Starting a new venture in the early stage can be an exhilarating adventure full of creativity, motivation and lots of quick decisions. Most startup founders spend all their time and energies on the development of their product or services, the identification of their target market, the acquisition of funding and building their initial customer base. During this time, taking care of their business’s finances may not be the top priority for many founders. However, the most important element of business success and long-term growth for any startup is having a strong financial underpinning established at the very start of the business.

Accounting firms that specialise in working with early-stage startups provide startups with strategic benefits, rather than merely providing an administrative service.

Why Startups Require Specialized Accounting Services

Startups operate in a vastly different financial environment than established companies. Their revenue streams can be erratic, expenses can change quickly and most of their funding is derived from various sources – founder’s capital, angel investors, or by way of seed or venture capital rounds.

Startups need to make financial decisions in an environment of uncertainty, and they require their accounting service to extend beyond simple bookkeeping and compliance functions. Specialized accounting firms provide their startup clients with the expertise to create flexible financial structures that will continue to develop as the business grows, rather than placing these companies into the rigid and inflexible accounting structures designed for established companies.

Creating a Financial Infrastructure on Day One

An accounting firm’s responsibility to early-stage startup clients include the building of a clearly defined and organised financial infrastructure. To start with, creating solid accounting practices and establishing a clear chart of accounts (COA) along with internal processes to keep track of revenues, expenses and cash flow.

Having up-to-date and precise financial reports provides entrepreneurs an in-depth view of where their money is being expended, how long until all of their money is gone (or runway), and what choices they have made, which could affect their finances the most. In the absence of this knowledge, otherwise flourishing companies are sometimes caught short of cash or face other unanticipated risks financially.

Controlling Cash Flow and Burn Rate

Cash flow is vital to the survival of any early-stage startup; even with good ideas and markets that are expanding, they can disappear without capital. An appropriate accounting firm can provide the founders with tools to maintain cash flow, accurately monitor their burn rate, and accurately forecast their upcoming financial needs.

With adequate planning based on accurate forecasts, the founders will be able proactively to plan their fundraising activities, instead of being forced to scramble in an emergency. This type of transparency allows the founders to make informed decisions relating to recruitment, product development and expansion into new markets.

Part of what all early-stage startups need to provide before they can fundraise is the assurance that they have their financial house in order. Investors want to see authentic financial statements, realistic projections, and a thorough understanding of how the company intends to generate revenue. Accounting & compliance as it pertains to startups.

Financial material to support an investor conversation

An accounting practice that specializes in working with startups can draft the financial documents necessary for conversations with potential investors (i.e., income statement, balance sheet, cash flows, and projections), along with explaining these numbers to founding team members in a clear and professional way that builds credibility and trust during due diligence.

​Following Compliance

At the same time, early-stage startups are expected to comply with federal, state, and international tax laws, file tax returns, and follow regulations both in their home country and abroad, all while operating with little or no internal support. Founders who do not have expert support may find that the effort required to remain compliant is overwhelming and will take away from their focus on growing the business.

An accounting practice that focuses on early-stage startups will ensure that filings are completed correctly and timely, reducing the likelihood of fines or penalties due to non-compliance. With this peace of mind, founders can concentrate on scaling their business without worrying about whether their financial obligations are being properly managed.

The Importance of Continuity

As a startup matures, its financial requirements will change. The financial structures that were established during pre-seed funding may no longer be sufficient following venture capital funding or for entry into new markets. One benefit of working with a startup-specific accounting firm is the continuity it provides.

By remaining with the same accounting firm while continuing to grow, startups will have access to advisors who already comprehend the founders’ business model, past financial history, and the startup’s desired trajectory. This continual relationship allows the founders to have a smoother transition of their financial responsibilities during growth, as well as to provide the necessary information for long-term forecasting and more structured financial planning.

How ERB Supports Early-Stage Startups

With ERB’s depth of experience with early-stage startups, the team at ERB understands the specific hurdles that founders address in their initial stages of growth. ARB works closely and directly with each client to develop the financial structures needed to achieve compliance and provide other valuable insight to assist the founders in making sound business decisions. The unique combination of the technical experience of ERB’s staff working with startups enables them to provide funding options for clients during their foundational period.

Selecting The Right Accounting Partner

For early-stage startups, selecting an accounting firm should not only be based on credentials or price. Early-stage startups should seek an accountant who understands the evolving nature of business, who can interpret the founders’ financial data into relevant analytical tools, who has experience supporting equity-raising activities, and who will flex to support the growing needs of the company over time.

By partnering with an accounting firm that has a specialty in early-stage startups, founders can have more than financial statements from their accountant; they will receive clarity, confidence, and the resources to continue to build a successful company on a solid financial foundation.