Bookkeeping Services for Startups: What You Need When

Quick Answer: A startup needs from its accountants what a corner shop does not: accrual books from the first priced round or SAFE, a monthly burn and runway report investors can trust, clean records of SAFEs and convertible notes, a claim for the research credit (including the payroll-tax election some young companies qualify for), on-time Delaware franchise tax, and a 409A valuation from a specialist before option grants. Most startups get there in stages: founder-run books, then an outsourced bookkeeper with a fractional CFO, then an in-house controller.

Startup accounting firms sell the same core service as any bookkeeper, monthly categorized and reconciled books, but they wrap it in work that only matters once outside investors and employee equity exist. Choosing one well means knowing which of those extras you need now, which can wait, and which belong to a different specialist entirely.

Where a startup's books differ from a small business's

A profitable services business can run on cash-basis books for years. A venture-backed company usually cannot, for three reasons.

• Investors read accrual numbers. Annual software contracts billed up front, prepaid insurance and accrued payroll all distort cash-basis monthly results. A board deck built on cash receipts will swing wildly from month to month.
• Losses are the plan. The key figure is not profit but how long the cash lasts. That makes burn and runway the headline report.
• Equity instruments create accounting questions. SAFEs, convertible notes, option grants and warrants each need to be recorded and tracked. How a particular instrument is classified is a judgment your accountant should make with the documents in hand.

If you are still pre-revenue and self-funded, the general advice in bookkeeping for small business applies, and a startup cost template may be all you need for now.

Stage 1: Founder-run books

Before the first outside money, one founder usually keeps the books in accounting software, with the bank feed doing most of the data entry. The job at this stage is narrow:

1. Open a separate business bank account and card on day one, and run nothing personal through them.
2. Keep every founder-paid expense in a list with receipts, so it can be reimbursed or recorded as a contribution later.
3. Reconcile monthly. A company that has never reconciled will pay a firm to rebuild its history before the first audit or due diligence.
4. Keep the incorporation documents, stock purchase agreements and any 83(b) election paperwork in one folder your future accountant can read.

The trap here is the gap year. Founders often stop bookkeeping for months while building the product, and the first investor's diligence request arrives before anyone catches up.

Stage 2: Outsourced bookkeeper plus fractional CFO

After a seed round, most startups hire an outsourced firm. "Outsourced accounting for startups" usually bundles three layers:

Ask for a month-end close calendar in writing. A good firm closes by a fixed working day each month; the month-end closing checklist shows what that close should contain.

How do you calculate burn rate and runway for investors?

Net burn is the average monthly decrease in cash. Runway is how many months the current cash covers at that rate. In a spreadsheet:

Exclude money raised during the period from the cash change, or the burn will look smaller than it is. Gross burn (total monthly spending, ignoring revenue) belongs next to it on the same page.

Investors will trust the runway figure only if cash ties to bank statements at each month end. If you inherited months where nobody downloaded statements into the books, the bank's PDFs are the source; QuickBankConvert converts them to CSV or Excel rows so the gap can be filled and reconciled before the next board meeting.

Does a startup qualify for the R&D tax credit?

Many do, and it is one of the main reasons to pick a firm with startup experience. The credit is figured on Form 6765, which the IRS says is used to "figure and claim the credit for increasing research activities" and to "elect and figure the payroll tax credit."

That payroll-tax election matters to companies with no income tax to offset. The Form 6765 instructions define a qualified small business as one with gross receipts under $5 million for the tax year and no gross receipts in any year before the five-year period ending with that year. Such a company can apply up to $500,000 of the credit against payroll tax. The election must be made on or before the due date of the originally filed income tax return, including extensions, and cannot be made on an amended return. The credit is then claimed through Form 8974 on the employment tax return.

A missed income tax deadline can therefore forfeit a year's payroll-tax benefit. Ask any firm you interview who tracks that date, and what records (timesheets, project descriptions, contractor invoices) they need from engineering.

Delaware franchise tax and other annual filings

Many venture-backed startups incorporate in Delaware, and the state's franchise tax page sets a March 1 deadline each year for the tax and the annual report. It offers two calculation methods: the Authorized Shares method, with a $175 minimum, and the Assumed Par Value Capital method, with a $400 minimum. The annual report filing fee is $50, and the penalty for missing March 1 is $200.

The two methods can produce very different numbers for a company with millions of authorized shares, and founders who open the first notice computed one way are often alarmed. A startup-focused firm should run both, explain which result applies to you under the state's instructions, and put March 1 on the same compliance calendar as the federal return.

What about 409A valuations?

Before granting stock options, startups typically obtain an independent appraisal of the common stock's fair market value, known as a 409A valuation, so options are priced at or above that value. This is a specialist valuation service, not bookkeeping. Accounting firms often refer you to a valuation provider or partner with one; what they need to supply is clean financial statements and the current cap table. Ask your corporate lawyer when a new valuation is needed, for example after a priced round.

Stage 3: In-house controller

Somewhere after the Series A, the volume of contracts, payroll and vendor bills usually justifies a full-time finance hire. The outsourced firm often stays for tax returns, the R&D study or overflow work. The controller owns the close, the audit relationship and internal controls, and a CFO (fractional or full-time) owns the forecast and investor relationships.

Questions to ask a startup accounting firm

• Which accounting software do you work in, and who owns the subscription? (You should.)
• Do you keep books on an accrual basis from the start, and who books revenue recognition entries?
• Who on your team prepares Form 6765 and tracks the payroll election deadline?
• Do you file Delaware franchise tax, and do you run the Assumed Par Value Capital calculation?
• Which valuation providers do you work with for 409A?
• How many days after month end will I have financial statements?
• Can you show a sample board financial package with burn and runway?
• What do you need from us to start, and how will you handle months that were never reconciled?

For the wider market of bookkeeping services and how they price, read bookkeeping services for small business: cost and choice.

Related guides

• Bookkeeping for small business
• Startup cost template in Excel
• Month-end closing checklist
• Bookkeepers using QuickBankConvert