We’ve answered thousands of bookkeeping & accounting questions from founders since we launched. Here is a comprehensive guide that answers all of the most common questions founders have about bookkeeping & accounting for startups.
Startup’s have a variety of financial tools they use to run their business. You may have a Brex card, Mercury bank account, Rippling payroll system, Deel for international contractors, Stripe for customer payments, Chargebee for customer subscriptions, etc. Bookkeeping is the activity of categorizing all of the financial transactions across all financial systems in one place and then reconciling the data with the source of truth (bank statements, etc) to ensure all financial reports are accurate. The result of doing the bookkeeping is accurate financial statements: Profit & Loss Statement, Balance Sheet, Statement of Cash Flows.
Bookkeeping is part of having your “Accounting House” in order and that can be important at various points for a startup. In the beginning, the only time you may need to produce financials is once per year for annual corporate taxes. As you raise money and grow there are other times throughout the year that your startup will commonly have to produce current financial statements — like for investor requests, 409a valuations, and budgeting.
Every startup is required to file corporate taxes each year (see deadlines and the Founder’s Guide to Corporate Taxes here). If you don’t file your taxes your startup will face penalties and miss out on up to $500k in available tax credits each year. In order to file your taxes, you may hire a licensed accountant who will require accurate & reconciled financial statements in order to prepare your tax returns: Profit & Loss Statement, Balance Sheet, Trial Balance and General Ledger for the year. If your bookkeeping is done, pulling these reports is easy.
Yes, you can do your own bookkeeping. However, it is not uncommon for founders to be advised against this - it can result in costly mistakes and unnecessary headaches. Here are the steps to start preparing your books: sign up for the right bookkeeping software (5 mins), set up your chart of accounts (1 hr), connect all of your financial systems (30 mins), if no integration exists you can download then upload CSV of your financial transactions (30 mins - 2 hours), categorize all of your financial transactions, and reconcile your balance sheet accounts (Cash, Payroll, Seed Round, etc.) each month (2-8 hours), quarter (4-16 hours), or year (12-48 hours). These are the FAQ for founders and non-startup accountants: how do I categorize my funding deposits? Is this considered revenue? Are payments to my credit card balance considered an expense? What if I accidentally categorize the expenses from my corporate card or reimbursements twice? Will I go to jail if I do this wrong? There are various courses and youtube videos that will teach you how to do your bookkeeping.
Once you get more familiar with the software and process, if you do this monthly, it should take you ~4+ hours per month. However, this may not be a great use of a founder’s time. If you would like to unlock more hours per month to build product or talk to users, plus know that all your numbers are accurate and ready for tax season, investors, 409a valuations, etc. it is worth considering outsourcing your bookkeeping.
@Kirsty Nathoo (Managing Director, Finance of YC) says it best in this helpful video about key finance metrics for startups: “It’s usually once people raise some money that it’s not a good use of the CEO’s time to be doing the books -- the CEO could be doing a lot more high leverage things.”
Bookkeeping is required for:
As a startup matures, the frequency of your bookkeeping increases to the frequently the founders want or need to see or share their financial data. Startups can do their bookkeeping monthly, quarterly, or annually. Most startups start with annually and then increase frequency from there as needed. Fondo offers monthly, quarterly or annual bookkeeping options that you can cancel or change at any time with no penalty.
This guide for informational purposes only and does not constitute legal or tax advice or create an attorney-client relationship. Companies should consult their own attorneys or tax accountants for advice on these issues. Because of the generality of the issues discussed in this piece, the information provided may not apply in all situations and should not be acted upon without specific legal or tax advice based on particular situations.