Starting a business is exhilarating but also overwhelming, especially when it comes to managing your finances. As a first-time founder, you have a lot on your plate - building a product, getting early traction, fundraising - and hiring accounting services often fall to the bottom of the priority list.
But it doesn’t have to be that way! In the long run, figuring out your business accounting and financial operations will save you headaches (and money).
In this guide, we’ll cover:
- What is accounting and why it’s important for your startup
- Key accounting roles and the differences between them
- When you need to start thinking about accounting
- Who a founder should hire first: a bookkeeper or a tax preparer?
What is Accounting, and why does it matter for your startup?
Accounting is the process of recording, summarizing, and reporting a company’s financial transactions. It provides visibility into your business's cash flow in the early stages.
For startups, good business accounting serves many purposes:
- Compliance: You have legal requirements for paying taxes and filing reports, even as an early-stage company. Mess this up and you risk penalties or even investors walking away.
- Funding: Investors want to see you have financial operations buttoned up. A lack of financial management will raise red flags.
- Decision making: With good accounting, you gain financial insights to make smarter choices about where to invest resources.
- Forecasting: As you scale, accounting enables creating budgets and modeling different growth scenarios based on clear historical accounting and assumptions about changes over time.
In short, accounting brings order and understanding to your startup’s financial position. It’s the foundation for making strategic moves and accessing the capital you need to grow.
The main differences between Bookkeepers and Tax Preparers
Several key players make up a company’s accounting function. As a founder, it’s important to understand the distinction between these roles so you can decide what makes sense for your startup's current needs and stage.
A bookkeeper handles the day-to-day recording of financial transactions. This includes tasks like:
- Recording invoices and tracking accounts receivable
- Paying bills and tracking accounts payable
- Reconciling bank and credit card statements
- Categorizing income and expenses
- Producing reports like profit and loss statements
Bookkeepers organize and maintain your financial records and also help you prepare your financial statements. They'll ensure transactions are coded to the right accounts.
A tax preparer focuses specifically on tax preparation and filing. Their main responsibilities include:
- Preparing and filing business tax returns
- Preparing individual tax returns for business owners
- Determining quarterly estimated tax payments
- Advising on tax deductions and credits
- Helping resolve notices from tax authorities
- Staying up-to-date on changing tax laws
Tax preparers ensure taxes are filed accurately and on time while optimizing for tax savings.
So in summary, bookkeepers handle day-to-day transactions, and tax preparers focus on tax filing and optimization.
When Should I Start Caring About Accounting?
Ideally, when you incorporate your startup, you want accounting practices in place from the very beginning. It’s much easier to capture all financial activity from day one than to recreate or make adjustments later. Good record-keeping early on saves headaches at tax time.
At a minimum, you need to be thinking about accounting by:
- January 31: Deadline for providing contractors with 1099 tax forms for the prior year
- March 1: Delaware franchise tax filing due
- April 15: Federal and state corporate income tax returns due (can be extended to October with filing)
Who Should You Hire First: A Bookkeeper or a Tax Preparer?
As an early-stage founder, you likely don’t need a full-time controller or CFO just yet. Here are some guidelines on who you should start with:
Work with a bookkeeper from the start to record your financial transactions on an ongoing basis. This ensures you maintain organized records, compliant tax filings, and accurate financial statements.
A part-time bookkeeper from an outsourced bookkeeping service goes a long way. Feel free to manage some basic tasks yourself like collecting receipts and invoicing customers.
Look for an experienced bookkeeper from an accounting firm who understands startup needs. Ask about their experience with companies at your stage.
Bringing on a tax preparer is critical from the very start of your business. A dedicated tax preparer will:
- File your initial business formation paperwork
- Prepare and file quarterly estimated payments to avoid underpayment penalties
- Stay on top of deadlines for annual tax filings and tax season
- Advise on relevant tax deductions and credits specific to your business
- Help you respond to any notices from tax authorities
- Optimize your tax savings while remaining compliant
A good tax preparer and tax planning is your best defense against getting hit with penalties for missed deadlines or incorrect filings. They will also save you money by maximizing write-offs and credits.
- Accounting provides the financial visibility and compliance needed to build your startup.
- Bookkeepers handle day-to-day transactions. Tax preparers focus on tax filing and optimization.
- Have basic accounting practices in place from the start when you incorporate.
- Work with a bookkeeper and tax preparer first for ongoing tasks and optimized tax filings.
- Bring on a controller and eventually CFO as stakeholders and needs grow.
- Use a platform like Puzzle to automate tasks and enable real-time collaboration.
Getting your financial house in order may not be glamorous, but it paves the way for your startup to access capital and scale.
Don't let accounting be an obstacle or source of stress.
The right finance platform makes all the difference. Puzzle is accounting software built specifically for lean startups and high-growth companies. It automates bookkeeping tasks, provides real-time reporting, and bank reconciliations, and enables seamless collaboration.
With Puzzle, you can:
- Connect bank accounts to sync transactions automatically
- Auto-categorize expenses to simplify bookkeeping
- Track key SaaS metrics like MRR and churn
- Manage billing and revenue recognition
- Maintain investor-ready books
Whether you decide to handle finances in-house or work with an outsourced bookkeeper, Puzzle reduces the hassle of time-consuming Excel spreadsheets or legacy software like Quickbooks. It ensures you have access to accurate, up-to-date financials so you can make data-driven financial decisions.
Plus, Puzzle can connect you with trusted bookkeeping and tax preparation partners so you can build your financial dream team.
Sign up for a free 30-day trial today to get your startup's finances Puzzle ready. And if you have suggestions for how we can better serve early-stage founders, our team is here to listen. We're building the future of startup finance - join us!