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Accounting Thoughts for Startups

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Bookkeepers (least expensive) ... do all that Bookkeepers do. Have an accounting ... If you're the owner, the bookkeeper or any other person and you've actively ... – PowerPoint PPT presentation

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Title: Accounting Thoughts for Startups


1
Accounting Thoughts for Start-ups
  • Presented by Randy Lieber
  • of Abacube Accounting

2
Bookkeepers, Accountants, CPAs ???
  • Bookkeepers (least expensive)
  • Can pay bills, send invoices, process payroll,
    reconcile bank accounts
  • Not generally accountants
  • Accountants (more expensive)
  • Can do all that Bookkeepers do
  • Have an accounting degree
  • Generally understand basic GAAP (accounting
    rules)
  • CPAs (most expensive)
  • There are 2 types that should be used
    appropriately
  • Accounting CPAs
  • Understand complex accounting rules
  • Tax CPAs
  • Understand complex tax rules

3
Key Issues for Start-ups
  • Type of Organization
  • Bookkeeping / Accounting
  • Cash Management
  • Office Space
  • Eligible Expenses
  • Correct and Timely Financial Statements
  • Forecasting and Projections
  • Payroll / HR / Compensation
  • Stock option plans / ISOs and Non-Stat options
  • Valuation (for investors and options)
  • Obtaining Capital
  • Preferred Stock Agreements
  • Shareholder issues
  • Revenue Recognition

4
Type of Entity
  • What is the purpose of your business?
  • What is your exit Strategy?
  • Limited Liability Company
  • Single Member / Multi-Member
  • C Corporation
  • S Corporation
  • What State to Incorporate in

5
Accounting Systems or when is QuickBooks not
enough
  • I know that QuickBooks or Peachtree works great
    when I am a start-up, but when should I change?
  • When you need to have consolidated reporting
  • If you have a large volume of sophisticated
    revenue transactions
  • If you are integrating outside applications to
    the accounting system
  • If you have foreign currency transaction/translati
    on needs
  • If you have sophisticated inventory tracking
    needs
  • Is it hard to convert from QuickBooks to another
    System?

6
Cash versus Accrual Accounting
  • I am a start-up. Does it matter? What is the
    difference?
  • Cash accounting is just that record when you
    pay or receive
  • Most cash accounting is actually a mixture
  • Revenue is recorded when you invoice
  • Expenses recorded when entered into accounts
    payable
  • Accrual accounting matches revenue and expenses
    in the actual period when earned or services are
    provided
  • Will be required for all external reporting
    purposes
  • Lends credibility to your company

7
How important are my Financial Statements?
  • It depends on who they are for and what their
    purpose is.
  • Management
  • Board of Directors
  • Banks
  • Investors
  • They can be a direct reflection on the
    credibility of the company and its management.
  • If there are outside users, you dont want these
    to change.
  • If you will need a review or audit, they should
    be as correct as possible.

8
How important are my Financial Statements?
  • Dont participate in Misrepresentation
  • Businesses might be tempted to juggle the
    figures to get a bank or a vendor to lend money
    or to get an investor to contribute money. When
    this happens, the bank, vendor, or investor
    contributes money because of a lie. If the bank,
    vendor, or investor loses money or discovers
    youve lied, the business owner and accountant
    can end up in serious trouble. People do go to
    jail for this.

9
Typical Adjustments to Financials
  • Revenue and expenses recorded in wrong period.
  • Revenue not being recorded correctly (not
    earned).
  • Fixed assets and depreciation not done correctly.
  • Accrued vacation not recorded.
  • Rent is not recorded correctly.
  • Insurance not recorded correctly.
  • Loan and lease payments not recorded correctly.
  • Warrants not recorded correctly.
  • Stock issuance costs not recorded correctly.
  • Stock option accounting not correct.
  • Accrual for taxes (BO, sales, use, income) not
    recorded.
  • Capitalized software (products and for internal
    use)

10
We are Pre-Revenue what are our issues?
  • Assume you will be successful
  • Financial statements should be GAAP
  • File all reports
  • Payroll, LI
  • BO, sales and use
  • Annual Report
  • Annual Corporate Tax Returns
  • Collect information for 1099s
  • Maintain personnel files
  • Maintain support for expenses (expense reports)
  • Use subcontractor agreements for consultants
  • Tax planning
  • Guaranteed payments, and tax return allocations

11
We have Revenue now what?
  • Is it revenue, or is it just an accounts
    receivable or a cash receipt?
  • Does it meet revenue recognition rules?
  • SOP 97-2
  • SAB 104
  • Is it collectible?
  • Do you record it net or gross.
  • Do you need to collect sales tax?
  • You need to file BO tax returns.
  • Allocation of net income to the shareholders and
    the ability to pay taxes.
  • Corporate income tax payments
  • Payment of estimated taxes

12
Basic Management Tools
  • Cash forecast reflects actual cash burn
  • Budget (can be mitigated by PL Forecast)
  • PL and Balance Sheet Forecast
  • Monthly Financial Statements
  • Monthly F/S side by side analysis
  • Sales Pipeline
  • For service companies, productivity reports

13
Other Issues to Consider
  • Insurance
  • Employee location - Nexis
  • Valuing Stock Compensation 83(b) elections
  • Valuing Warrants
  • Space Commitments
  • Accounting for Barter Transactions
  • Fixed Asset Capitalization Policy
  • Use Tax buying items on the internet and not
    paying taxes.

14
Payroll / HR Issues to Consider
  • Wording in Offer Letter
  • Wording in Employee Agreement non-compete
  • Employee versus Consultant
  • Is Employee Exempt?
  • Out of State Employees
  • Maintaining Employee Files
  • Are Benefits to Employees Taxable?
  • Effects of Comp time
  • What Constitutes a work Day?
  • Termination of Employees, protected classes

15
Payroll Taxes
  • Dont Borrow Payroll Tax Deposit Money
  • Dont ever borrow the payroll tax deposit money.
    The IRS takes a very dim view of mishandling this
    money. If youre the owner, the bookkeeper or any
    other person and youve actively participated in
    borrowing the payroll tax deposit money, the IRS
    can collect the money from you. (The IRS assumes
    that this borrowing amounts to stealing and that,
    as an accomplice to the theft, you may as well be
    the one to pay.)
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