The ultimate finance and HR diligence checklist for startups

Be Ready for Venture Capital and M&A Due Diligence - The ultimate finance and HR diligence checklist for startups

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Be Ready for Venture Capital and M&A Due Diligence

Kruze Consulting clients have raised over half a billion dollars in venture capital and seed funding in the past 12 months, and on average one of our startup clients is acquired a month. We know how quickly investments and acquisitions can come together, and recommend that startups are ready for due diligence ahead of time.

Once your startups accounting and HR systems are in place, it makes sense to be aware of what materials you’ll need to complete a venture capital fund raising process.

Finance, Tax and HR Due Diligence Checklist for Startups

Every venture capitalist has their own due diligence process, but they typically share a due diligence checklist with the startup so that the management team can collect the requested information. We’ve compared finance, tax and HR due diligence checklists that our clients have received from top tier venture investors, and created a detailed checklist.

This due diligence checklist is quite detailed. It’s unlikely that you’ll receive a due diligence checklist that is as detailed as the one we’ve created. But, if you have these materials ready prior to starting a fund raise process - or at least know where to get them - you’ll be in better shape to sail through this part of the diligence process. Plus, you’ll look more organized as a management team if you are quick to produce these materials.

We strongly recommend working with an accountant who has experience with startups and the venture fund raising process. Only about 1% of “startups” go on to raise a Series A. You don’t want your startup to fail to raise venture capital because of some outsourced bookkeeper didn’t “get” how startup accounting works. There are a handful of CPAs, like Kruze Consulting, who specialize in helping funded startups - choose someone who knows what they are doing and who can be your partner in the venture process, not someone who will slow you down and make your team look unsophisticated!

One caveat to this due diligence checklist: VC’s will also conduct legal, sales and marketing, technology, market and other categories of due diligence - and they will want your capitalization table and other stock details - which we do not cover in this list.

Download the list here, or use the chart below.

Financial Due Diligence Checklist for Startups

Request Period requested Notes Priority
Income Statement Last 3 years by month and by year   High
Balance Sheet Last 3 years by month and by year   High
Cash Flow Statement Last 3 years by month and by year   High
Financial Projections (Income Statement, Cash Balance) Next 3 years by month and by year Explain the key KPIs and how they change as the company matures High
Bookings History / Projections Last 3 years next 3 years by month and by year For companies with sales teams High
AR Aging and Projections Current period Include and AR greater than 90 days past due Low
Deferred Revenue Details and Projections   Highlight the product or service associated with major deferred revenue positions Low
Schedule of bad debt and write offs Recent period, near-term projections If anyInclude any material projections Low
Inventory Current period Value by SKU Include aging and any amounts deemed obsolete Low
Accounts Payable Current period List of any employees or service providers that are unpaid, have not been paid in full to date, or are subject to any payment deferral arrangements Low
Name of Current Accounting System Current And the date started using the system Low
Name of Current Payroll System Current And the date started using the system, and payroll schedule (weekly, bi-monthly, monthly) Low
Contracts and Invoices for top 10 clients Current Period Not relevant if not an enterprise sales model High
Contracts and Invoices for any churned clients Last 6 months Only material clients High
Leases Current Period Any agreements concerning the purchase, lease or sublease of real property, any personal property leases. Medium
Material Contracts Current Any agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound which involve obligations of, or payments to, the Company in excess of $20,000 High
Cost to Acquire Customer Current and Previous Year Highlight expenses included and excluded High
Customer LTV Current and Previous Year Explain the assumptions behind the calculation High
Customer Churn Rate Current and Previous Year Explain any changes in churn rate High

Tax Due Diligence Checklist for Startups

Request Period requested Notes Priority
Federal Tax Returns Last 3 years   High
Local / State Tax Filings Last 3 years   High
Correspondence with tax authorities Since inception Federal, state and local - any correspondence between the Company and the IRS or any state or local tax bureau or any federal, state or local governmental authority High
409A valuations Last 2 Copies of Internal Revenue Code Section 409A valuation reports. High
R&D Tax Credit Reports Current Period   Medium

HR Due Diligence Checklist for Startups

Request Period requested Notes Priority
Organization Chart Current Who reports to whom High
Salary Schedule for All Employees Current Showing title, current base salary and bonus for all employees; include any obligations to terminated employees, highlight any changes to salaries, bonuses or compensation to employees after the transaction High
Consultants Current Period List of consultants, role and cost High
Projected Hiring Plans Next 3 Years Projected hires by month, with title and projected compensation High
Transactions with Officers Current Period Any existing or proposed agreements, understandings or transactions between the Company and any of its officers, directors, material stockholders or any affiliate including, without limitation, non-competition agreements, employment agreements and non-form offer letters High
Insurance Current Period Any insurance policies (including documentation regarding workers’ compensation insurance) held by the Company or of which the Company is a beneficiary and a summary of such policies, if available Medium
Offer Letter Current Period Copy of the Company’s standard offer letter Medium
Special Employee Agreements Current Period All employment agreements and other documents (such as offer letters) that contain change of control, severance provisions, bonus provisions or acceleration of stock or option vesting Medium
Employee Benefits Current Period Any employee benefit plans and arrangements, including, without limitation, stock option plans, bonus plans, pension plans, 401(k) plans insurance plans and forms of agreements (including copies of all form of option and stock agreements that are in use) Medium
Employee Accrued Expenses Current Period A list and breakdown of all outstanding accrued salary, paid time off, and reimbursable expenses. Medium
Foreign Employees Current Period If the Company has any foreign employees, a list (separated by country) of all benefits provided to foreign employees, and their locations Medium

Of course, we suggest working with an experienced startup-focused accounting firm, like Kruze Consulting, well before your startup is in the due diligence phase of an important transaction.

We’d be happy to help you out. Just set up a time to talk with us.

Contact us to learn more about our services.

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Consulting, Tax and Valuation Prices

Competitively priced for high-growth companies

See our monthly pricing plans

Financial Consulting

Staff Accountant $85
Senior Staff Accountant $110
Controller $140
Financial Modeling $300
Venture Debt $300
CFO $300
Tax Advisory $395

Startup 409A Valuation

Seed $1,500
Seed A $2,000
Seed B $2,500
Seed C $3,000

Client testimonials

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We're huge fans of Vanessa and the folks at Kruze Consulting. They set up our books, finances, and other operations, and are constantly organized and on top of things. As a startup, you have to focus on your product and customers, and Kruze takes care of everything else (which is a massive sigh of relief). I highly highly highly recommend working with Vanessa and her team.

Vivek Sodera
Vivek Sodera
Co-Founder @ Superhuman
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Kruze's financial infrastructure empowers me to focus on my team, our products, and our customers. As an entrepreneur I couldn't be happier.

Jake Lodwick
Jake Lodwick
Creator of Vimeo
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Avochato has been growing rapidly in the past year – in fact, too quickly for us to keep up with books, taxes, and budgeting for growth. Partnering with Kruze Consulting has been fantastic to manage, track, and analyze our finances while we continue focusing on building our customer base. Kruze’s team knows what startups need.

Alex De Simone
Alex De Simone
CEO @ Avochato
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I had a great experience working with Kruze Consulting when we raised Series A. They know what VCs need to see, and how to present a startup’s books and finances. If you are going to raise venture capital, you need experts like Kruze.

Chris Mansi
Chris Mansi
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Kruze Consulting is the perfect Accounting, Finance and Tax partner for Los Angeles Startups. Kruze delivers exceptional monthly reporting and financial projections. When we need help with benefits or payroll, Kruze solves our problems. Kruze does our taxes for a fraction of what previous accountants have charged. Thank you Kruze for being a great partner.

Brett O'Brien
Brett O'Brien
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Being a repeat tech entrepreneur, I know how challenging it is to find the ideal CFO - not only is it often expensive to find the right one, but CFOs who combine expertise with scrappiness, market vision and perspective with detail orientation and 'roll up your sleeves' execution is near impossible for an early stage company. So I've been thrilled to work with Kruze Consulting, who not only provide all the ideal characteristics of a top-tier tech CFO, but also live and breathe entrepreneurship themselves. I've known Scott and Vanessa for many years and their deep personal integrity and strong reputation in the industry and made it an easy decision to work with them again.

Tina Fitch
Tina Fitch
CEO @ HobNob
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NIH, NSF, and SBIR grant compliance can add a lot of overhead for a start-up. The Kruze team makes it easy, so we can spend our time growing the business instead of shoveling paperwork.

Charlie Silver
Charlie Silver
CEO @ Mission Bio
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As a startup, it’s incredibly important to keep track of where our money is coming from and where it’s being spent. Kruze Consulting really helps keep our books and taxes in order so that we can focus on the core business. Extremely responsive and very professional, the accountants at Kruze Consulting are a pleasure to work with. We’d highly recommend their services.

Peter Lai
Peter Lai
CEO @ Emburse

About Us

A CPA Firm Specialized in Startup Accounting & Finance

A CPA Firm Specialized in Startup Accounting & Finance

Startups are our niche, and our passion. Our clients have raised over $3.5 billion in venture capital financing. We are one of only a few outsourced accounting firms that specialize in funded early-stage companies - we only offer financial and tax services to fast growing startups in the Seed, Series A, Series B and Series C stages.

The Right Accounting Partner for Your Startup’s Next Round

The Right Accounting Partner for Your Startup’s Next Round

We know how to de-risk your startup’s next venture capital round. Our team makes sure you are ready to fly through your next VC’s accounting, HR and tax due diligence. And when you use us as your bookkeeper, we set up and keep up-to-date a due diligence folder so you can get that next round of fundraising.

A Leader in Cloud Accounting Software

A Leader in Cloud Accounting Software

Our practice is built on best of breed cloud accounting software like QuickBooks, Xero, Netsuite, Gusto, Zenefits, Expensify, Avalara, Brex iand Technology makes us more efficient, saving our clients money and letting us offer higher value services like FP&A modeling, 409A valuation and venture debt consulting. Startups deserve to work with CPAs using modern software.

Trusted by Top Venture Investors

Trusted by Top Venture Investors

Top angel investors and VCs refer Kruze because they trust us to give the right advice. Our clients are portfolio companies of top technology and Silicon Valley investors, including Y-Combinator, Kleiner, Sequoia, Khsola, Launch, Techstars and more. With us, your books and taxes are in order when it’s time to raise another round of venture financing.

What types of startups does Kruze Consulting usually work with?

What types of startups does Kruze Consulting usually work with?

Kruze Consulting works with a variety of funded Delaware C-Corps, but the majority of our companies have secured Seed, Series A, Series B and Series C. We look to partner with our clients, going beyond the typical outsourced accounting relationship and seeking to provide a higher level advisory role. We feel honored to be a part of making the world a better place, even if it’s one debit and credit at a time.

Accounting, Finance, Taxes, & Payroll all in one solution

Accounting, Finance, Taxes, & Payroll all in one solution

Startup CFO services, startup accounting and bookkeeping services, startup annual taxes, expense reports, payroll, benefits: we've got you covered. Our software provides custom tailored dashboards that can be provided weekly or monthly, depending on your preference and plan. Founders are often so busy building their company that they don’t have time to take care of their finances. Traditionally, these companies have had to work with a basket of people to get their work done, including bookkeepers, accountants, AP clerks, CFOs, consultants, and tax accountants. At Kruze Consulting, our founders have one point person, saving time and money.

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