Ask HN: Early Stage Startup Accounting?

[aikiai]

Multi part question:

1) In a two partner project, where both partners are contributing different amounts of time and money, do you agree that it's important to get an accountant involved early on? Assume the agreement between the two partners is clear, and fleshes out expectations very clearly including exit scenarios. Also assume an educated, but not professional, degree of understanding of finance and tax law. I imagine there are a lot of legal and tax implications that should be considered by a professional early on to help define a fiscal strategy for the company.

2) How do you manage accountants, lawyers, and other professionals in the very early stages of your company, when every penny spent is crucial?

3) How do you find and evaluate a good startup accountant? Can you refer one in the Boston area? If you can disclose your relationship to them, that helps the referral a lot obviously.

[enduser]

I maintain an S Corporation for my freelance work and take care of all of the corporate accounting and payroll with GNUCash. The documentation that comes with it is enough to get up and running, and the direct interface to double-entry bookkeeping may come a bit more naturally to a hacker than using QuickBooks.

For a startup, this can save you thousands of dollars in accounting fees, and it helps for at least one active business partner to have a clear picture of the company's finances. Your finances won't be that complicated initially, and the IRS publishes timely guides to current tax law that can usually be grokked in less than 15 minutes. It is trivial to transfer from GNUCash to software like TurboTax Business, which will keep you from making mistakes on the tax forms.

A tax professional should be able to advise you on business forms and all of the filings required for your business form. You could set up a one-time consultation if you don't wish to learn enough to make the correct determination.

Of course if you don't trust each other that is a different story..

[lionhearted]

Most accountants will meet with you for half an hour to an hour for a consultation for free, especially if you're referred by a good client of theirs. Two things in play here: First, if your business is starting to make money, a good accountant should save you more than they cost.

Second, if you can get someone with a bit of business savvy to look at your basic operating agreement/terms with your partner before you get rolling, that can help a lot. You might not want to get a lawyer/accountant to review agreements early if you're cash strapped, but by God, you'll wish you did later when the inevitable difference of opinion strikes.

If it's not a primary source of income for either partner people will be more flexible, but it's the businesses that succeed and become quite profitable that you'll most wish you'd done better groundwork on. A bloody catch-22.

Quick advice: Interview a couple accountants now, skip the lawyers for now if you're dealing with a small amount of time/money. You can probably get a good accountant for $300-$700 for year 1, which should more than pay for itself later. Also, a good professional will teach you and explain things to you as they're doing it. I've spent a grand total of less than 20 hours of my life with accountants and lawyers I was paying, but I've learned a hell of a lot from those times. Seriously, one key business point you didn't know can be worth thousands to you later as you're becoming successful. Definitely get an accountant the first year you're profitable, interview and start thinking about it now.

[brentr]

First, I am not an accountant or any other licensed individual. I used to work in banking as an analyst and trader before I went back to school. My securities licenses have since elapsed.

Do you have cash entering or leaving the company? Are you starting to deal with accruals? If you have answered yes to the first one but you are able to easily keep track of the inflows and outflows, I wouldn't worry about needing one right now, but I would certainly start looking for one. If you are dealing with accruals, I would think about talking to one at least right now. Business accounting can be a tricky subject when cash flows don't exactly match revenues or expenses. You'll save yourself a lot of headaches if you have someone whose business is accounting at your call.

[aikiai]

Thanks for the thoughts brentr.

I actually don't fully know if there is cash "entering or leaving the company." Basically, I'm thinking a scenario where one of the founders is a full time developer for the company, with a "salary." The other founder is initially working full time elsewhere, and paying a portion of that salary in exchange for equity. But is there a better way to structure that agreement somehow? Seems like a question for an accountant to me.

[brentr]

That question I cannot answer. I'd talk to a lawyer and an accountant concerning a question like that.