Essential Guide to Startup Accounting

startup accountant

Often, startup accounting is left to whoever is best at managing data in the company—or if no one is available, one more job for the business owner. However, a lack of accounting experience and knowledge can be a hindrance, especially for startups that must be agile and primed for rapid growth.

If your startup is relying on the person who’s best at numbers for your accounting, you can be setting yourself up for failure like:

  • Misinterpreting the cash flow statement
  • Getting into legal troubles
  • Holding back your growth
  • Losing out on funding or contracts
  • Wrong or missing data for the big financial decisions

Becoming a certified public accountant (CPA) takes years of higher education (150 credit hours) and success in an exam as well as continuing education requirements.

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.

There are many good reasons for how things work—GAAP (generally accepted accounting principles) has been honed for decades. Why do you care? Well, investors care, for starters. A big reason is to help compare one investment to another. Even if you, as a startup founder, think you aren’t ready for investors, you still may need a business bank account, a line of credit, or even a credit card, and you will need to produce industry-standard (and correct) sets of financial metrics.

By the end of this post, you’ll better understand startup bookkeeping and accounting, so when you assemble your team, you’ll know all the right questions to ask.

What Makes Accounting + Bookkeeping Services for Startups Different?

Regarding the number of employees, sales, and market share, startups look an awful lot like small businesses. The numbers are just small. Or worse. Negative. While it’s true that startups and small businesses operate simultaneously, a startup has its sights set on larger horizons than a small business – with big implications.

Because of this difference, the administration and financing strategies of startups and small businesses are very different.

Growth Focused: Big Businesses in Infancy

Unlike small businesses, startups are built with rapid growth in mind. Because of this, many of their operational structures are designed to scale the organization and its revenues quickly. Startups aim to become big businesses, go public, or achieve another large outcome. As a result, startup accounting can be a bit more complex than that of a small business in the same industry.

Because of this added complexity, it’s important for startup founders to equip themselves with the right tools out of the gate–such as software and access to professionals. Like all businesses, a startup will need to establish the right business structure and manage internal data and workflows to the same level of scrutiny that a public company would use if it wants to attract the level of investors that go along with that path.

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For instance, a small business might manage their financial data with a simple accounting software like QuickBooks and their staffing with a simple scheduling software like Homebase.

More complex enterprise resource planning softwaresuch as Oracle Netsuite, may even make sense for your startup if you are in the right industry and depending on where your aspirations take you. .

Distributed Teams

Startups are also more likely than other small businesses to have distributed teams. Unlike a small business, startups rarely focus marketing efforts on a specific geographic area and will not be bound to a single location. Thus, many startups find that maintaining a headquarters is overhead they don’t need, opening them up to employees from anywhere.

With teams in different jurisdictions, there will be different tax and labor laws you will need to follow. Accounting management gets messy as your team and clientele spread across the country or globe.

Industry-Specific Aspects

Startups are usually in breakout industries or innovating in existing industries with new technology. Because of this, they have different needs than a typical business.

One example is the burgeoning Software as a Service (SaaS) space. In SaaS, income is generated from subscriptions rather than one-off sales. Because of this, deferred revenue components must be included in your income statement and financial reports to boost your profile with investors or banks. This requires accrual basis accounting rather than simple cash basis accounting. An experienced accountant can help you make calculations that maximize the value and attractiveness of your business.

startup Accounting

Another example of industry-specific differences for startups is eCommerce. While a small business might want to focus on a single channel to keep things manageable, eCommerce startups usually maximize the availability of their products by operating on multiple platforms.

Because of this, eCommerce startup businesses will need software integrations to unify the transactional data coming from multiple channels. While an accountant usually won’t be able to engineer these integrations themselves, they can walk you through the available solutions and help you choose a consultant to deploy them.

Areas of Focus for Startups

Now we know there are various aspects to the trajectory of a startup that require unique accounting needs. But what accounting services does a startup need? Below we’ll dive into more specific accounting topics for startups.

1. Managing the Chart of Accounts

The most obvious role of an accountant is developing the right chart of accounts (COA). The COA lays out all your assets and liabilities and provides a comprehensive picture of your business’s financial health. A startup accountant needs to manage financial data coming from multiple streams. Your chart of accounts is the main reference point for your financial position.

An efficient COA ensures accurate categorization and tracking of financial transactions, facilitating easy monitoring of revenue and business expenses. With a well-managed COA, startups can make informed business decisions based on reliable financial data.

Additionally, an accountant can assist in regularly reviewing and updating the COA to accommodate the business’s evolving needs. This ensures that the financial statements and reporting remain accurate and aligned with the company’s objectives. Finally, a well-maintained COA streamlines the tax preparation process, ensuring compliance with regulatory requirements.

Items on the chart of accounts include:

  • Cash on Hand/Savings – When we talk about a business’s cash on hand, we don’t mean the physical dollar bills the business has in its possession (though it may include that). Rather, it is the total value of assets the business owns that can be converted to cash without requiring a sale (e.g., checking, savings, and money market accounts).
  • Accounts Receivable/Payable – AR and AP are crucial to accrual accounting. They represent the total money owed either to the organization (receivable) or to its vendors (payable).
  • Assets/Liabilities—Assets and liabilities are the total amount of positive (assets) and negative (liabilities) line items used to calculate your business’s value. Accrual accounting includes accounts payable and receivable in these calculations.
  • Equity/Debt—Equity and debt are hugely important to startups as they are a large part of financing for investment and expansion. Equity is an ownership stake in the company, whereas debt is an ownership stake in its proceeds. In the event of bankruptcy, debt is paid before equity.

2. Cash vs. Accrual Accounting Method

Calculating and itemizing all the assets and liabilities can be a tricky endeavor. While cash accounting (calculating the money you have on hand and the money you owe) is relatively straightforward, it isn’t the method of accounting preferred by investors and banks.

The accrual method, or the preferred way for startup accounting, looks to future payments to get a clearer picture of what your business can be valued once all current business transactions have cleared.

This method of accounting isn’t straightforward, especially when it comes to recurring payments like subscriptions and rent. A certified accountant will be able to manage your chart of accounts with accrual accounting to position your business in the best light for those investing or lending you money.

Check out these other blogs with tips on how to grow your startup:

With this information, your accountant can also dig down a little deeper into your operations with unit economics. Your accountant will combine your financial data with inventory and operations data to determine per unit values for each of these and other indicators. This can help you identify areas where you can optimize your product offerings to meet and exceed your goals.

3. Oversight of Business Credit Cards

Your accountant can help you better manage company credit cards by monitoring your cash flow statement. They can tell you whose jobs require the immediate purchasing power of a business credit card and how best to delegate authority to balance agility with security.

Issuing company credit cards can be a risky endeavor for a startup. With a constantly shifting financial position, it’s easy for team members to get carried away with company purchases, whether it’s for equipment or business travel expenses. An accountant can help you develop best practices for managing company credit cards.

Although we’d like to believe that our businesses are creditworthy on their own, banks will require a personal guarantee for startups. Building up business credit to the point where creditors no longer seek to put officers personally on the hook for credit card debt takes years of strategic borrowing and timely repayments. Your accountant can help you manage your finances to reach that goal.

4. Cash Flow Statement and Planning

A good accountant can tell you where your business is financially and help you chart a path for its financial future.

With the help of advanced financial modeling tools, your accountant can determine where your profit centers are and relieve financial pressure points in your budget. With an organization as fast-moving as a startup, it’s important to plan for all contingencies, and your accountant should help you do that with a proper financial model.

5. Raising Capital

Your accountant has some expertise to offer when it comes to raising capital. While they will not go out and secure the funds or represent you in the negotiation process, your accountant will be aware of what funders look for when making investments in startups.

One of the biggest contributing factors to successfully financing your startup is having clean and accurate books. An accountant will produce financial documents and set you up with accrual accounting, which investors take more seriously when valuing your startup.

An accountant for startups will also be familiar with the funding cycle and what investors like to see at each stage. They can notice trends and help you set goals for the next stage of funding. Although the criteria for each funding round is unclear, here is an example of when your startup might seek its funding rounds.

Seed Round

Early-stage companies start with the seed round. In this round of funding, you’ve developed a business plan, perhaps some prototypes, and are ready to get your business off the ground. There may not be a proof of concept yet, so the funding may come from those willing to take on riskier bets. Incubators, angel investors, and often friends and family who know you are the ones willing to inject startup capital. These investors will expect some sort of private equity stake, debt repayment, or a combination, so having an accountant who can demonstrate your ability to manage finances and investment capital is crucial.

Series A

A startup aims to grow the customer base, often at the expense of revenues. In Series A, investors seek a solid business plan to turn a great product or service into a great revenue stream. This round will likely have you talking to more established private equity and venture capital firms. Your accountant can support this effort by modeling your current and prospective customer base for monetization.

startup accountant

Series B

Series B funding typically comes in when the startup hits a growth plateau and needs to scale its offering and resources to meet customer demand. Your accountant may be able to help advise on financial strategies for scaling your business and expanding operations to demonstrate the viability of the business to continue growth and expansion.

Series C

Continued growth requires additional financing rounds. Some may raise additional capital to fund new product development and marketing or to expand into new territories or industries.

Again, the impetus for these funding rounds differs for every business. The common thread among all funding rounds is that the business needs money to reach its next stage of growth. An accountant can help you prepare your books to put your best foot forward for investors.

6. Distributing Equity and Managing Debt

Investors fund startups because they believe that the financial obligations startups take on will be manageable when the startup reaches maturity. Although there are many other kinds of funding arrangements, the most common are equity and debt.

Equity gives an investor a percentage claim on your business’s value. Debt, or a business loan, gives an investor a stream of interest-bearing repayments for the life of a loan. In both cases, investors expect to make more later than the amount they initially put in.

In addition, there are more exotic investment arrangements, such as convertible debt notes and simple agreements for future equity, which are both ways of offering equity in the future for capital today. Both of these funding arrangements have become increasingly common among startups.

Learn more about funding your startup in our blog:

Because of all the financial obligations and often multiple interested parties, startup accounting is much more complicated than small businesses, where financing pursuits grow in proportion to sales and usually rely on more traditional sources of financing, such as banks. A startup accountant can help you organize these obligations, so you can better plan for future growth.

7. Picking the Right Tools

A 21st-century startup is a digital startup. There is simply too much to track to rely on paper financial records.

Your startup will want the power of basic bookkeeping software. This will streamline your data entry process, help minimize errors, and give you valuable insights into your financial operations. Your accountant can help you choose the right software solution for your business.

Accounting Software

Several software options are designed specifically for accounting. Accounting software not only keeps your books balanced but also allows you to establish an accounting process that aligns with your business and finance processes.

Some of the leading online accounting software options include:

  • QuickBooks
  • Xero
  • FreshBooks
  • Wave
  • Sage 50cloud

As with most things, you get what you pay for, so be sure to balance the cost with the features. Your accountant can help you do this cost-benefit analysis.

ERP Software

As a nascent big business, you’ll likely want an accounting software solution that can scale with your business. For this reason, some startups choose to adopt enterprise resource planning (ERP) software.

ERP software is supercharged accounting software that allows you not only to keep track of your finances, but also other aspects and operations in your business. With all of this data in one place, you can begin generating insights into your business operations to allow you to use your resources most cost-effectively. Some of the leading ERP software options include:

  • NetSuite
  • Sage 100cloud
  • Microsoft Dynamics
  • Acumatica
  • SAP
Interested in getting software for your startup? Here are some helpful guides to get started:

Software and App Integrations

In addition to supporting accounting and planning functions, most ERPs come ready to integrate with other software and apps that generate data about your business. Whether you have a CRM solution like HubSpot, Salesforce, etc. or a WMS solution like Softeon, you can likely feed data from your software and apps into your ERP.

By integrating the software, you can connect your finances to the vital data on customers, inventory, and other aspects of your business. This is especially important for eCommerce startups who have transactions on a multitude of channels. An ERP is a great way to centralize the data coming in from different online marketplaces.

Your startup accountant can help you choose an ERP that integrates with the software that you already use, or replaces it altogether. While your accountant may not be able to integrate your software for you, they can likely recommend an ERP consultant who can.

8. Filing Taxes

If you’ve been in business for any period of time as a startup, you know that you don’t start out profitable. As a result, the first few years may see negative returns and, hence, no income tax liability.

However, this doesn’t mean you shouldn’t worry about taxes. First, there are many other taxes—such as payroll tax, property tax, sales tax, and excise tax—to worry about. Your accountant should manage and handle all of these.

Deferred Tax Credits

When it comes to income taxes, you can still take advantage of certain tax credits even when your business has no taxable income. Finding opportunities to defer tax credits can help save you money down the line.

The Credit for Increasing Research Activities, more commonly known as the R&D tax credit, allows you to carry forward the value of the credit into your future, profitable years. This is designed to incentivize businesses to prioritize long-term research and business growth even though a return on investment isn’t immediate or guaranteed.

The R&D tax credit applies to almost every industry, and many activities you may already be doing qualify. Although many online calculators exist to estimate your potential credits, nothing will compare to a trained accountant going through your books and determining the highest tax credit possible.

9. Classifying Employees

One of the more confusing aspects of employing staff is determining who is an employee vs. an independent contractor. Although the rules seem pretty straightforward, accepted examples that appear to violate it are everywhere across industries.

An independent contractor is technically a business entity rather than an employee. In theory, an independent contractor is someone who is in control of the conditions of their employment and is paid for the product of their services that are produced independently.

In practice, this neat separation between contractor and employer might not always exist. In many industries, it is common for contractors to work with in-house teams, receive company-specific training, and bill hourly.

Your accountant will know what practices are common in your industry, so you can take full advantage of the independent contractor relationship while staying within the law.

startup Accounting management

There are several benefits to hiring independent contractors vs. employees, but they must be weighed against the risk of misclassifying them as employees and being subject to a tax penalty. With an independent contractor, an employer no longer has to worry about expenses for:

  • Payroll taxes
  • Equipment costs
  • Training expenses
  • Unemployment insurance
  • Employment-related legal liability

In addition, independent contractors do not have the special privileges regular employees do regarding concerted action and collective bargaining. By the same token, terminating the employment relationship is easier and less costly.

In light of all of these benefits, it’s important to ensure that you are in compliance with the law when it comes to hiring an independent contractor. Although an accountant can’t offer you legal advice, they can tell you what common practices exist in your industry.

10. Multiple Jurisdictions

Another issue you may run into as a startup, particularly if you operate with a remote team, is complying with tax laws across multiple jurisdictions. The more places you find employees, vendors, and clients, the more likely you will run into disparate state and local tax laws.

While you may find accounting or ERP software that manages this for you, you’ll still want the eye of an accountant to confirm that you are always in compliance. Your accountant will know where to find information about the relevant jurisdictions you operate in and keep your accounting systems accurate. If you can find an accountant certified in multiple jurisdictions, even better.

11. Administration

Administrative considerations will also factor into your accounting. You will need to manage human resources, mitigate risks, and satisfy employees, all of which will cost you money.

Your accountant can help you determine how to assemble a roster of services to carry out the administrative side of your business. They will have a working knowledge of the cost of various options to help you arrive at a solution that fits your business plan and budget.

10. HR System Advice

The people who make things run are the lifeblood of any business. In the tumultuous world of a startup, you will need an HR solution that works with changes in fortune. You will want a solution that is not only scalable but something that can be drawn down if necessary,

While many startups opt for an in-house HR manager, having in-house staff is not the only option. Your accountant can tell you your HR options and the likely costs associated with each.

One attractive option for startups is to outsource their HR to a professional employment organization (PEO). This serves two purposes. First, you can scale services up and down according to your business needs. Second, if you have distributed teams, they will handle the headaches of paperwork that comes with that.

11. Insurance

Protecting your business from risk is one of the simplest cost-aversion strategies. While you might pay a premium for insurance now, it usually does not compare to the cost you would have had if you had not been able to file a claim.

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Your accountant can help advise you on what types of insurance are standard in your industry. These might include:

  • Commercial liability insurance
  • Errors & omissions insurance
  • Auto rider insurance
  • Confidential information insurance
  • Directors & officers insurance
  • HIPAA insurance (in healthcare)
  • Employment practices liability insurance

Ensuring you are fully covered in the event of a costly misfortune will ensure you don’t end up taking a hit to your business that you can’t recover from.

12. Benefits

Offering a competitive benefits package will be the key to drawing in quality talent to staff your startup. Knowing what benefits to offer is an often tricky calculus of weighing competitor offerings, costs to you, and costs to employees.

Your accountant can help you sort through your options for benefits and help you navigate the sometimes confusing terms of each. Some benefits you might consider offering include:

  • Health insurance
  • Dental insurance
  • Vision insurance
  • 401k, IRA, or other retirement plans
  • Employee equity or stock options
  • Paid time off

In addition to helping you go through your options, your accountant will also help to keep track of all of these benefits with your accounting or ERP software.

The Financial Team

While accountants usually have a broad range of knowledge when it comes to finances, they are by no means authorities nor specialize in all areas of financial management. There are a few other roles you will want to consider when developing your financial team.


Throughout this article, we’ve said that your accountant can give you advice on many things. This is certainly true. Through their experience, your accountant will have seen many different arrangements around financing, accounting methods, startup strategies, and more.

But at the end of the day, your accountant’s job is to organize your finances and keep you tax-compliant. An accountant is not a financial strategist. That’s the job of a CFO.

startup accountant management

Credit: Jason Goodman

A CFO, or chief financial officer, is an executive-level position in charge of financial strategy. Whether it’s budget planning, product expansion, or service adjustments, your CFO will lay out your options and their likely consequences, so you can make informed financial and strategic business decisions.

It’s important to note that your CFO is not an accountant. Although many CFOs have trained and worked as accountants, your accountant generates your business’s financial numbers to enable your CFO to analyze and propose strategy.


A role that is sometimes overlooked is that of the controller or comptroller. This officer takes the work of the accountant to generate reports for financial compliance and strategy.

Administratively, there is no difference between a controller and a comptroller. A controller is a person in this role in the private sector, while a comptroller is the same in the public sector and some non-profits. When it comes to a comptroller, they will often take the role of a CFO as public bodies do not usually have one.

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.


Whereas an accountant reviews your books to help you file taxes and prepare for audits and funding rounds, a bookkeeper does the day-to-day tasks of keeping your books up to date. In the same way, your accountant provides your controller with useful financial information, your bookkeeper sets up your accountant for success.

In some businesses, the bookkeeper sometimes also acts as an accountant. However, your mileage may vary with this approach, as most people who are hired for bookkeeping positions do not have the qualifications to serve as accountants.

Unlike a bookkeeper, a certified public accountant (CPA) can represent your business in a tax audit if your CPA is an Enrolled Agent (EA) with the IRS. Further, a bookkeeper will generally not be able to help you assess the cost of your operations and find areas for savings. An accountant, not a bookkeeper, would generally conduct internal financial audits.

Your accountant will not be able to manage your finances on their own. Learn about the other elements of a complete finance team in our blog:

While your bookkeeper might provide the accountant with year-end financials and tax documents, your accountant would be the one responsible for preparing the tax return(s), finding opportunities for savings, and filing it for you.

How to Select the Right Startup Accountant

Knowing your startup needs an accountant is half the game. The other half is actually finding one that you can rely on to serve your accounting needs at the rapid pace of a startup. You will want to make sure you find the right fit for your goals, your industry, and your culture. Here are the things to look out for when looking for an accountant for startups.

Entrepreneurial Focus

First and foremost, you will want an accountant that is forward-looking and aims for growth, growth, growth! They should be able to tell you about businesses they have worked with through numerous fundraising stages.

An accountant should also be able to tell you the secret to their success. What key performance indicators do they instruct their clients to watch out for? They should be able to explain the reasoning behind each one that they use.

Accounting Best Practices

An accountant must be more than good with numbers. They must also adhere to best practices in their profession. In particular, you will want someone who is well-versed in the Generally Accepted Accounting Principles (GAAP).

GAAP is a set of accounting rules established by two private professional organizations overseen by the Financial Accounting Foundation. These principles of accounting not only ensure the completeness of your accountant’s work but are also expected by funders who review your books.


You will want to make sure your accountant is experienced. This means not only how long they have been a practicing accountant but also the volume of their work and how close it is to your business.

First and foremost, you will want an accountant experienced with startups. A startup is different from other kinds of businesses. No other kind of business is guaranteed to be as tumultuous as a startup. An accountant should be familiar with the general level of risk startups take and be comfortable managing that risk.

They should also be competent in accounting for distributed teams. This will mean being experienced in managing payroll, vendors, and clients across different tax jurisdictions and proficient in regional excise, property taxes, and tax credits.

accountant in startups

Your accountant will have to be comfortable with modern-day technology. While it might seem quaint to have an accountant managing the books with pen and paper or carefully designed spreadsheets, you will need the power of accounting software or an ERP. Your accountant should be comfortable with various software to ensure you can choose the best option for your business.

Lastly, a startup accountant should have some knowledge or experience with your industry. Accounting for a new industry has a learning curve, and your startup does not have the time to wait while your accountant learns your industry’s unique needs. You need someone who can hit the ground running because they need to be part of the team leading your startup’s growth, not following behind it.

Fit with Team

Ensure 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 who can contribute to your team’s cohesion.

Your accountant will work with many of your team members to prepare and present their reports. They will also need to work with HR to keep track of payroll, interact with other finance team members like the bookkeeper, controller, or CFO, and, most importantly, work well with you!

It might seem a bit strange to use this as a metric because you want to judge candidates on their qualifications. Still, you need to ensure that everyone likes your accountant as a person and a personality within your company. If you can’t get along with each other and if interactions are awkward, combative, or one-sided, then you won’t be able to establish a beneficial working relationship to push your startup forward.

Getting Started with Startup Accounting

You didn’t go into business to sit around doing accounting all day. You did it because you are passionate about your offerings and a vision that can impact the world.

Having a team of experts – not just accountants but also lawyers, HR managers, and senior executives – will protect your company as it grows. These are not areas to slack in.

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Running a startup means making many tradeoffs to stretch a fluctuating budget for continuous growth. A startup accounting firm has the expertise to know where you can and can’t make these sacrifices. With the right financial team on your side, you can navigate the constraints of the startup stage to scale into the business of your dreams.

Indinero has provided businesses like yours with expert financial operations services for over a decade. With our team of accountants, CPAs, CFOs, and tax advisors, we’ve brought startups from their infancy to nationwide success. Reach out today to see how we can help your startup!