What Are the Common Mistakes in Startup Bookkeeping?

Early-stage companies move fast—your books have to keep up. The wrong setup leads to messy data, tax penalties, and investor delays. At Henriquez Accounting & Tax Services, we build a startup-ready close cadence with clean revenue recognition, tight controls, and runway visibility. Explore our Bookkeeping, Outsourced Controller/CFO, and Tax Preparation.

Top Startup Bookkeeping Mistakes (and Fixes)

• Commingling funds: using personal cards/accounts; fix with a dedicated bank/credit account and reimbursement policy.
• No monthly reconciliations: errors compound; close cash, credit, and processors every month.
• Misclassifying CapEx vs. expense: tools/equipment capitalized; create thresholds and a fixed-asset policy.
• Ignoring revenue recognition: advance payments ≠ revenue; set up deferred revenue schedules for subscriptions/projects.
• COGS vs. OpEx confusion: misstates margins; define SKU/service mapping and land costs correctly.
• Contractor vs. employee errors: misclassification risks penalties; document roles and use payroll when appropriate.
• Missing W-9s & 1099s: collect W-9s on onboarding; track vendor totals and file 1099-NEC/1099-MISC when required.
• Sales tax/economic nexus blind spots: especially e-commerce/SaaS; review where you may need to register/file.
• No accountable plan: founders expensing personally without documentation; implement reimbursements properly.
• Equity/83(b) not tracked: cap table events missing from the books; coordinate with counsel and maintain workpapers.
• R&D and capitalization planning ignored: track eligible costs and understand tax treatment before year-end.
• Messy chart of accounts: too granular or vague; right-size COA tied to KPIs and tax lines.
• No runway or burn tracking: operating on bank balance; build a 13-week cash forecast and monthly budget vs. actuals.
• Unworked AR/AP aging: collections inconsistent; adopt invoicing cadence and AP batching with approvals.
• Year-end “catch-up” mindset: investors/lenders need monthly; close on time and lock periods.

The Startup Close (Month–Quarter–Year)

Monthly

• Reconcile bank, credit, and payment processors (Stripe/Square) and clear suspense.
• Post revenue: update deferred revenue and project %-complete where applicable.
• Record payroll, benefits, and founder reimbursements under an accountable plan.
• Update AR/AP aging; send statements; run AP in batches with approvals.
• Deliver P&L, Balance Sheet, Cash Flow, and a KPI one-pager.

Quarterly

• Estimated taxes and safe-harbor check; sales/use tax review for nexus.
• Budget vs. actual review; pricing/margin and runway update.
• Equity admin: option grants recorded; cap table tie-out to GL (with counsel).

Annually

• 1099 filings (collect W-9s early); fixed-asset roll-forward and depreciation.
• Tax planning: entity & compensation, R&D tracking, and year-end timing.
• Investor pack: GAAP adjustments (where needed), metrics, and notes.

Metrics Investors Ask For

• Runway & burn rate (net and gross burn).
• Gross margin by product/SKU/service.
• MRR/ARR, new vs. expansion, churn/NRR (for subscriptions).

• DSO/DPO/DIO and cash conversion cycle.
• Unit economics (contribution margin, CAC/LTV where relevant).
• Close timeliness (days to close; target <10 business days).

When to Move from Cash to Accrual

If you invoice customers, have subscriptions/projects, inventory, or investors—switching to accrual improves margins, runway accuracy, and comparability. We can keep tax on cash (where allowed) while managing accrual books for decisions.

Recommended Startup Stack

• Accounting: QuickBooks Online/Desktop.
• Invoicing & subscriptions: QuickBooks + ACH, Stripe; Chargebee/Recurly (if needed).
• AP & spend: Bill.com or Ramp with approvals and virtual cards.
• Payroll: Gusto, QuickBooks Payroll, or ADP.
• Docs: Dext/Hubdoc for receipts; shared folder for workpapers and close checklists.

Founder Tip: Document policies once—fixed-asset threshold, reimbursements, close timeline—then follow them every month. Consistency ≫ cleverness.

What You’ll Get When You Work With Us

• On-time monthly close with revenue recognition and deferred revenue schedules.
• Runway, burn, and KPI dashboard—updated every month.
• Quarterly tax projections, sales/use tax guidance, and vouchers.
• 1099 prep, W-9 workflow, and notice handling.
• Controller/CFO support for pricing, budgets, and investor reporting.

 Book a 30-Minute Consultation

FAQs

Should a startup use cash or accrual accounting?

If you invoice customers, carry inventory, or report to investors, accrual gives better insight. We can maintain accrual books while optimizing your tax method.

How do we handle deferred revenue for subscriptions or prepayments?

Record the cash to a liability and recognize revenue over the service period. We set up automated schedules tied to your billing system.

Do I have to issue 1099s to all contractors?

It depends on amounts and payment methods. Collect W-9s up front and track totals; some third-party network/credit card payments are reported by processors. We’ll advise on who needs a 1099 and file on time.

What about sales tax for SaaS or online sales?

Rules vary by state and transaction. We’ll review your footprint, advise on registrations, and help implement filings where required.

How should we track founder expenses and reimbursements?

Use an accountable plan with monthly submissions and documentation. Avoid running personal spend through business accounts whenever possible.

Ready to avoid the classic startup pitfalls?

We’ll implement clean revenue recognition, reconciliations, KPIs, and a reliable close—so you can focus on product and growth. Talk to an Enrolled Agent today. Schedule Consultation