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Accounting for Startups
What Founders Should
Focus On
#Startup Accounting
Ryan Johnson
VP of Operations
Early Growth Finan...
“Startups face a huge burden in today’s
economy, often having to choose
between funneling resources toward
creating their ...
Presentation Overview
Getting organized, staying in compliance, building the
foundation you need to scale
• Accounting pre...
Accounting: Pre-Funding
Set up a low-cost, accrual-based accounting structure that
can grow with you
• Open business banki...
• Set foundation for future growth
• Build financial infrastructure
• Clarify funding objectives
• Manage cash-flow
• Crea...
Finance and Accounting Support
When should you engage with a financial services support
firm?
• Raised seed or convertible...
Accounts Payable
Formalize your system for keeping track of business expenses
• Set up system early to help
maximize cash ...
Accounts Receivable
Improve cash collections by creating a clear payment
collection process
• List all open invoices and
b...
Taxes
Even in the early stages, you’ll want to be mindful of tax
considerations
• Select correct legal entity for
company
...
Financial Projections
Forecast for potential revenue and market capture
1.
Start with market size
2.
Identify particular s...
Financial Reporting
Financial statements reveal important insights
• Financial statements
– Profit and loss
– Cash flow st...
Valuation
The safest and most effective way to prepare your valuation is
to hire an outside firm
• IRS requires Fair Marke...
What to Look For in a Valuation Company
Choosing the right valuation firm as a business partners is an
important choice
• ...
Thank You and Q&A
Early Growth Financial Services
Ryan Johnson
contact@earlygrowthfinancialservices.com
www.earlygrowthfin...
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Accounting for Startups: What Founders Should Focus On

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In the early stages of development, founders have a lot to focus on. Those questions of infrastructure -- like accounting and HR -- tend to take a back seat.

This is a mistake. The earlier that you can get your systems in place, the more secure a foundation your company will have.

Accounting for startups doesn't need to be very complicated. You just need to focus on the essentials and put defined systems and processes in place.

In this presentation from Ryan Johnson, VP of Operations for Early Growth Financial Services (www.earlygrowthfinancialservices.com), you'll learn how to get set up and create an accounting system that will grow with your company.

Topics covered include:
- Accounting pre-funding vs post-funding
- Accounting system set-up
- Early-stage tax obligations
- Financial projections
- 409a valuations

Published in: Business
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Accounting for Startups: What Founders Should Focus On

  1. 1. Accounting for Startups What Founders Should Focus On #Startup Accounting Ryan Johnson VP of Operations Early Growth Financial Services
  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 www.earlygrowthfinancialservices.com
  3. 3. Presentation Overview Getting organized, staying in compliance, building the foundation you need to scale • Accounting pre- and post- funding • Accounting systems • Taxes • Accounts payable • Accounts receivable • Financial projections • Financial reporting • Valuation www.earlygrowthfinancialservices.com
  4. 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 www.earlygrowthfinancialservices.com
  5. 5. • 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 Principles) Accounting: Post-Funding Your financial strategy deepens and you’ll gain better understanding of your business www.earlygrowthfinancialservices.com
  6. 6. Finance and Accounting Support When should you engage with a financial services support firm? • Raised seed or convertible note round over $500K • Start to have over $20K month in revenue • Have professional or institutional investors www.earlygrowthfinancialservices.com
  7. 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 www.earlygrowthfinancialservices.com
  8. 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 www.earlygrowthfinancialservices.com
  9. 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 www.earlygrowthfinancialservices.com
  10. 10. Financial Projections Forecast for potential revenue and market capture 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 www.earlygrowthfinancialservices.com
  11. 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 www.earlygrowthfinancialservices.com
  12. 12. Valuation The safest and most effective way to prepare your valuation is to hire an outside firm • 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 www.earlygrowthfinancialservices.com
  13. 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 www.earlygrowthfinancialservices.com
  14. 14. Thank You and Q&A Early Growth Financial Services Ryan Johnson contact@earlygrowthfinancialservices.com www.earlygrowthfinancialservices.com 415.234.3437 Follow us @EarlyGrowthFS www.earlygrowthfinancialservices.com

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