Founders of venture-backed startups increasingly hire people outside the United States. Remote work has expanded access to engineering, product, design, marketing, finance, customer success, and operations talent around the world.

 But “international hiring” is not one workflow. The right way to pay someone depends first on how you engage them:

• As a genuine independent contractor
• As an employee through your own local entity
• As an employee through an employer of record (EOR)
• As an employee of a local entity supported by global payroll software

 Choosing the wrong model can create problems with worker classification, payroll tax, employment law, intellectual property, immigration, data privacy, and accounting. This guide explains the main options for U.S. startups, how to pay international contractors and employees, and the documentation you should maintain.

 Disclosure: Kruze Consulting has partnership relationships with some providers referenced in this article. Those relationships may provide clients with preferred support or pricing, and Kruze may receive a referral fee. Recommendations should be evaluated based on your company’s specific countries, hiring model, and needs.

The three primary ways to hire international talent

For a U.S. startup, there are three core structures for engaging someone who will work from another country.

1. Engage a genuine independent contractor

A contractor relationship can work well for project-based work, specialized expertise, short-term engagements, and people who genuinely operate an independent business. The contractor invoices your company, is responsible for their own business operations, and is not treated as your employee.

 This option can be faster to set up than employment, but it is not automatically low-risk. The worker must actually qualify as an independent contractor under the laws that apply where they work. A contractor agreement alone does not determine classification.

 A strong international contractor process generally includes:

• A written contractor agreement reviewed by counsel
• A clear scope of work, rate, deliverables, and payment terms
• Confidentiality and intellectual-property assignment provisions
• A completed tax-status form, such as the appropriate Form W-8
• A recurring invoice and approval process
• Records showing the contractor’s independent business relationship

 For U.S. worker classification purposes, the IRS considers behavioral control, financial control, and the relationship of the parties. The worker’s country may use a different test, and some countries apply stricter rules than the United States. Treat classification as a legal and operational decision, not as a payroll shortcut.

2. Hire through your own local entity

If you expect to build a meaningful, long-term team in one country, establishing a subsidiary or other local entity may be the right strategic choice. Your local entity can employ workers directly and gives you more control over your employment arrangements.

 However, forming an entity often requires significantly more work than a single hire. Depending on the country, you may need local corporate registrations, a bank account, payroll registration, employment agreements, statutory benefits administration, tax filings, financial reporting, local accounting support, and ongoing corporate maintenance.

 This approach often makes the most sense when you have multiple employees in a country, a durable operating presence, local revenue, or strategic reasons to establish a local footprint.

3. Use an employer of record (EOR)

An employer of record, or EOR, becomes the worker’s local legal employer in the country where the worker lives and performs services. Your startup manages the person’s day-to-day work, while the EOR generally handles local employment agreements, payroll, required tax withholding, statutory contributions, benefits administration, and related employment compliance.

 An EOR can be especially useful when:

• You want to hire an employee in a country where you do not have an entity
• You need to move quickly but want an employment relationship rather than a contractor arrangement
• You are testing a new country before establishing your own local entity
• You need help navigating local payroll, benefits, onboarding, and offboarding requirements

 An EOR costs more than simply paying a contractor, but the added cost may be justified by the reduced compliance burden and better employee experience.

Employer of record vs. PEO vs. global payroll

These terms are often used loosely, but they describe different operating models.

 For startups without a local entity, an EOR is usually the relevant option when the person should be an employee. Global payroll is generally most useful after you already have the legal infrastructure to employ people locally.

How to pay international contractors

Once you have determined that the relationship is properly structured as an independent contractor relationship, you need a payment workflow that is reliable, documented, and appropriate for the contractor’s country.

The best payment method depends on the country, currency, payment frequency, foreign-exchange costs, local banking access, documentation needs, and whether you need contractor onboarding and compliance tools.

1. Accounts-payable platforms

Accounts-payable platforms can provide a controlled workflow for collecting invoices, routing approvals, storing payment records, and reconciling contractor expenses in your accounting system. This can be useful when you have multiple contractors, multiple approvers, or a finance team that needs a clear audit trail.

 For international payments, compare:

• Supported countries and currencies
• Payment methods available to the recipient
• Fees and foreign-exchange spreads
• Payment delivery times
• Invoice collection and approval controls
• Accounting-system integrations
• Fraud-prevention features and vendor-verification procedures

 Do not rely only on a published payment fee. A low or zero transfer fee can still be accompanied by a foreign exchange spread, recipient bank fee, or country-specific charge.

2. Bank wires

International bank wires are a straightforward option, particularly for established contractors with reliable banking details. They can work well for occasional payments or for companies that already have strong accounts-payable controls.

The tradeoff is that bank wires may be more manual. You may need to collect invoices separately, validate banking instructions carefully, pay transaction and foreign-exchange fees, and reconcile payments manually.

Use strong controls for new or changed bank information. Contractor-payment fraud frequently involves spoofed email addresses or fraudulent requests to change banking details. Always confirm changes using a known, independent contact method before releasing payment.

3. Contractor-management platforms

Global contractor-management platforms can centralize onboarding, contractor agreements, tax-status documentation, invoices, approvals, and payments. They can be useful for startups managing contractors across multiple countries or seeking a more consistent process.

Common capabilities include:

• Localized contractor agreements
• Invoice collection and approval workflows
• Multi-currency payments
• Tax document collection
• Contractor classification support or contractor-of-record options
• Document storage and audit trails
• Integrations with HR, payroll, and accounting systems

Platforms can make administration easier, but they do not eliminate the need to assess whether the individual is properly classified as a contractor.

4. Payroll and HR platforms with global contractor payments

Some payroll and HR platforms support onboarding and paying non-U.S. contractors. Gusto, for example, supports international contractor payments in more than 120 countries, subject to product availability and applicable terms. Rippling offers global contractor onboarding and payment capabilities in more than 185 countries and 50+ currencies.

Before choosing a platform, confirm:

• Whether your contractor’s country is supported
• Payment timing and available payment methods
• Currency conversion and payment fees
• Whether the platform provides only payment processing or also contractor-management features
• Whether it supports your accounting and HR stack
• How the platform handles contractor documentation, changes, and offboarding

5. Payment and foreign-exchange providers

Payment providers and FX platforms, including PayPal and Wise (formerly TransferWise), can be useful for certain contractor-payment workflows. They may provide faster or less expensive transfers than traditional wires in some corridors, but the economics and recipient experience vary widely.

Compare the full cost of each option:

• Exchange-rate spread
• Transfer fee
• Recipient withdrawal or conversion charges
• Supported currencies and payment corridors
• Transfer timing
• Payment limits
• Documentation, invoice, and approval capabilities

6. Crypto or stablecoin payments

Crypto or stablecoin payments may be operationally possible, but they add complexity and should not be treated as a default low-fee solution. Companies considering these payments should evaluate wallet custody, fraud controls, transaction records, sanctions compliance, local restrictions, accounting treatment, tax consequences, and the potential volatility of any non-stable digital asset.

If a contractor requests payment in crypto or stablecoins, consult qualified legal and tax advisers before implementing the process. A payment method that appears simple operationally can create substantial accounting, compliance, and control requirements.

Documentation for international contractors

Regardless of how you pay, maintain records that support the business purpose, payee, classification, amount, timing, and tax treatment of each contractor cost.

Your contractor file should generally include:

• A signed contractor agreement
• Confidentiality and IP assignment terms
• The contractor’s invoice or approved time record
• Payment approval and payment confirmation
• The appropriate Form W-8 or other tax documentation
• Records of the contractor’s country and work location
• Any classification analysis or local counsel guidance
• Written confirmation of approved banking information

Good documentation helps your accounting team record expenses in the correct period, identify duplicate invoices, respond to audit questions, and prepare accurate financial statements.

The IRS generally requires businesses to retain records as long as needed to prove items reported on a tax return. Record retention periods depend on the underlying item and circumstances; payroll-tax records have separate retention requirements. Set a written record retention policy with your tax adviser, and account for any longer local requirements that apply to your workforce.

Should you collect a W-8 form?

Generally, a U.S. company paying a non-U.S. contractor should obtain the appropriate Form W-8 before making payments and keep it in its records.

• Form W-8BEN is generally used by an individual foreign beneficial owner.
• Form W-8BEN-E is generally used by a foreign entity.

These forms document foreign status for U.S. withholding and reporting purposes. The contractor provides the completed form to the payer or withholding agent; it is generally not routinely filed with the IRS by the payer.

A W-8 form does not independently determine whether U.S. withholding or reporting is required. For payments for services, a key question is where the services are performed.

As a general rule, compensation paid to a nonresident alien for services performed outside the United States is foreign-source income. Payments for services performed in the United States, services split between countries, or payments with other U.S.-source characteristics can produce different withholding and reporting obligations.

A Form W-8BEN or W-8BEN-E generally remains valid from the signature date through the last day of the third succeeding calendar year, unless a change in circumstances makes the form incorrect. Build a process to request a replacement form when it expires or when the contractor’s tax status changes.

Because tax treatment is based on specific situations, consult a qualified tax adviser if a contractor performs services in the United States, moves countries, is a U.S. citizen or resident, performs work partly in the United States, or provides services through an entity.

How to pay international employees

If a worker should be an employee rather than a contractor, you generally have two practical routes: Employ them through your own local entity or use an EOR.

Pay employees through your local entity

When your company has a local entity in the employee’s country, you can use local payroll or global payroll software to calculate and process wages, taxes, statutory contributions, benefits, and reporting.

This structure can be appropriate when you have enough employees or business activity in one country to justify the cost and administration of a local entity. It also gives the company greater control over its local employer relationship.

But it carries responsibilities. You may need local employment contracts, payroll registration, local tax registrations, statutory benefits, labor-law compliance, data-privacy processes, local accounting, annual filings, and ongoing legal support.

Pay employees through an EOR

For many early-stage startups, using an EOR is the faster route to hiring an employee internationally without first creating a local entity. The EOR employs the worker locally and generally manages payroll, statutory withholdings, benefits, employment documentation, and local compliance support.

Your company still needs to make key decisions, including:

• Compensation and bonus structure
• Job title and scope
• Equity eligibility and grant mechanics
• Required and supplemental benefits
• Equipment and expense reimbursement
• Working hours and paid-time-off expectations
• Confidentiality, invention assignment, and data-access controls
• Performance management and termination process

The EOR arrangement does not eliminate every risk. Review the provider’s country-specific legal model, service scope, local benefits, IP provisions, data processing terms, employment cost estimate, termination support, and any limitations on equity administration.

Global employment platforms: Deel and Remote

Deel and Remote are prominent global employment platforms. Both offer combinations of contractor management, contractor-of-record services, employer-of-record services, global payroll, and HR tools.

The right provider depends less on brand name than on the specific country and use case. Compare the legal-employer model, implementation timeline, payroll and benefits scope, local support, contract terms, foreign-exchange costs, invoice/payment workflow, integrations, IP protections, equity support, and offboarding assistance.

Deel

Deel offers contractor management, contractor-of-record services, EOR, global payroll, and related HR tools. Its published contractor-management pricing is $49 per contractor per month. EOR pricing, coverage, and included services should be confirmed for the relevant country and commercial term.

Deel may be a fit if you need a platform that combines contractor administration, employee hiring, payroll operations, HR workflows, and global workforce reporting. If equity is part of your compensation approach, ask specifically how the provider supports local equity administration, documentation, payroll reporting, and local tax considerations.

Remote

Remote offers contractor management, contractor-of-record services, EOR, global payroll, and global HR tools. Its published pricing lists contractor management at $29 per contractor per month, contractor management plus at $99 per contractor per month, contractor of record from $325 per contractor per month, and EOR at $599 per employee per month when paid annually or $699 month to month.

Remote may be a fit if you want published pricing tiers and a platform designed around global employment and contractor administration. Confirm country-level availability and the precise service scope before relying on any quoted price.

Deel vs. Remote comparison

Published prices, available countries, and feature packages can change. Obtain a written country-specific quote and confirm what is included before selecting a global employment provider. A platform’s number of supported countries can also mean different things: Contractor payments, EOR employment, owned entities, payroll availability, and benefits support are not necessarily the same metric.

International hiring costs: What startups should expect

Hiring internationally can reduce costs in some roles or locations, but it should not be treated as a predictable salary-arbitrage strategy. High-quality international talent is globally competitive, and total employment cost goes well beyond base compensation.

When comparing an international hire with a U.S. hire, consider:

• Base salary or contractor rate
• Employer payroll taxes and statutory contributions
• Mandatory and supplemental benefits
• EOR, payroll, contractor-management, or payment-platform fees
• Foreign-exchange spread and payment fees
• Equipment, travel, and home-office reimbursements
• Legal, tax, and entity-maintenance costs
• Equity administration and local tax treatment
• Management and communication overhead
• Potential classification, employment-law, and permanent-establishment risk

For venture-backed startups, the best approach is usually to hire for capability and business need first, then choose the compliant structure that fits the country and expected duration of the role.

International hiring checklist

Use this checklist before making an international offer or contractor engagement:

• Confirm the person’s actual work location and whether they may work from multiple countries
• Decide whether the role is a genuine contractor relationship or should be an employment relationship
• Obtain country-specific legal, tax, and payroll guidance when needed
• Choose the right engagement model: contractor, local entity, EOR, or global payroll
• Budget total cost, including employer contributions, benefits, vendor fees, and FX costs
• Put contracts, confidentiality provisions, and IP-assignment language in place before work begins
• Collect the appropriate tax documentation, including the relevant Form W-8 for foreign contractors
• Establish a documented invoice, approval, and payment process
• Review equity, data privacy, security, and cross-border data-access requirements
• Assess permanent-establishment and local corporate-tax risk
• Plan for local termination, notice, severance, and offboarding obligations before hiring

Get help with global workforce accounting

International hiring affects more than payroll. Your finance team needs to correctly account for contractor costs, payroll, employer taxes, bonuses, benefits, equity compensation, reimbursement policies, foreign-currency transactions, and prepaid vendor balances.

Kruze Consulting helps venture-backed startups build finance operations that support distributed teams. If you are expanding internationally, we can help you develop reliable expense documentation, accounting workflows, payroll reconciliation processes, and reporting that gives founders and investors a clear view of total people costs.

Ready to talk? Contact Kruze Consulting for startup accounting and financial-operations support.

FAQs

• Can Gusto pay international contractors?
• Can Gusto pay international employees?
• Can Rippling pay overseas employees?

Can Gusto pay international contractors?

Yes. Gusto supports onboarding and paying non-U.S. contractors in more than 120 countries, subject to availability and product terms. Eligible employers may also have access to certain same-day international contractor-payment options. Confirm country availability, payment rails, delivery timing, transaction costs, and documentation requirements before implementation.

If the person is a U.S. citizen, U.S. resident, or otherwise a U.S. contractor for tax purposes, use the appropriate domestic onboarding and tax workflow instead of treating them as an international contractor solely because they are traveling or temporarily located abroad.

Can Gusto pay international employees?

Gusto’s global offering is focused on international contractor payments rather than serving as the legal employer for employees abroad. If you do not have a local entity and want to hire an overseas employee, you will typically need an EOR. If you already have a local entity, you may need local payroll or a multi-country payroll solution instead.

Can Rippling pay overseas employees?

Rippling offers global payroll and hiring products, including global contractor management and international employment solutions. Its global contractor platform states that it can onboard contractors in more than 185 countries and pay in more than 50 currencies. Employee payroll and EOR availability depend on the relevant country and product configuration.

Before selecting Rippling or another provider, confirm the legal-employer structure, payroll scope, benefits, implementation timeline, required local registrations, integrations, and all recurring and transaction-based costs for the countries where you plan to hire.

If you are raising a pre-seed round, focus your outreach on venture capital firms, accelerators, and early-stage investors that actively back companies at your specific stage. Pre-seed funding can come from dedicated pre-seed VC funds, multi-stage venture firms, accelerator programs, and angel investors. Each option differs in check size, sector focus, ownership expectations, decision-making process, and the level of support offered after an investment.

This founder’s directory highlights active pre-seed investors relevant to U.S.-based venture-backed startups, including their investment focus areas, publicly disclosed check sizes or program terms, and key considerations before you pitch.

Because investor strategies, check sizes, and program terms change frequently, founders should confirm each firm’s current criteria directly before fundraising. The goal is to identify investors whose stage, investment model, and operating support align with the capital you need to reach your next fundable milestone.

Last reviewed: August 2026.

Pre-Seed Investor Directory

What “Pre-Seed” Means Now

Pre-seed is not a standardized legal or financial category. One investor may use the label for a $250K SAFE round led by angels, while another may use it for a $1M–$3M institutional round with a lead investor. The amount you should raise depends on the capital required to achieve a specific, credible next milestone – not on a generic market benchmark.

For a software company, that milestone might be a launched product, design partners, early retention data, or the first repeatable customer-acquisition signal. For deep tech, biotech, hardware, or regulated fintech, it could involve technical validation, regulatory planning, intellectual-property work, a prototype, or early pilot data.

As a practical starting point, founders should build an operating plan that answers four questions:

• What milestones will make the next round fundable?
• How much time and money will it take to reach those milestones?
• What financing instrument and valuation framework best fit the company’s stage?
• How will the round affect founder ownership, the option pool, and future fundraising flexibility?

This is why a complete pre-seed financing plan should include a realistic budget, monthly cash-burn forecast, cap-table model, and financing scenarios before founders begin taking investor meetings.

Why Work With a Dedicated Pre-Seed Investor?

A good pre-seed investor can contribute more than capital, but the value depends on the specific firm and partner. Founders should assess an investor’s actual operating style, portfolio concentration, and willingness to support the company between rounds.

1. A lead can provide a financing framework

A lead investor may help establish the financing structure, including the SAFE valuation cap, discount, MFN provisions, allocations, and closing process. This can help prospective investors evaluate the opportunity within a clear set of terms.

A SAFE round does not necessarily “price” the company in the same way as a preferred-stock equity financing. A SAFE may include a valuation cap or discount, but the conversion price is typically determined later by the instrument’s terms and a subsequent equity financing.

2. Early-stage investors can help prepare for later fundraising

The right investor may help founders clarify milestones, prepare fundraising materials, make relevant introductions, and build habits that later-stage investors expect. These often include consistent board or investor updates, an accurate cap table, credible financial reporting, and a cash plan tied to operating milestones.

For more on investor communications, see Kruze Consulting’s startup investor update template. For cap-table planning, see how to structure a cap table between founders.

3. Investor support can improve operating leverage

An engaged firm may be able to introduce founders to prospective customers, senior hires, domain experts, later-stage investors, or other portfolio founders. However, founders should validate this in diligence rather than relying on brand alone.

Questions to ask a potential lead investor include:

• How many new pre-seed investments do you make per year?
• Do you normally lead, co-lead, or follow?
• What ownership percentage do you seek at entry?
• How much capital do you reserve for follow-on rounds?
• Which portfolio founders can describe your support after the check clears?
• Can you help with hiring, customer introductions, or later-stage fundraising?

4. A strong investor relationship may help at the next round

A respected investor’s referral may get a company in front of relevant seed or Series A funds. But an introduction cannot substitute for progress. The most important evidence in a later raise remains the company’s team, market, execution, product traction, customer signal, financial discipline, and ability to use capital efficiently.

Angels, Accelerators, or Funds?

Founders do not need to choose a single source of capital. The right mix depends on the company, its funding needs, the founders’ network, and the value that each investor brings.

A well-constructed pre-seed round may include a lead investor, several relevant angels, and, where appropriate, an accelerator investment. It may also be entirely angel-led or fund-led. The goal is not to accumulate logos. It’s to bring in enough capital and the right partners to reach a specific value-creating milestone without taking on unnecessary dilution or a misaligned investor base.

Build Financial Readiness Before Raising

Fundraising diligence becomes materially easier when founders can answer basic financial questions quickly and consistently. Before launching a pre-seed process, consider preparing:

• A monthly operating plan showing runway, burn and key hiring assumptions
• A clear use-of-funds plan tied to product, hiring, customer, compliance or technical milestones
• An up-to-date cap table that includes founders, SAFEs, convertible notes, option grants and the expected impact of new financing
• A forecast with realistic base, upside and downside cases
• Current bookkeeping, bank reconciliations and financial statements
• A plan for tax compliance, payroll, R&D tax credits and state registrations as the company grows

Kruze Consulting helps venture-backed startups manage bookkeeping, tax filings, CFO-level financial reporting, R&D tax-credit work, and finance operations. A reliable finance foundation can help founders understand their runway, communicate with investors confidently, and make more informed decisions as they scale.

For additional context on financing structures, valuation caps, dilution and early-stage fundraising, see Kruze Consulting’s Pre-Seed Funding Guide.

The Simple Agreement for Future Equity (SAFE) was introduced by Y Combinator in 2013 and updated to the post-money structure in 2018. By 2026, the post-money SAFE with a valuation cap and no discount has become the overwhelming market default – but the terms still matter enormously to your eventual dilution.

Post-Money vs. Pre-Money SAFE: Know the Difference

Sources: Y Combinator SAFE Documents; Carta State of Pre-Seed Q2 2026.

Key SAFE Terms Explained

• Valuation Cap. The maximum company valuation at which your SAFE converts to equity. If the next priced round values the company above the cap, SAFE investors convert at the cap, giving them more shares. Present in the large majority of pre-seed SAFEs – always negotiate the cap, since it’s the most important term.
• Discount Rate. A percentage reduction from the Series A share price, rewarding SAFE investors for early risk. Only about 25% of SAFEs issued in 2026 include a discount – down from roughly 40% in 2021 – as cap-only terms have become the clear market norm. The investor gets whichever mechanism (cap or discount) results in the lower conversion price.
• MFN Clause (Most Favored Nation). Lets investors benefit from better terms in future SAFEs. Common in very early “angel” SAFEs before the main round is priced. Use MFN as an alternative to a cap when you genuinely don’t yet know the right cap.
• Pro Rata Rights. The right for investors to maintain their ownership percentage in future rounds by writing additional checks, typically granted via a side letter rather than the SAFE itself. See our pro rata guide for how to negotiate this deal-by-deal.

SAFE Conversion Terms, 2026 Snapshot

Source: Carta State of Pre-Seed Q2 2026. When a SAFE or note does carry a discount, it’s usually 20% or less – deeper discounts have become rare.

10 SAFE Tips for Pre-Seed Founders

1. Always use the YC post-money SAFE template. Download directly from ycombinator.com/documents. Don’t reinvent the wheel — investors are familiar with the standard template and will push back on non-standard terms.
2. Avoid pre-money SAFEs in 2026. Pre-money SAFEs are legacy instruments that create ownership uncertainty when you stack multiple of them, since each new SAFE changes the others’ ownership percentages. If an investor insists, educate them or walk away.
3. Model your cap table before signing each SAFE. Calculate your total SAFE dilution before each new instrument. A common mistake: raising across multiple SAFEs at aggressive caps and discovering you’ve given away far more than expected before a single priced round.
4. Set a valuation cap that’s realistic, not aspirational. An aggressive cap may deter experienced investors who will model the math. For rounds under $1M, expect a median cap around $8-10M in the current market; for $1-2.4M rounds, $15M is typical.
5. Cap-only beats cap + discount, usually. Roughly three-quarters of SAFEs are now cap-only. Offering both a cap and a discount gives investors double protection and can make your economics worse than a priced round. If an investor pushes for both, consider offering a higher cap in exchange for dropping the discount.
6. Standardize terms across your SAFE round. Issuing multiple SAFEs with identical terms simplifies your cap table and avoids conflicts at conversion. Progressive caps can work, but track dilution carefully as you move through them.
7. Disclose your SAFE obligations to future investors. Series A investors will see your full cap table. Undisclosed or poorly documented SAFEs are a diligence red flag. Use Carta or Pulley to track every instrument.
8. Understand your MFN clause implications. If you’ve issued any MFN SAFEs, new SAFEs at better terms will automatically upgrade MFN holders. Plan your SAFE pricing sequence carefully.
9. Build in 18-24 months of runway. Don’t raise the minimum. Series A revenue bars have risen, so your pre-seed should fund enough runway to reach clear milestones, plus a buffer.
10. Set up your books immediately after closing. The moment you receive wire transfers from SAFEs, you’re a funded company with investor expectations. Set up a Delaware C-Corp, open a startup-friendly bank account, onboard payroll, and get a startup accountant, like Kruze.

Convertible Notes: Still Relevant in a Few Industries

Convertible notes have fallen to their lowest share of pre-seed instruments in years, but they haven’t disappeared everywhere. They remain meaningfully more common – though still a minority – in biotech/pharma, medical devices, and energy, where longer development timelines and larger capital needs make debt-like downside protection more appealing to investors.

Outside of those industries (SaaS, fintech, adtech, consumer, gaming, crypto/Web3), notes are now rarely used at all. Over 80% of the convertible notes that are issued carry a pre-money cap, and the vast majority combine both a valuation cap and a discount – the opposite pattern from SAFEs.

For the full market picture – valuation benchmarks, deal structures by round size, and geographic trends – see our companion post: Pre-Seed Funding Guide: 2026–2027 Edition.

Kruze Consulting Can Help

Kruze Consulting is the accounting and finance partner for 800+ venture-backed startups. From bookkeeping and tax filings to CFO-level financial reporting and R&D tax credits, we handle the finance function so you can focus on building. Contact us for a free consultation.

Catch-up bookkeeping is the process of reconciling accounts, recategorizing transactions, and rebuilding financial statements for months (or years) that were never properly recorded. For venture-funded startups, this usually happens when a founder or early hire has been handling the books part-time and falls behind during a fundraise, product launch, or hiring push.

If you haven’t reconciled your bank accounts in months, have a growing pile of “uncategorized” transactions, or simply don’t trust the numbers in QuickBooks anymore, you likely need a catch-up bookkeeping project. The good news is that Q3 is the ideal time to run one, before year-end close and tax season pile on top of it.

Why Q3 Is the Window

Think of your fiscal year like a highway. Q1 and Q2 have some flexibility. You can merge lanes, slow down, catch up.

But by Q4, everyone’s converging on the same exit at once: Year-end close, W-2s and 1099s, R&D tax credit documentation, annual board decks, and (for many of you) audits or diligence for your next round. If your books are still messy when that traffic hits, you’re not just late, you’re compounding problems on top of problems.

Q3 gives you roughly 90 days of breathing room before the year-end crunch starts. That’s enough time to:

• Reconcile the backlog without rushing
• Fix categorization errors before they touch a full year of financials
• Get board-ready reports in front of your investors before the year-end board meeting
• Give your tax preparer clean books instead of a shoebox in December

Wait until Q4 or January, and you’re now doing cleanup and close and tax prep simultaneously. And your bookkeeper or CPA is also juggling every other client’s year-end at the same time. Rates go up, turnaround times go down, and mistakes get missed.

Step One: How Far Behind Are You, Really?

Before you can fix anything, you need an honest diagnosis. Founders tend to either panic (“we haven’t touched this since January, we’re doomed”) or underestimate (“it’s probably fine, just a few months”). Neither guess is useful. Here’s how to actually gauge it:

• Check your last reconciled date. Every bank and credit card account in your accounting system should show a “last reconciled” date. If your bank account was last reconciled in February and it’s August, you have six months of unreconciled transactions! That’s your real starting point, not the calendar.
• Look at your balance sheet for red flags. Negative cash balances, a ballooning “Uncategorized Expense” or “Ask My Accountant” line, or accounts payable/receivable that haven’t moved in months are all signs of neglected books.
• Count your uncategorized transactions. Most accounting software has a “for review” or uncategorized queue. If that number is in the hundreds, you’re looking at real cleanup, not a quick tidy-up.
• Determine when the last set of financials was actually reviewed by a human, not just auto-synced by a bank feed. A lot of “bookkeeping” that startups do themselves is really just bank feed rules running unsupervised for months. That’s not bookkeeping, and it could easily backfire.

As a rough scale: One-two months behind is a light cleanup, doable in a couple of weeks. Three-six months behind is a real project. Anything beyond six months, or extending into a prior fiscal year, usually means you need dedicated catch-up bookkeeping help rather than squeezing it in between other tasks.

Step Two: Prioritize Your Reconciliations

Work in priority order rather than strict chronological order from month one, which is how cleanup projects stall out. Instead, triage:

1. Bank and credit card accounts first. These are the foundation everything else is built on. If cash isn’t reconciled, nothing downstream can be trusted.
2. Payroll and contractor accounts next. These affect burn rate calculations, cap table-adjacent numbers, and tax filings, so errors here do more damage.
3. Accounts payable and receivable after that. Especially important if you have real revenue or vendor relationships that matter for cash flow forecasting.
4. Loans, credit lines, and SAFE/convertible note tracking. These are last in the reconciliation queue, but flag these early since they often need specialist attention.

Reconcile month by month, oldest to newest, within each category. Don’t skip around! Skipping around is how you end up “fixing” August only to find the real error was sitting in May.

Step Three: Fix the Miscategorized Transactions

This is where most DIY bookkeeping quietly goes wrong. Miscategorized transactions don’t just look messy, they distort your actual financial picture. Some of the most common bookkeeping mistakes we see in early-stage startups:

• Founder personal expenses mixed into business accounts, or vice versa, with no clear memo trail.
• Software subscriptions coded as “Office Supplies” instead of the correct expense category, which throws off your burn rate analysis and can affect R&D tax credit eligibility.
• Owner draws or founder loans logged as regular expenses, which misstates both equity and expenses.
• Capitalizable costs (like certain software development costs) expensed immediately, or vice versa.
• Sales tax collected but never separated from revenue, creating a liability nobody’s tracking.
• One-time items (a legal settlement, a large equipment purchase) buried in a recurring expense line, making your run-rate look wrong to investors.

The fix is methodical: Run a full “profit and loss by transaction detail” report, and go category by category. Ask “does this belong here, and does the amount make sense for a company our size and stage?” Anything that looks off, even if you’re not sure why, gets flagged for review rather than guessed at.

Step Four: Get Board-Ready

Once reconciliations are current and categorization is clean, the last step is packaging your financials so they’re actually useful to the people who read them: Your board, your investors, and future diligence teams.

Board-ready doesn’t just mean “the numbers are correct.” It means:

• A clean balance sheet, P&L, and cash flow statement that tie out to each other
• Burn rate and runway calculations that reflect reality, not a distorted picture from miscategorized expenses
• Key SaaS or startup metrics (MRR, gross margin, CAC, whatever your board tracks) built on top of accurate underlying data
• A brief narrative or variance explanation for anything unusual, so you’re not fielding surprise questions live in the board meeting

If you’re raising your next round soon, this step matters even more. Investors and their diligence teams will look at your books, and a clean set of financials signals operational discipline. Messy books, even if the business itself is doing well, raise questions you don’t want to spend a term sheet negotiation answering.

Do I Need a Bookkeeper, or Can I DIY This?

This is the honest question every founder asks at some point, usually around 11 PM with seventeen browser tabs open. A few things to weigh:

When DIY makes sense

You’re pre-revenue or very early stage; transaction volume is genuinely low (think dozens, not hundreds, per month); and you have real accounting knowledge or a lot of patience to learn it properly.

When hiring help makes sense

You’ve raised outside capital (investors expect GAAP-aligned, defensible books); you’re more than a couple months behind; you’re prepping for a raise or approaching an audit trigger; or your time is better spent on product and customers than untangling a categorization backlog.

For most venture-funded early-stage companies, the math on founder time alone tips this decision quickly. An hour spent reconciling transactions is an hour not spent on the thing investors actually funded you to do.

What bookkeeping costs

DIY software runs $30-$70/month, but that’s just the tool, not the labor. A part-time bookkeeper or catch-up project with an outsourced firm typically bases pricing on transaction volume and the number of months of backlog that need cleanup.

A light two-month cleanup is a very different scope (and cost) than untangling eight months across multiple bank accounts and a payroll system. Most firms will scope catch-up work based on transaction count and complexity rather than a flat monthly fee, since a single month of messy books can take longer to fix than three months of clean ones.

Where This Leaves You Heading Into Q4

Messy books don’t fix themselves, and they don’t get cheaper or easier to fix the longer you wait. Q3 is your window: Enough time to do it right, before year-end close, tax prep, and board season all land at once.

Whether you handle it in-house or bring in help, the goal is the same: Walk into Q4 with books that are current, accurate, and ready for whatever comes next, whether that’s a board meeting, a term sheet, or an IRS filing deadline.

Ready to stop guessing how far behind you are? Kruze Consulting works with hundreds of venture-funded startups on exactly this problem every quarter. Schedule a free consultation and we’ll help you diagnose the backlog, scope the cleanup, and get your books board-ready before year-end.

FAQs - Catch Up Bookkeeping: Q3 Cleanup Guide for Startups

• How do I know if my books are behind?
• How far back must I fix my books?
• Can I catch up before year-end?
• Should I do it myself or hire help?
• What does catch-up bookkeeping typically cost?
• What happens if I don't clean up my books before tax season?

How do I know if my books are behind?

Check the “last reconciled” date on each bank and credit card account in your accounting software. If it’s months old, that’s your backlog. Other signs: a large or growing “Uncategorized” or “Ask My Accountant” balance, financial statements that haven’t been reviewed by a human recently, and reports that don’t match your actual bank balances.

How far back must I fix my books?

At minimum, back to the last point your books were fully reconciled and categorized correctly. That’s your true starting line, not just “since January.” If you’re not sure when that was, a quick diagnostic review of your reconciliation history will show you exactly where things went sideways.

Can I catch up before year-end?

In most cases, yes, especially if you start in Q3. A few months of backlog can typically be cleaned up in a couple of weeks. If you’ve got six-plus months of unreconciled books, or issues spanning a prior fiscal year, it’s going to take longer. That’s exactly why starting now (rather than in November) matters.

Should I do it myself or hire help?

If you’re pre-revenue with low transaction volume, DIY can work. If you’ve raised venture funding, are several months behind, or are prepping for a raise or audit, hiring a bookkeeper or outsourced accounting firm is usually the faster and cheaper path once you account for your own time.

What does catch-up bookkeeping typically cost?

It depends on transaction volume and how many months need cleanup, not just elapsed time. A messy two months can cost more to fix than three clean ones. Most firms will scope and quote catch-up work after a review of your accounts rather than charging a flat rate.

What happens if I don't clean up my books before tax season?

Your CPA will either spend (billable) time cleaning them up before they can even start your return, delaying your filing. Or your CPA might file based on incomplete/incorrect data, which can create problems down the line, including missed deductions like the R&D tax credit or inaccurate financials in front of investors.

Accounting for startups is the process of setting up systems to track cash, expenses, payroll, revenue, and financial reporting from day one. For venture-backed startups, a strong accounting foundation helps founders monitor burn rate and runway, report accurately to investors, plan hiring, prepare for fundraising, and make faster decisions as the company grows.

The first 90 days are the right time to establish a solid financial foundation. This guide covers the practical startup accounting basics founders should set up from incorporation through their first monthly close, and explains when DIY bookkeeping stops being the smart choice.

Days 1–30: Build the Financial Foundation

Once you incorporate, open a bank account, and receive initial funding, your accounting needs to become more structured quickly. The goal during the first month is simple: make sure every dollar can be tracked accurately from the start. A perfect finance function can come later.

At pre-seed and seed, you do not need a large finance operation. You need clean separation of company and personal money, a simple chart of accounts, basic monthly bookkeeping, on-time tax and payroll filings, and reports a founder can actually read. Everything below builds that foundation in order.

Set up the business entities and accounts

Start by completely separating company finances from personal finances. For most venture-backed companies, that means establishing:

• A business checking account for operating expenses.
• A business savings or money market account for reserve cash, when appropriate.
• A corporate credit card account.
• Payroll accounts and provider access.
• Accounts for any payment processors, such as Stripe, if you are collecting customer payments.
• A process for storing formation documents, board approvals, financing documents, and bank statements.

Avoid paying company expenses on personal credit cards whenever possible. If it happens occasionally, document the expense and reimbursement clearly. Blending personal and company activity makes startup accounting harder, increases cleanup costs later, and can create issues during diligence.

Decide: Cash or accrual accounting?

Early-stage startups often begin with cash-basis accounting because it is straightforward: revenue is recorded when cash comes in, and expenses are recorded when cash goes out.

However, most VC-backed C-corps should expect to move toward accrual accounting sooner rather than later. Accrual accounting records revenue when it is earned and expenses when they are incurred, even if payment happens in a different month.

For example, if a startup prepays $12,000 for a one-year software contract, cash-basis books show the full $12,000 expense immediately. Under accrual accounting, the company records roughly $1,000 of expense each month over the 12-month service period. That gives management a more accurate view of monthly operating costs and burn.

Accrual accounting is generally more useful for venture-backed startups because investors, boards, and prospective acquirers typically want financial statements that show the economics of the business, not just the timing of payments. It also makes it easier to track deferred revenue, prepaid expenses, accounts payable, and accounts receivable as the company grows.

Create a startup-ready chart of accounts

A chart of accounts is the structured list of categories used to classify every financial transaction. It is the backbone of your general ledger and one of the most important parts of accounting for startups.

A simple early-stage chart of accounts should include categories such as:

The right chart of accounts gives founders visibility into the metrics that matter. For many SaaS and technology startups, that includes separating hosting and infrastructure costs from general software expenses, distinguishing direct customer costs from operating expenses, and tracking outside contractors by function. Our guide to setting up a chart of accounts includes information on charts of accounts for different industries.

Keep the chart of accounts lean. A 10-person company works best with a handful of meaningful categories rather than dozens of hyper-specific ones. Use categories that support real management decisions, tax reporting, budgeting, and investor updates.

Days 31–60: Put the Core Tool Stack in Place

Once the company’s accounts and basic bookkeeping structure are in place, the next step is to build a reliable workflow. The best accounting stack is usually simple, connected, and designed around the startup’s stage.

The essential startup accounting tools

Most early-stage companies need tools for bookkeeping, payroll, expenses, bill payment, and document storage.

Select systems that reduce manual data entry, preserve documentation, and provide clean information for the monthly close, rather than buying every finance tool available.

For example, a corporate-card platform may automatically capture receipts, enforce spending policies, and sync transactions into the accounting system. That is much better than asking employees to send a spreadsheet of expenses at the end of every month.

Establish operating rules early

Startup accounting works best when every person handling money follows the same process. Establish a few straightforward rules:

• Require receipts and a business purpose for card transactions.
• Use the company card or approved reimbursement process for business expenses.
• Route vendor bills to a central inbox or accounts payable workflow.
• Maintain approval requirements for large expenses and contracts.
• Save signed contracts for major vendors, customers, financing, and leases.
• Reconcile bank and credit-card activity on a consistent schedule.
• Review payroll changes before each payroll run.

These habits may seem administrative, but they make the difference between a fast monthly close and a recurring scramble to determine what a transaction was for.

Days 61–90: Run Your First Real Monthly Close

A monthly close is the process of finalizing a company’s books for a specific month. During the close, the finance team verifies that transactions are complete, records required adjustments, reconciles balances, and produces financial statements.

For founders, the practical outcome is a reliable set of numbers: the income statement, balance sheet, cash flow statement, and often a budget-versus-actual report.

What happens during a monthly close?

A startup’s first monthly close commonly includes:

• Reconciling every bank account, credit card, and payment processor account.
• Confirming that payroll, contractor payments, and reimbursements are recorded correctly.
• Reviewing unpaid bills and amounts owed to vendors.
• Recording prepaid expenses and other accruals.
• Reviewing customer invoices, cash collections, and deferred revenue.
• Checking that financing transactions and equity-related entries are accounted for properly.
• Reviewing unusual or large transactions with management.
• Producing financial statements and management reporting.

A strong close process turns bookkeeping into decision-ready reporting. Instead of asking, “How much money is in the bank?” founders can ask more useful questions:

• What is our monthly burn?
• How many months of runway do we have?
• Are payroll and contractor costs increasing as planned?
• Is marketing spend aligned with the budget?
• Are we recognizing revenue correctly?
• What needs to change before the next board meeting or fundraise?

For most early-stage companies, the books should be closed monthly, ideally within a predictable timeframe after month-end. The exact close timeline will vary, but consistency matters more than speed at the beginning.

When DIY Startup Accounting Stops Being Smart

Founders can often handle basic startup accounting in the earliest days, particularly before funding, employees, recurring revenue, or significant vendor activity. But DIY accounting becomes risky once transactions get more complex.

The real question goes beyond “Do I need a bookkeeper?” It is whether the company’s financial activity has become important enough that inaccurate or delayed numbers create a business risk.

It may be time to outsource startup accounting when:

• You have raised a priced equity round or are preparing to fundraise.
• You are hiring employees or paying a growing contractor base.
• You need monthly financial statements for investors or board reporting.
• Revenue involves subscriptions, annual contracts, customer prepayments, or deferred revenue.
• You are managing multiple bank accounts, cards, entities, or currencies.
• Your books are consistently behind or unreconciled.
• You do not know your current burn rate or cash runway with confidence.
• Your tax, payroll, sales-tax, or compliance obligations are increasing.
• The founder is spending too much time categorizing transactions instead of building the business.

Outsourcing does not necessarily mean hiring a full-time controller or CFO. Many venture-backed companies begin with an outsourced accounting team that handles bookkeeping, monthly close, bill pay, financial reporting, and tax coordination. As the company scales, it can add more specialized support such as a controller, tax advisor, or fractional CFO.

Set Up Accounting Before It Becomes an Emergency

The best time to establish clean accounting is before a board member asks for a burn analysis, an investor requests financials, or a tax deadline reveals that the books are months behind.

A thoughtful first 90 days creates a foundation for better reporting, cleaner fundraising diligence, more accurate tax filings, and more confident decisions. Start with clean bank and card activity, a practical chart of accounts, an appropriate tool stack, and a consistent monthly close process. Then bring in expert support when the business outgrows DIY bookkeeping.

Kruze Consulting helps venture-funded startups build reliable accounting processes, close their books, prepare investor-ready financials, and scale their finance operations. Schedule a consultation with Kruze Consulting to get startup accounting support built for your stage of growth.

FAQs: Startup Accounting in the First 90 Days

• What accounting do I need at pre-seed and seed?
• Cash or accrual accounting: which should a startup use?
• What is a monthly close?
• When should I hand off bookkeeping to an outsourced team?

What accounting do I need at pre-seed and seed?

At pre-seed and seed, keep it lean: separate company and personal finances completely, set up a simple chart of accounts, run basic monthly bookkeeping, and stay current on corporate and payroll tax filings. The priority is accurate, well-organized records a founder can read, not a full finance function. A generalist accountant can sometimes cover this stage if they genuinely understand venture basics like SAFEs and Delaware C-Corps.

Cash or accrual accounting: which should a startup use?

Many startups begin with cash-basis accounting because it is simple, but most VC-backed C-corps should move toward accrual accounting sooner rather than later. Accrual records revenue when it is earned and expenses when they are incurred, which gives a truer picture of monthly burn and unit economics. It is also what investors, boards, and future acquirers expect to see in your financial statements.

What is a monthly close?

A monthly close is the process of finalizing your books for a given month. The finance team reconciles every bank, card, and payment processor account, confirms payroll and vendor activity is recorded, books accruals and prepaid expenses, reviews revenue and deferred revenue, and produces financial statements. The result is a reliable income statement, balance sheet, and cash flow statement you can use to make decisions and report to your board.

When should I hand off bookkeeping to an outsourced team?

Consider outsourcing once your financial activity is complex enough that late or inaccurate numbers become a business risk. Common triggers include raising a priced round or preparing to fundraise, hiring employees, needing investor or board financials, recognizing subscription or deferred revenue, managing multiple accounts or entities, or falling consistently behind on reconciliations. Many startups start with an outsourced team for bookkeeping, monthly close, and reporting, then add a controller or fractional CFO as they scale.

Startup accounting is the process of recording, reconciling, and reporting a company’s financial activity so founders, investors, and other stakeholders can rely on the numbers. During fundraising due diligence, investors use startup accounting records to evaluate a company’s cash position, spending, revenue, liabilities, financial controls, and use of prior investor capital.

For venture-backed companies, accurate accounting for startups helps confirm that the financial information in the pitch deck, data room, board materials, and management discussions is accurate and consistent. Investors may request financial statements, bank and credit-card records, tax filings, payroll reports, customer contracts, budgets, cap-table information, and support for major transactions.

A startup does not need enterprise-level finance operations to be diligence-ready. But it should be able to provide timely, reconciled financials and clearly explain the story behind the numbers. When startup bookkeeping is incomplete or outdated, founders may spend valuable fundraising time recreating records, resolving discrepancies, and answering preventable questions about cash runway, revenue, expenses, and financial controls.

Why Accounting Matters in Due Diligence

During a fundraising round, investors often review much more than a pitch deck and headline metrics. They may request financial statements, bank records, tax filings, payroll reports, customer contracts, cap-table information, budgets, and details behind major expenses or revenue balances.

The goal is usually not to expect a young company to have enterprise-level finance operations. Investors understand that early-stage startups are still building. What matters is whether the company can provide credible, consistent information and explain the story behind the numbers.

When startup bookkeeping is incomplete, founders can lose valuable time reconstructing transactions, tracking down documents, and correcting historical reports. In more serious cases, accounting issues can create questions about cash runway, revenue quality, compliance, internal controls, or the use of investor capital.

Common Startup Accounting Mistakes

1. Books that are not closed or reconciled

One of the most common due diligence issues is simply having books that are behind. A startup may have transactions recorded in its accounting system, but bank accounts, corporate cards, payment processors, and other accounts have not been reconciled.

A reconciliation compares the company’s accounting records with actual bank, card, payroll, or processor activity. Without it, the reported cash balance, expenses, liabilities, and revenue may not be accurate.

For example, a founder may report $1.2 million in available cash based on the bank balance. But if unpaid bills, credit-card balances, pending payroll items, or customer refunds have not been accounted for, the company’s true cash position and runway may look different.

What to do: Reconcile every cash, credit-card, and payment-processing account every month. Complete a monthly close that produces a finalized income statement, balance sheet, and cash flow statement.

2. Personal and company expenses are mixed together

In the earliest days of a company, founders sometimes pay business costs on personal cards or use company funds for personal expenses. Occasional founder-paid business expenses are manageable when documented and reimbursed correctly. Ongoing commingling is not.

Mixed expenses create several problems during accounting for startups:

• The company’s expense reporting becomes less reliable.
• The accounting team may not have support for the transaction.
• Reimbursements or amounts owed to founders may be unclear.
• Investors may question financial controls and cash management.
• Tax reporting can become more complicated.

What to do: Use dedicated company bank accounts and corporate cards. Establish a straightforward reimbursement process, require receipts, and record founder-paid expenses consistently.

3. Weak documentation for major transactions

A financial statement shows the accounting result of a transaction. Due diligence also requires the source documents that explain it.

Investors may ask for documentation related to large vendor payments, executive compensation, customer agreements, debt, leases, financing transactions, equity grants, and unusual expenses. If those documents are scattered across personal inboxes, old Slack threads, or employee laptops, the diligence process becomes slower and more difficult.

What to do: Create a centralized, secure repository for contracts, invoices, bank statements, financing documents, payroll reports, board approvals, and tax filings. Use a consistent naming convention so the team can find documents quickly.

4. Revenue is recorded incorrectly

Revenue accounting can become complicated earlier than founders expect, especially for SaaS companies, annual contracts, prepaid subscriptions, implementation fees, usage-based pricing, or contracts with multiple deliverables.

A common mistake is recording the full value of a customer contract as revenue when the cash arrives or the invoice is issued (cash accounting). In many cases, the company may need to recognize revenue over the period it provides the product or service (accrual accounting).

For example, if a customer pays $24,000 upfront for a 12-month subscription, treating the full amount as revenue in the first month can overstate near-term performance. The accounting records may need to recognize the revenue over the subscription period (in other words, $2,000 per month) while recording the unearned portion as deferred revenue.

What to do: Maintain customer contracts, invoices, billing schedules, and a revenue-recognition schedule. Review the treatment of nonstandard terms, annual prepayments, discounts, refunds, and professional-services obligations.

5. Expenses are poorly categorized

Founders and investors need to understand where money is going. If the chart of accounts groups most spending into broad labels such as “software,” “consulting,” or “other expense,” it can be hard to evaluate burn, hiring costs, customer acquisition spending, and gross margin.

Poor categorization can also lead to inconsistent financial reporting. One month, an engineering contractor may be classified as research and development; the next month, it may be put into general and administrative expense. That makes trend analysis less useful.

What to do: Use a practical chart of accounts that separates meaningful business functions, such as research and development, sales and marketing, general and administrative, cost of revenue, payroll, contractors, legal, and recruiting. Apply the same classification rules each month.

6. Payroll, contractor, and equity records do not match

Payroll is often a company’s largest expense, which means discrepancies are easy for investors to spot. Problems can arise when payroll reports do not match the general ledger, contractor payments are not documented, or headcount reporting differs from financial statements.

Equity records can create similar issues. A cap table that does not align with financing documents, board approvals, stock-option grants, or accounting records can slow the diligence process significantly.

What to do: Reconcile payroll reports to the general ledger each month, retain signed contractor agreements, and keep the company’s cap-table platform, financing records, and board approvals current. Coordinate regularly with legal, HR, payroll, and accounting partners.

7. No clear view of burn rate and runway

A founder should be able to explain current cash, monthly burn, and expected runway without relying on an estimate created the night before an investor meeting.

Burn and runway calculations can vary depending on whether the company uses gross burn, net burn, or a forecast that incorporates expected revenue and hiring. The key is not to present a single “perfect” number. It is to use a consistent methodology, tie it back to current financials, and explain the assumptions.

What to do: Review cash and burn regularly, maintain a budget or forecast, and document the assumptions behind hiring plans, revenue expectations, and major expenditures. Update the forecast as the company’s plans change.

Startup Accounting Basics for a Diligence-Ready Company

The best time to prepare for fundraising due diligence is before fundraising begins. Strong startup accounting basics create a repeatable process, not a last-minute cleanup project.

A diligence-ready startup should generally have:

• Monthly reconciled bank, credit-card, payroll, and payment-processor accounts
• Timely monthly financial statements
• A consistent chart of accounts
• Clear revenue, billing, and deferred-revenue records, when applicable
• Organized support for major expenses and contracts
• Current payroll, contractor, and headcount information
• Updated financing, cap-table, and equity documentation
• Filed tax returns and an organized record of tax notices and filings
• A budget, cash forecast, and clear burn-rate calculation
• A secure data room or shared folder for finance and legal documents

These practices benefit more than a future fundraising round. They help leadership make better operating decisions, give boards more useful reporting, and reduce surprises around cash, compliance, and spending.

How Kruze Helps Startups Prepare

Fundraising should be a chance to tell a compelling growth story. You shouldn’t have to scramble to explain why the cash balance, revenue numbers, or expense categories don’t match. A startup-focused accounting partner can help keep the books current, improve financial controls, produce investor-ready reporting, and identify potential diligence issues before investors do.

Kruze Consulting works with venture-funded startups to build dependable startup bookkeeping processes, complete timely monthly closes, and prepare financial reporting for fundraising and board discussions. Schedule a consultation with Kruze Consulting to assess your accounting readiness and build a finance foundation that supports your next fundraise.

Startup Accounting Mistakes in Fundraising Due Diligence

• What do investors review during startup fundraising due diligence?
• How far back should startup financial records go for due diligence?
• Can a startup raise funding if its books are behind?
• When should a startup outsource accounting before fundraising?

What do investors review during startup fundraising due diligence?

Investors often request historical financial statements, bank statements, tax returns, payroll reports, customer contracts, accounts receivable and payable details, budgets, cash forecasts, financing documents, and cap-table records. The specific request list depends on the company’s stage, business model, and size of the round. To find out more about the diligence requirements for different startup stages, see our diligence guide.

How far back should startup financial records go for due diligence?

Investors commonly want to review the company’s recent financial history, along with supporting records for material transactions and financing events. Startups should keep organized accounting records from incorporation onward, including bank statements, tax filings, equity records, significant contracts, and monthly financial statements.

Can a startup raise funding if its books are behind?

Yes, but delayed or incomplete books can slow diligence and create more questions from investors. If records are behind, founders should address the issue early, complete reconciliations, identify any cleanup needs, and ensure financial statements accurately reflect the company’s current position before sharing them with prospective investors.

When should a startup outsource accounting before fundraising?

Consider outsourcing when the company has raised capital, added employees, manages recurring or complex revenue, needs monthly investor reporting, or lacks a reliable view of cash and runway. An experienced startup accounting firm can help prepare diligence-ready financials while establishing processes that scale beyond the next fundraising round.

September is a high-priority compliance month for venture-backed startups. For calendar-year C-corps with taxable income, the month brings the third federal estimated tax payment, a Delaware franchise tax installment for qualifying companies, and several important state and local payments.

Even startups that are still operating at a loss should use September to confirm their filings, tax projections, payroll obligations, and local registrations are current. Clean compliance records matter during fundraising, diligence, and acquisition conversations. For complete dates and downloadable calendars, visit our 2026 Startup Tax Deadlines page.

Federal: September 15 estimated tax payment

For profitable calendar-year C-corps, the third federal estimated income tax installment is due September 15, 2026. This payment generally relates to estimated 2026 corporate income tax liability, and it’s part of the standard quarterly estimated-tax cycle that also includes April, June, and January dates.

Your startup may need to make this payment if it expects to owe federal corporate income tax for 2026. Work with your tax advisor to update the forecast using year-to-date revenue, deductions, R&D credit assumptions, and changes in payroll or headcount.

A common mistake is calculating estimates based on an outdated operating plan. If your revenue has accelerated, your margins have improved, or you closed a large contract, revisit your company’s estimated taxable income before September 15.

Delaware C-corps: September 1 franchise tax estimate

Delaware C-corps that expect to owe more than $5,000 in annual Delaware franchise tax have an additional September obligation: A quarterly estimated franchise tax payment due September 1, 2026. The September installment is 20% of the estimated annual Delaware franchise tax amount.

This is separate from federal estimated income tax. Delaware franchise tax is based on a corporation’s structure and capital, NOT its profitability, so even a startup operating at a loss may have an estimated franchise tax obligation.

Founders should confirm that the company’s authorized shares, issued shares, gross assets, and prior Delaware franchise tax calculations are current. Startups with large option pools or multiple financing rounds can see an unexpectedly high calculation if they use the wrong method.

State and city deadlines in September

Several locations have September-specific estimated tax or local property tax dates. The following deadlines may apply depending on where your startup operates, employs people, owns property, or has tax nexus.

Massachusetts: Corporate estimated tax

Boston startups with Massachusetts corporate excise tax liability should plan for the September 15 Form 355-ES payment. The Q3 installment is 25% of the company’s estimated Massachusetts tax.

This can be easy to overlook if your company’s federal tax estimate is low, but its Massachusetts apportionment or state-specific tax position is different. Coordinate federal and Massachusetts projections together, rather than treating them as separate exercises.

New York City: State and city estimates

New York City-based companies may have both New York State and New York City estimated tax obligations due September 15. These payments are distinct from the federal corporate estimate and can apply to startups with taxable activity in the state or city.

Because New York business taxes can involve multiple filings and allocation rules, confirm whether your company has activity, employees, revenue, or other nexus factors that require state or city estimated payments.

Washington, DC: Estimated tax and property tax

Washington, DC startups with corporate franchise tax liability should calendar the Q3 estimated tax payment on Form D-20ES for September 15. Companies that own DC real property should also note that the second half of the real property tax bill is due on the same date.

If your company rents office space, verify whether property taxes are included in lease charges or passed through separately. If your startup owns equipment or real estate, make sure the tax liability is reflected in the company’s cash forecast and financial statements.

What about California startups?

For startups in California hubs, including Palo Alto, San Francisco, Santa Monica, Mountain View, San Jose, and San Diego, the key September deadline is generally the September 15 federal estimated tax payment, along with the September 1 Delaware franchise tax estimate for corporations above the relevant threshold.

Most California-specific corporate return and business property filing deadlines occur earlier in the year, while the next major San Francisco local installment is the Q3 gross receipts tax payment due in late October. Santa Monica founders should also make sure their annual business license renewal was filed by the August 31 penalty deadline before moving into September planning.

September 2026 startup tax checklist

Use this checklist to keep the month on track:

• Confirm whether your startup owes the September 15 federal estimated corporate income tax installment.
• If you are a Delaware C-corp expecting annual franchise tax above $5,000, pay the September 1 installment – 20% of your estimated annual amount.
• If you operate in Massachusetts, New York City, or Washington, DC, confirm whether a September 15 state or local estimated tax payment applies.
• For DC real estate owners, plan for the September 15 second-half property tax payment.
• Update your tax forecast using year-to-date actuals before making payments.
• Reconcile all tax payments in your accounting system and document the assumptions supporting each estimate.
• Begin preparing for October deadlines, including extended federal and state corporate returns for startups that filed extensions.

Make September a planning month

September is more than a payment deadline. It’s a useful point to pressure-test your full-year forecast. By late Q3, founders typically have enough actual financial data to reassess taxable income, evaluate cash needs, and identify potential compliance issues before October’s extended-return deadline.

Need help with your September tax obligations? Kruze’s startup accountants and tax CPAs help venture-backed companies build tax forecasts, manage multi-state obligations, and keep financials ready for investors and diligence.

Switching to a startup-focused accounting firm can give founders cleaner books, more reliable reporting, and finance support built around the realities of venture-backed growth. A successful transition starts with gathering the right financial information and creating a clear plan to transfer your startup accounting systems without disrupting payroll, bill payments, reporting, or tax compliance.

Whether you need more timely support, have fallen behind on bookkeeping, or have reached a stage where more specialized services would be helpful, changing firms doesn’t have to be painful. The key is choosing a partner that understands startup operations and manages the handoff in an organized, secure way.

Why Startups Switch Accounting Firms

Many early-stage companies begin with a local accountant, a founder-managed QuickBooks file, or a general bookkeeping provider. That may work fine when the company has limited activity. But as the startup raises capital, hires employees, adds subscriptions, begins recognizing revenue, or prepares for board reporting, its accounting needs become more complex.

A startup-focused accounting firm is designed to support the financial needs that come with growth, including:

• Monthly bookkeeping and close processes
• Cash burn and runway reporting
• Investor- and board-ready financial statements
• Payroll coordination and employee expense workflows
• Accounts payable and vendor payment processes
• Budgeting and forecasting support
• Tax planning, tax returns, and compliance coordination
• Financial diligence for fundraising, lending, or acquisition activity

The right accounting partner should do more than categorize transactions. It should help the company build financial processes that give founders timely, accurate information to make decisions.

What Information to Provide

Your new firm will need enough information to understand the company’s financial history, current operations, and accounting setup. Gathering this information early can make the transition faster and reduce the chance that important records are missed.

Company and entity information

Provide the core documents that explain how the company is structured and funded:

• Certificate of incorporation and organizational documents
• Employer Identification Number (EIN)
• State registration details
• List of legal entities, subsidiaries, or foreign registrations
• Recent financing documents, such as SAFE, convertible note, or preferred-stock financing agreements
• Current cap table or access to the cap table platform
• Board materials, if they include approved budgets or material financial decisions

This information helps the accounting team understand the company’s equity structure, financing history, and potential accounting or tax considerations.

Financial records and system access

Your new provider will also need access to the systems that make up your startup accounting systems. These are the tools that generate the transactions and documentation needed to keep books current.

A typical access and records checklist includes:

If you don’t have every item readily available, don’t let that prevent you from starting the conversation. A startup-focused accounting firm can identify what is missing, prioritize the most important records, and help create a plan to obtain them.

Context about the business

Documents tell part of the story. Your accounting team also needs to understand how the business operates.

Be prepared to discuss:

• Your business model and how the company earns revenue
• The company’s current cash position and expected fundraising timeline
• Headcount, contractor usage, and hiring plans
• Key recurring vendors and significant contractual obligations
• Existing reporting needs for founders, investors, lenders, or the board
• Current pain points with the prior accounting process
• Any known issues, such as unreconciled accounts, overdue filings, or historical bookkeeping gaps

Being direct about issues is helpful. If the books are behind or historical records need cleanup, it’s better to identify that early so your new firm can scope the work accurately and set realistic expectations.

How the Transition Usually Works

A well-managed transition should have a clear owner, a timeline, and a defined handoff process. The exact sequence depends on the condition of your books and the complexity of your company, but most startup accounting transitions follow a similar path.

1. Discovery and assessment

The new accounting firm begins by learning about your company, reviewing current systems, and assessing the state of the books. This initial review helps determine what needs to be transferred, whether prior periods need cleanup, and which startup accounting systems should remain in place or be improved.

At this stage, the firm may identify opportunities to streamline workflows. For example, it may recommend centralizing vendor bills, improving receipt collection, separating software costs from cost of revenue, or implementing clearer employee reimbursement policies.

2. Secure access and document collection

Next, your company grants the new provider access to the relevant accounting, bank, card, payroll, bill pay, and cap table systems. Your company should use secure access-sharing methods and maintain control over administrator permissions.

Your outgoing accountant may need to provide backups, general ledger detail, reconciliations, prior financial statements, tax workpapers, and documents related to open accounting items. A professional new firm can coordinate the request list and help keep the communication focused.

3. Review historical books

The new team reviews the current chart of accounts, account reconciliations, open invoices, unpaid bills, payroll balances, and historical financial statements. This review is important because your new firm should understand the starting point before taking ownership of ongoing monthly work.

If issues are found, the team may recommend a cleanup project before beginning the regular close process. Common examples include unreconciled bank accounts, missing support for large transactions, misclassified expenses, incomplete revenue recognition, or financing activity that hasn’t been recorded correctly.

4. Establish the ongoing close process

After the transition period, the accounting firm establishes a recurring monthly workflow. This typically includes collecting supporting documents, reconciling accounts, recording necessary accruals and adjustments, preparing financial statements, and reviewing results with your company’s leadership.

Your company should know what it needs to provide each month, when it needs to provide it, and when it can expect finalized financial reporting. Clear responsibilities on both sides are essential to a smooth close.

Improving Your Startup Accounting Systems

Switching firms is also an opportunity for you to improve processes that may have become inefficient as your company grew. The goal is not necessarily to add more software. It’s to verify that your accounting stack produces complete, reliable information with as little manual work as possible.

For many companies, the core startup accounting systems include:

• A cloud-based general ledger
• Business bank and cash management accounts
• A corporate card and expense management platform
• Payroll software
• An accounts payable and bill payment workflow
• A cap table management platform
• A secure document storage process
• Reporting tools for budgets, cash flow, and financial dashboards

Your new accounting firm should evaluate the existing stack based on the company’s size, transaction volume, reporting requirements, and growth plans. A very early-stage company may need a streamlined system. A startup with multiple entities, international contractors, recurring revenue, or a larger employee base may require more structured controls and reporting.

The best system is one your team can use consistently. Great tools will not fix a broken process if receipts, invoices, contracts, and approvals are still scattered across individual inboxes.

Make the Switch With Confidence

Changing accounting providers can feel like one more project on an already busy founder’s list. But staying with an accounting process that can’t keep up with the business can create more risks: Delayed financials, unclear cash visibility, poor investor reporting, missed compliance obligations, and difficult fundraising diligence.

A startup-focused accounting firm can help organize the transition, evaluate the quality of historical books, strengthen startup accounting systems, and establish dependable monthly reporting going forward.

Kruze Consulting works exclusively with venture-funded startups and understands the financial needs that arise from incorporation through fundraising, scaling, and exit. Schedule a consultation with Kruze Consulting to discuss your current accounting setup, transition needs, and the finance support your startup needs next.

Switching to Startup-Focused Accounting

• How long does it take to switch to a startup-focused accounting firm?
• What should I provide when changing accounting firms?
• Do I need to change my startup accounting systems when I switch firms?
• Will switching accountants disrupt payroll or vendor payments?
• When should a startup switch to a specialized accounting firm?

How long does it take to switch to a startup-focused accounting firm?

The timeline depends on the condition of your books, the number of financial systems involved, and whether historical cleanup is needed. If your books are current and reconciled, a transition can begin quickly. If prior months need cleanup, the new accounting firm may first focus on bringing financial records up to date before taking over the regular monthly close.

What should I provide when changing accounting firms?

Most startups should provide access to their accounting software, bank accounts, corporate cards, payroll platform, bill pay tools, payment processors, and cap table platform. You should also share historical financial statements, tax returns, bank statements, key customer and vendor contracts, financing documents, and any current budgets or board reporting packages.

Do I need to change my startup accounting systems when I switch firms?

Not necessarily. A startup-focused accounting firm can often work within your existing systems if they are reliable and appropriate for your stage. However, the transition is a good opportunity to assess whether your accounting software, expense management tools, payroll platform, and accounts payable workflow provide the visibility and controls your company needs.

Will switching accountants disrupt payroll or vendor payments?

It should not. A well-managed transition includes a clear handoff plan for payroll, bill payment, employee reimbursements, and other time-sensitive financial processes. Your new provider should confirm responsibilities, account access, approval workflows, and key deadlines before assuming responsibility for ongoing accounting work.

When should a startup switch to a specialized accounting firm?

Consider switching when you have raised venture funding, need reliable monthly financial statements, are preparing for a board meeting or fundraise, have growing payroll and vendor activity, or cannot confidently track burn rate and runway. A startup-focused firm can provide accounting support designed for the operational and reporting needs of venture-backed companies.

California’s new SB 122 makes most SaaS and digital prewritten software subject to California sales and use tax starting January 1, 2027. That’s a big deal for both software vendors and venture-funded startups that sell into or buy from customers in California.

For startups based in California, this means your software stack is likely to get more expensive. For startups based in other states that sell software in California, your billing and tax processes may need changes to keep up with the new rules.

Below is an overview of what SB 122 does, why it matters to startups, and how Kruze can help you get ahead of it.

What SB 122 Actually Does

SB 122 is part of California’s 2026-27 budget package and was signed into law on June 29, 2026. The law expands California’s sales and use tax base to include certain “digital products,” specifically prewritten computer software, starting January 1, 2027.

In practical terms, California now treats software‑as‑a‑service (SaaS) and other cloud-delivered prewritten software as taxable “tangible personal property,” whether it’s delivered on a physical medium, downloaded, or accessed remotely via the cloud. This is California’s first move to tax SaaS and other cloud‑delivered prewritten software at the statewide base rate plus any applicable local district rates.

What Counts as “Digital Prewritten Software”

Effective January 1, 2027, SB 122 defines a “digital product” as prewritten computer software transferred on tangible storage media, transferred electronically, or accessed remotely. “Prewritten” (or “canned”) software generally means software held or existing for general or repeated sale or lease, including software initially developed on a custom basis if later offered for repeated sale. As a result, many SaaS platforms will be taxable when they provide remote access to prewritten software, subject to the statute’s exclusions.

By contrast, custom software built specifically for a particular client is generally excluded from the tax base under the new framework. The law also focuses on transfers of rights to access, download, copy, update, store, or otherwise use prewritten software, regardless of the technical delivery method.

Effective Date and Tax Rates

The sales and use tax provisions of SB 122 apply to transactions occurring on or after January 1, 2027. California’s statewide sales and use tax rate is 7.25%, and SB 122 applies that base rate plus any applicable local district taxes to taxable digital prewritten software.

Because local district taxes stack on top of the state rate, the effective tax rate on software purchases can exceed 10% in some jurisdictions. Vendors and buyers will also need to consider existing nexus rules, which are the obligation to collect and remit taxes generally when sellers meet California’s economic or physical presence thresholds.

Companies that establish nexus in California under SB 122 or existing economic and physical presence standards may also have a California tax filing obligation. In addition to collecting and remitting sales tax, this can include registering with the state and filing appropriate California tax returns, depending on the nature and extent of their in-state activity.

How This Hits Venture‑Backed Startups As Software Buyers

If your startup is headquartered in California or has significant operations in the state, your existing SaaS stack is likely to become more expensive after January 1, 2027, due to the newly applied sales tax. That includes software like customer relationship management (CRM), applicant tracking systems (ATS), human resources information systems (HRIS), developer tools, analytics, and finance apps.

Vendors with a California sales tax obligation will generally be required to charge, collect, and remit tax on your startup’s subscriptions if they meet the nexus thresholds.

This change doesn’t mean you suddenly owe back taxes on prior‑year SaaS purchases, but it does mean your forward‑looking budget and burn projections should assume higher gross costs for taxable software. For many venture‑funded startups, software is a major line item, so even a mid‑single‑digit to low‑double‑digit effective tax rate can materially affect runway and cash‑flow planning.

How This Hits Startups That Are Software Vendors

If you sell prewritten software or SaaS to customers in California, SB 122 is effectively pulling you into the sales tax world for those transactions starting in 2027. The law amends definitions of “sale” and “purchase” to cover permanent or temporary transfers of rights to access or use prewritten software, including cloud‑based offerings.

For startups, this means you may need to register for California sales tax (Kruze can help you with this), update invoicing systems to add sales tax on California‑sourced transactions, and build processes to collect exemption certificates where applicable. It also increases the importance of classifying your offerings correctly – for example, distinguishing taxable prewritten software from potentially non‑taxable professional services, implementation, or custom development.

It’s also important to note that triggering nexus in California doesn’t just create a sales tax obligation. Depending on your footprint, it may also require your company to file California state tax returns, such as income or franchise tax filings, even if you are headquartered outside the state.

Custom vs. SaaS and Bundled Offerings

SB 122 and related guidance draw a line between prewritten software and custom software, with custom software generally remaining outside the expanded sales and use tax base. However, many startup offerings are bundles: A subscription to a core SaaS platform plus onboarding, consulting, and custom integrations.

How those bundles are structured and invoiced can influence the amount of tax owed! Separately stated, non‑software services may be treated differently from core prewritten software components.

Startups will need to review their contracts and billing practices to avoid accidentally subjecting non‑taxable services to tax simply because they are bundled into a single charge.

Why California Is Doing This

SB 122 is part of a broader effort to stabilize California’s revenue base and align its tax treatment of digital products with how many other jurisdictions already treat software and SaaS. For years, California taxed prewritten software delivered on tangible media. However, the state did not clearly tax software delivered electronically or via the cloud, which created both revenue loss and competitive differences compared to other states.

By redefining digital products as taxable tangible personal property, California closes that gap and broadens its tax base to a rapidly growing portion of the economy. The legislation also pairs the expansion with other revenue‑related provisions, such as extending limits on certain business tax credits and making adjustments to minimum taxes for some entities.

What Other States Tax SaaS?

California’s move to tax SaaS puts additional pressure on other states to update their rules on digital products and SaaS, especially as more of the economy shifts to subscription-based software. You can expect more states to consider this type of legislation or regulatory changes.

Here’s a quick overview:

• Big states that tax SaaS: New York, Texas, Pennsylvania, Massachusetts, Washington, Ohio, South Dakota, Tennessee, and California starting in 2027. We’ve got a comprehensive guide for SaaS taxability you can review for more details.
• Florida, Georgia, and several other states still tend to be more SaaS-friendly, but this could change over time.
• Some home-rule cities, like Denver, can tax SaaS locally even if the state rules are more favorable.

In general, if your startup sells or buys SaaS across multiple states, you should expect the rules to continue to tighten. Because definitions, rates, and guidance change frequently, treat this as a high‑level snapshot, and contact us for specific information.

Planning Tips for Startup Software Buyers

For founders and finance leaders, SB 122 is a good excuse to revisit your software stack and budget before 2027 hits. Consider building a simple inventory of your major SaaS and software vendors, and flag which software is likely to be subject to California sales tax based on your nexus and billing footprint.

Then, model the impact of a 7.25%-10%+ tax on those recurring costs to understand how your burn and runway change under the new rules. This is also a natural time to negotiate contracts, re‑tier licenses, or consolidate tools so that you’re not paying tax on redundant or underused software.

Planning Tips for Startup Software Vendors

If you’re a SaaS or software startup selling into California, you’ll want to work with your tax advisor well before January 1, 2027, to get your compliance house in order. This typically includes confirming whether you have nexus in California, registering for sales and use tax if required, and configuring your billing systems to apply the correct rates based on customer location.

As part of this process, confirm whether your nexus exposure also creates a broader California tax filing requirement. Many startups focus on sales tax compliance first, but California may expect qualifying businesses to file state tax returns once nexus is established.

Documentation will matter: Clearly describing what you sell (prewritten software vs. custom dev vs. services) and how you price it can support your tax treatment if California ever asks questions. You may also want to update your customer communications to explain that sales tax is being added due to a law change rather than a pure price increase.

How Kruze Can Help

SB 122 touches both sides of the startup world: Founders buying software to run their companies and founders selling software to fund their companies. Because the law doesn’t kick in until January 1, 2027, there is still time to get your systems, chart of accounts, and budgeting processes aligned with the new rules.

At Kruze, we’re already tracking how California and other states are approaching digital products so that our venture‑backed clients can stay compliant without drowning in sales tax complexity. If you want help modeling the impact of SB 122 on your runway, or building a workable sales tax strategy for your SaaS startup, we’re happy to help.

SB 122 FAQ for Startups

• When does SB 122 start applying to SaaS and digital software?
• If I had $10,000 in California SaaS sales, how much should I collect in California SaaS Sales Tax?
• Does my startup have to eat this new tax/cost?
• What should I tell my clients?
• Does SB 122 tax all digital products?
• I run a SaaS startup outside California. Do I still need to worry about this?
• Will my startup owe back taxes on prior SaaS purchases because of SB 122?
• How should I classify my product if it’s part software, part services?

When does SB 122 start applying to SaaS and digital software?

SB 122’s expansion of sales and use tax to digital prewritten software, including SaaS, applies to transactions on or after January 1, 2027.

If I had $10,000 in California SaaS sales, how much should I collect in California SaaS Sales Tax?

Approximately $800.

Does my startup have to eat this new tax/cost?

No, not necessarily. However, if you’re a startup selling SaaS to California clients, you should notify your client base NOW that you will be charging CA Sales Tax starting Jan. 1, 2027. You should also amend your sales contracts to include a disclaimer that SaaS Tax might be applicable in CA, starting Jan. 1, 2027.

What should I tell my clients?

Send them a notification email NOW. Explain that a new state law (SB 122) will require sales taxes on many software subscriptions beginning Jan. 1, 2027, and they’ll see a new tax line item on their invoices once the rules take effect.

Does SB 122 tax all digital products?

No. SB 122 focuses on prewritten computer software, including software delivered on physical media, downloaded, or accessed remotely, and does not automatically tax every digital good. Many purely digital content products and certain custom software arrangements may fall outside the scope, depending on how they are structured.

I run a SaaS startup outside California. Do I still need to worry about this?

Potentially, yes. If you sell prewritten software or SaaS to customers in California and meet the state’s economic or physical nexus thresholds, you may be required to collect and remit California sales tax under SB 122. Location of your HQ alone doesn’t shield you if your sales into California cross those thresholds.

Will my startup owe back taxes on prior SaaS purchases because of SB 122?

Current guidance and commentary indicate that SB 122 applies to transactions occurring on or after January 1, 2027, rather than retroactively taxing prior SaaS purchases. That said, it’s still important to monitor any future administrative guidance for nuances in implementation, and we’ll post any updates when new guidance is issued.

How should I classify my product if it’s part software, part services?

Under SB 122, prewritten software components are generally taxable, while certain custom development and professional services may not be. Because classification can be fact‑specific and heavily influenced by contracts and invoicing, most startups will want to work with a tax advisor to structure offerings and documentation appropriately.

How much do startup CEOs, CTOs, and COOs actually make in 2026?

Startup CEOs, CTOs, and COOs all earn roughly $165,000 to $167,000 in average cash salary in 2026, based on real, anonymized payroll data from hundreds of venture-backed companies. The more useful finding sits underneath that average: no single role is the highest paid at every stage. CTOs lead at Seed, and COOs out-earn everyone by Series A and Series B. The common assumption that the CEO always tops the pay scale does not survive contact with the data.

Kruze Consulting pulls these benchmarks straight from client payroll systems, not surveys or recruiter estimates. That distinction matters more than it sounds. Survey data lags reality and over-represents the best-funded outliers, which is exactly the wrong bias when you are trying to set responsible cash comp in a capital-efficient market.

Key findings:

• Average cash pay converges tightly. CEOs, CTOs, and COOs each land near $165,000 to $167,000 overall.
• The highest-paid role changes by stage. CTOs lead at Seed ($155,000). COOs lead at Series A ($227,000) and Series B ($246,000).
• Medians sit below averages for all three roles, so a small group of late-stage, well-funded executives pulls each average up.
• CTO pay is the most consistent benchmark, with average and median under $1,000 apart.
• COO pay is the most stage-dependent: Lowest at Seed, fastest-rising, highest by growth stage.

For a deeper analysis focused specifically on founder pay, see our Startup CEO Salary Report, which includes historical trends, year-over-year data, and benchmarking tools. This guide expands that lens to cover the rest of the C-suite.

Where this data comes from (and why it beats salary surveys)

This dataset comes directly from the payroll systems of Kruze’s VC-backed startup clients, US-based companies that have collectively raised billions from leading venture funds. It is actual payroll, not self-reported survey responses, and all client data is fully anonymized and aggregated before analysis, so no companies or individuals can be identified.

That difference is the whole point. Most published startup salary data is built from surveys, which carry two problems. They lag the market, often by a year or more, and they skew toward the companies most willing to respond, which tend to be the best-funded.

In a market defined by runway preservation and milestone-driven pay, both biases push reported numbers higher than what most founders should actually budget. Real payroll records show how venture-backed startups are responding to the current climate, not how they responded two boom years ago.

That climate still reflects the post-correction era of venture funding. After the 2022 to 2023 reset in valuations and deal volume, startups recalibrated executive pay to balance market competitiveness against investor expectations for efficient growth. With late-stage IPO and M&A windows still choppy, companies lean less on high salaries and more on structured equity and variable comp to attract and retain C-suite talent.

The C-suite at a glance: Average salary by role and stage

Two things stand out. First, average pay across all three roles converges to nearly the same overall figure, right around $165,000 to $167,000. Second, the stage ranking is not a simple “later stage pays more for everyone.” COOs at Series A out-earn both CEOs and CTOs, and CTOs pull ahead at Series B.

This tight band is not an accident. It reflects how disciplined cash compensation has become since the reset. Seed and Series A rounds today are smaller and more milestone-driven than they were in 2021, which anchors early-stage cash pay in a narrow range.

By Series B, companies with proven product-market fit and efficient growth raise larger rounds, and that shows up as higher CTO and COO averages when boards fund the leadership needed to scale.

Average vs. median: A quick reality check

Averages get skewed by a handful of high earners at well-funded, later-stage companies. Medians correct for that. Across all three roles, the overall median sits below the overall average, which confirms that a smaller group of higher-paid executives is pulling each average upward.

The CTO’s average and median are the closest of the three, under $900 apart. That tight spread makes CTO pay the most reliable single benchmark to hire against. COO pay shows the widest gap, which means a small group of highly paid, later-stage COOs is lifting that average.

Those outliers usually sit at companies that raised unusually large rounds or are preparing for a liquidity event. When pre-IPO financing is available, boards sometimes boost COO and CEO cash comp to pull seasoned operators out of mature companies. In today’s more selective late-stage market, those outsized packages are rarer, which keeps medians grounded even as a few high earners raise the averages.

How much do startup CEOs make?

CEO pay is the most closely watched benchmark, because it sets the tone for the rest of the leadership team and feeds directly into burn and runway. The average startup CEO salary has climbed to $165,000 in the latest data, up from $161,000 the prior year, continuing a rebound that started after two years of fundraising pressure and valuation resets.

The median tells a slightly different story. At $159,000, it sits just below the average, which means most CEO salaries cluster in a fairly tight range while a group of higher-paid CEOs pulls the average up. Those higher earners tend to run companies that raised larger Series B or later rounds, often in capital-intensive sectors like AI infrastructure, climate and energy, or deep tech, where investors expect experienced leadership and fund higher cash comp alongside significant equity.

For the full breakdown of CEO pay trends over time, average-vs-median analysis, founder self-check tools, and board review templates, see the complete Startup CEO Salary Report.

How much do startup CTOs make?

CTOs have historically out-earned CEOs at the earliest stages, because technical talent is scarce and startups compete with Big Tech pay to land strong engineering leaders. The data confirms it. CTOs remain one of the highest-paid roles in the early-stage C-suite, with an overall average of $167,000 and a median of $166,000, the tightest average-to-median gap of any role Kruze tracks.

That floor has held even through repeated Big Tech layoff cycles. More engineers are on the market, but top-tier technical leaders who have scaled teams and shipped complex products stay scarce. The surge in AI and data-heavy startups has only raised demand for senior technical leadership, which keeps CTO cash comp firm even in a cautious funding environment.

CTO pay rises steadily at each milestone, reflecting both the growing complexity of engineering organizations and the deeper capital and de-risked models of later-stage companies. The near-identical average and median mean there is no small cluster of extreme outliers distorting the picture. It is a genuinely consistent benchmark to hire against.

How much do startup COOs make?

COO pay follows a distinct pattern: lower at Seed, but rising the fastest and landing the highest by Series A and Series B. At the growth stage, COOs post the highest average pay of the three roles.

The overall median COO salary is $150,000, well below the $167,000 average and a wider gap than either the CEO or CTO roles show. That points to a cluster of COOs paid at or below the median, with a smaller group of highly paid, later-stage COOs pulling the average up sharply.

Why do COOs out-earn CEOs after Seed?

At Seed, many startups do not have a dedicated COO at all. The role gets folded into the CEO’s responsibilities or handled part-time by an early operations hire, which keeps Seed-stage COO pay the lowest of the three roles.

That changes fast at Series A and B. Operational complexity across team, process, and go-to-market execution rises sharply, and boards pay a premium for an experienced operator who can run the day-to-day while the CEO focuses on strategy and fundraising. That premium is why COO comp overtakes both CEO and CTO pay by Series A and stays highest through Series B.

What this means for founders and boards

The clearest takeaway is that no single role is universally the highest paid across every stage. At Seed, CTOs command the top average, reflecting the scarcity of technical talent willing to join an unproven company. By Series A and B, COOs move to the top as boards pay up for operators who can scale the business.

For founders building a leadership team, that means compensation planning should be stage-specific and role-specific, not a flat rule applied across the org. For boards and investors reviewing burn and runway, benchmarking each hire against the right stage-specific range, and checking both average and median, gives a far more accurate read on whether a package is in line with the market.

If you’re building a budget, Kruze can help

This data reflects real, anonymized payroll information from Kruze’s client base of VC-backed startups. If you need help thinking through your own executive compensation plan, building a hiring budget, or modeling how new leadership hires affect your runway, contact Kruze Consulting. Our team of experienced startup accountants can help you build a financial model that reflects the true cost of hiring a leadership team.