If your company is in the early stages and you haven't yet given much thought to your accounting systems and processes...now is the time. You want to keep it simple, but you do need to think this through to establish a structure that will support your company now, and as it grows.

1. 1
Accounting for Startups
What You Need to Know

2. 2
“Startups face a huge burden in today’s
economy, often having to choose
between funneling resources toward
creating their goods and services or
managing the often complex
accounting, tax and financial strategy
planning necessary to run a successful
business.”
~ David Ehrenberg,
Founder and CEO
Early Growth Financial Services

3. Presentation Overview
The essentials of startup financial management
• Accounting pre- and post-funding
• Accounting systems
• Taxes
• Accounts payable
• Accounts receivable
• Financial projections
• Financial reporting
• Valuation
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4. Accounting: Pre-Funding
Set up a low-cost, accrual-based accounting structure that
can grow with you
• Open business banking account
• Separate personal and business expenses
• Keep records of receipts and invoices
• Be mindful of tax obligations
• Collect payments
• Select payroll provider
• Stay on top of stock records
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5. Accounting: Post-Funding
Your financial strategy deepens and you’ll gain better
understanding of your business
• Set foundation for future growth
• Build financial infrastructure
• Clarify funding objectives
• Manage cash-flow
• Create clean financials for
investors
• Hire professionals to help
company become GAAP
compliant (Generally Accepted
Accounting Principals)
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6. Finance and Accounting Support
When should you engage with a financial services support
firm?
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• Raised seed or convertible note round over
$500K
• Start to have over $20K month in revenue
• Have professional or institutional investors

7. Accounts Payable
Formalize your system for keeping track of business expenses
• Set up system early to help maximize
cash flow and create essential financial
reports
• Choose best tracking system for
company needs
• Enter every expense: receipts, bills, etc.
• Establish invoice AP schedule
• Place vendors on net 30 payment terms
• Build reputation of financial stability
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8. Accounts Receivable
Improve cash collections by creating a clear payment
collection process
• List all open invoices and
balances
• Create “friendly” invoices (and
print hard copies)
• Put payment terms in writing for
new clients
• Establish credit guidelines
• Create collection timeline
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9. Taxes
Even in the early stages, you’ll want to be mindful of tax
considerations
• Select correct legal entity for
company
• Understand federal, state, and
city tax obligations; regional fees;
and registrations
• Separate business and personal
finances
• Deduct business expenses
• Pay quarterly taxes
• Stay on top of payroll taxes and
1099s
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10. Financial Projections
Forecast for potential revenue and market capture
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1.
Start with market size
2.
Identify particular segment
3.
Extrapolate to
calculate total
potential revenue
3.
Headcount /
milestone
funding
2.
Calculate spending
necessary to achieve
revenue/development
1.
Project revenue growth
over next 1-3 years
Top-Down Projection
Bottom-Up Projection

11. Financial Reporting
Financial statements reveal important insights
• Financial statements
– Profit and loss
– Cash flow statements
– Balance sheet
• Cash burn reporting
• Budget vs actual reporting
• Other financial reporting
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12. Valuation
The safest and most effective way to prepare your valuation is
to hire an outside firm
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• IRS requires Fair Market Value (FMV)
analysis in conjunction with stock option
grants
• If you are acquired by a public company, a
Big Four accounting firm is likely to audit
your approach to IRS compliance
• Reports are generally valid for 12 months –
even if there’s been no financing activity,
you’ll still need a new valuation annually

13. What to Look For in a Valuation Company
Choosing the right valuation firm as a business partners is an
important choice
• Fast turnaround
• Free revisions
• Guarantee to satisfy
audits and withstand
Big 4 and acquisition
scrutiny
• Assurance that company will work with you to
obtain best possible price
• Ability to handle other challenging owner
equity issues, such as stock option
management and complex capitalization tables
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14. Thank You and Q&A
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Early Growth Financial Services
Sirk Roh
sroh@earlygrowthfinancialservices.com
www.earlygrowthfinancialservices.com
415.234.3437
Follow us @EarlyGrowthFS