and ensure state and local tax compliance. VC-backed businesses typically choose to outsource their bookkeeping and tax preparation/compliance to experienced CPA firms.

Of course, having the right systems set up can dramatically lower the amount of effort required; we’ll get to those systems in a moment. Accounting is one of the tedious tasks that every startup must consider. It’s a grueling yet beneficial process that will define the financial success and operation of a startup. Good accounting practices help reveal what’s beneath the finances of a startup, improving its financial capacity for the better. Here at Free cash flow help online businesses (like yours) boost their revenue and do what other firms miss. If the bank statement and corporate records don’t match, adjustments are made to company balances to reflect better the actual condition of affairs at the end of a financial year.

InDinero has over 80 employees with offices in San Francisco, Portland, and Manila. We believe that it’s our team’s job to help save our CEOs time and take care of the basic bookkeeping tasks that other services dump onto their clients. As pioneers in cloud accounting, Kruze has been an Intuit Firm of the Future Finalist, an Expensify Emerging Partner of the Year, and is a Gusto Gold Partner.

To learn more about business structures and determine the right one for your startup, check out our guide on How to Choose a Business Structure. If you think a transaction was categorized incorrectly or notice an error, don’t assume your CPA will correct it at the end of the year. Try to take a more proactive role and ask your bookkeeper for additional information.