How much should a seed-stage startup expect to pay for accounting?

Kruze Consulting Startup Q&A Author
Vanessa Kruze Founder, CPA

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. Your bookkeeping costs will hopefully be under a few hundred a month and your tax return might be $1,000 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. If you have enough money, you should be paying a professional who knows startups to do your books and taxes.

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.

Seed Funded Startup Accounting Cost Estimates

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:

  1. The volume of your transactions: do you have 300 transactions hitting your bank account and credit cards every month, or 10,000 transactions? More transactions = more time = more money.
  2. The complexity of your transactions: even if you have relatively few transactions, they may be complex. For example, you may have prepaid Facebook $100,000 for advertising for the next year. You or your bookkeeper will then need to reconcile that account every month against what advertising amount you’ve actually used.
  3. Doing the work yourself: if you can train yourself to do some of the bookkeeping, you can definitely save money. Two caveats though, 1) your time is truly better spent growing and managing your startup and 2) if you get it wrong it will very likely be expensive to clean up the books.
  4. How you’ve leveraged technology: I can’t stress this enough… using technology will greatly reduce the amount of time (aka money) you have to spend on Accounting and HR. Here are my absolute essentials: QuickBooks, Gusto, Zenefits, Expensify or Abacus, Accounts Payable, Accounts Receivable, Bill.com, DropBox or Box, Gmail. Set those up and you’ll be in good shape for doing it yourself, until it’s the time to flip to outsourcing so you can focus on driving the business forward.

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 ~$400 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.

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).

Also read:

Categories:

Startup Accounting