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How much your seed-funded startup spends on accounting should be a function of 1) your startup’s goals and 2) the ROI on the founder/CEO’s time vs. funding raised.
For 1, your startup’s goals: There are basically two types of seed-funded startups.
a) One type is a small business idea that has raised a bit of funding to get going. Examples might be a local flower shop that has raised some money from friends and family, or a small software company that is only looking to produce a couple of million in revenue a year at scale. That type of a startup should probably work with a local bookkeeper (or do the books in house) and get a fairly priced tax CPA to do an annual tax return. You don’t need accrual based accounting, won’t have stock options, VCs doing board meetings and requesting information, etc. You just need competently produced cash books and a smart tax person who can help you stay compliance but not overpay your taxes. Your bookkeeping costs will hopefully be under a few hundred a month and your tax return might be $1,500 or so.
b) The other type of seed funded startup is a typical “Silicon Valley Style” startup - where you want to raise professional venture funding and dream of eventually going public or getting acquired for hundreds of millions of dollars. These are the types of companies that my firm works with. These companies need accrual based books, have complex capital raises with professional VC due diligence and may even have a demanding board of directors - not all seed companies do, but those that raise $8M or more often do. If you have enough money, you should be paying a professional who knows startups to do your books and taxes. This type of accounting is more expensive, for obvious reasons.
For 2, your founder/CEO’s time ROI: There is a constant tradeoff between a startup’s burn rate and the amount of time the CEO spends on menial tasks. Once a company has raised enough money, it makes a lot of sense for the CEO to focus on the tasks that really help the company hit its growth goals, like achieving product market fit, hiring the best talent and raising the next VC round. I’d say this split probably happens when a startup has raised around $500,000 in seed funding. Less than that, the founder should probably just do the books to save the burn. More than that, the startup has raised enough money where letting the founder focus on achieving business objectives trumps the slight increase in burn from having a professional CPA do the work. The cost of the founder not focusing on the business is too great; it’s time to outsource.
|Silicon Valley Style Startup
<$500k in funding:
<$500k in funding:
>$500k in funding:
>$500k in funding:
Since my firm has done the books and taxes for hundreds of venture and seed funded startups (the Silicon Valley Style ones, not the SMB ones), I can tell you the following factors will contribute to how much your bookkeeping costs:
In sum, what you spend on Accounting & HR for your startup depends on your unique situation. But just to give you an idea… If you are a Seed Stage DE CCorp startup based in SF, NYC, or Chicago, have 10 FTEs, ~400 transactions a month and no accruals… I’d say ~$500 per month to ~$750 per month.
I’ve got a little monthly startup bookkeeping pricing estimator on our website - click here to see startup bookkeeping prices. And if you want to estimate your startup’s tax return costs, use our tax return estimator here.
Seed stage founders don’t have time to coordinate accounting matters - so look for an accountant who is full service, who can:
We recommend ONE accounting firm to handle all of this for your seed-stage company. That way you avoid tedious coordination between your bookkeeper and tax accountant. Plus, since many of the tax credits flow through your payroll processor, you want your monthly bookkeeper to be away of the incoming credits and to take action if there is a mistake (we see this happen about once a year or so, usually to the tune of $15,000 to $20,000 missing - a big deal if you’ve only raised a few hundred thousand dollars in funding!).
At the risk of sounding like a commercial for my own services, I really want to emphasize that if you are a seed funded startup that wants to raise traditional venture capital, work with a CPA who has a lot of successful startup clients. Venture Capital due diligence is a pain. Don’t risk slowing down your fund raise because your books weren’t done professionally (and in the style that experienced VCs want to see).
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