In the early stages of development, founders have a lot to focus on. Those questions of infrastructure -- like accounting and HR -- tend to take a back seat. This is a mistake. The earlier that you can get your systems in place, the more secure a foundation your company will have. Accounting for startups doesn't need to be very complicated. You just need to focus on the essentials and put defined systems and processes in place. In this presentation from Ryan Johnson, VP of Operations for Early Growth Financial Services (www.earlygrowthfinancialservices.com), you'll learn how to get set up and create an accounting system that will grow with your company. Topics covered include: - Accounting pre-funding vs post-funding - Accounting system set-up - Early-stage tax obligations - Financial projections - 409a valuations

1. Accounting for Startups
What Founders Should
Focus On
#Startup Accounting
Ryan Johnson
VP of Operations
Early Growth Financial Services

2. “Startups face a huge burden in today’s
economy, often having to choose
between funneling resources toward
creating their goods and services or
managing the often complex
accounting, tax and financial strategy
planning necessary to run a successful
business.”
~ David Ehrenberg,
Founder and CEO
Early Growth Financial Services
www.earlygrowthfinancialservices.com

3. Presentation Overview
Getting organized, staying in compliance, building the
foundation you need to scale
• Accounting pre- and post-
funding
• Accounting systems
• Taxes
• Accounts payable
• Accounts receivable
• Financial projections
• Financial reporting
• Valuation
www.earlygrowthfinancialservices.com

4. Accounting: Pre-Funding
Set up a low-cost, accrual-based accounting structure that
can grow with you
• Open business banking
account
• Separate personal and
business expenses
• Keep records of receipts and
invoices
• Be mindful of tax obligations
• Collect payments
• Select payroll provider
• Stay on top of stock records
www.earlygrowthfinancialservices.com

5. • Set foundation for future growth
• Build financial infrastructure
• Clarify funding objectives
• Manage cash-flow
• Create clean financials for investors
• Hire professionals to help company
become GAAP compliant (Generally
Accepted Accounting Principles)
Accounting: Post-Funding
Your financial strategy deepens and you’ll gain better
understanding of your business
www.earlygrowthfinancialservices.com

6. Finance and Accounting Support
When should you engage with a financial services support
firm?
• Raised seed or convertible note round over
$500K
• Start to have over $20K month in revenue
• Have professional or institutional investors
www.earlygrowthfinancialservices.com

7. Accounts Payable
Formalize your system for keeping track of business expenses
• Set up system early to help
maximize cash flow and create
essential financial reports
• Choose best tracking system
for company needs
• Enter every expense: receipts,
bills, etc.
• Establish invoice AP schedule
• Place vendors on net 30
payment terms
• Build reputation of financial
stability
www.earlygrowthfinancialservices.com

8. Accounts Receivable
Improve cash collections by creating a clear payment
collection process
• List all open invoices and
balances
• Create “friendly” invoices (and
print hard copies)
• Put payment terms in writing for
new clients
• Establish credit guidelines
• Create collection timeline
www.earlygrowthfinancialservices.com

9. Taxes
Even in the early stages, you’ll want to be mindful of tax
considerations
• Select correct legal entity for
company
• Understand federal, state, and
city tax obligations; regional fees;
and registrations
• Separate business and personal
finances
• Deduct business expenses
• Pay quarterly taxes
• Stay on top of payroll taxes and
1099s
www.earlygrowthfinancialservices.com

10. Financial Projections
Forecast for potential revenue and market capture
1.
Start with market size
2.
Identify particular segment
3.
Extrapolate to
calculate total
potential revenue
3.
Headcount /
milestone
funding
2.
Calculate spending
necessary to achieve
revenue/development
1.
Project revenue growth
over next 1-3 years
Top-Down Projection
Bottom-Up Projection
www.earlygrowthfinancialservices.com

11. Financial Reporting
Financial statements reveal important insights
• Financial statements
– Profit and loss
– Cash flow statements
– Balance sheet
• Cash burn reporting
• Budget vs actual reporting
• Other financial reporting
www.earlygrowthfinancialservices.com

12. Valuation
The safest and most effective way to prepare your valuation is
to hire an outside firm
• IRS requires Fair Market Value (FMV)
analysis in conjunction with stock
option grants
• If you are acquired by a public
company, a Big Four accounting firm is
likely to audit your approach to IRS
compliance
• Reports are generally valid for 12
months – even if there’s been no
financing activity, you’ll still need a
new valuation annually
www.earlygrowthfinancialservices.com

13. What to Look For in a Valuation Company
Choosing the right valuation firm as a business partners is an
important choice
• Fast turnaround
• Free revisions
• Guarantee to satisfy
audits and withstand
Big 4 and acquisition
scrutiny
• Assurance that company will work with you to
obtain best possible price
• Ability to handle other challenging owner
equity issues, such as stock option
management and complex capitalization tables
www.earlygrowthfinancialservices.com

14. Thank You and Q&A
Early Growth Financial Services
Ryan Johnson
contact@earlygrowthfinancialservices.com
www.earlygrowthfinancialservices.com
415.234.3437
Follow us @EarlyGrowthFS
www.earlygrowthfinancialservices.com