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Accounting for startups, written for your future diligence
Early on, books feel like a distraction. The cost arrives later, when an investor, bank or acquirer asks for clean records and someone has to reconstruct two years of founder payments from memory.
Decide these in the first month
- Entity choice, with its yearly compliance. See company and LLP registration
- A business bank account in the entity's name
- Cloud accounting with your own login and a chart of accounts
- How founder money going in is treated: as share capital or a loan, documented
- How expenses paid personally get reimbursed
- One folder for all agreements and equity documents
Founder expenses: the classic mess
Founders commonly pay early costs on personal cards. Before and after incorporation need separate thought.
- Before incorporation
- Keep every invoice. Ask Deepak Mittal how these costs can be taken into the company.
- After incorporation
- Use a simple monthly claim with invoices attached. Ask for invoices in the company's name and GSTIN where possible.
- Money the founder puts in
- Record it as a loan or capital with a paper trail. Lending rules for companies have conditions, so check them with Deepak Mittal.
What a diligence request often looks for
This is our general picture of a typical request, not any particular investor's list. Keeping these up to date is far cheaper than recreating them.
| Area | What to have ready | Start from |
|---|---|---|
| Financials | Monthly accounts, audited statements where required, and reconciled bank | Month one |
| Tax | GST and TDS returns, with challans and any notices | From registration |
| Company law | Board minutes, registers, MCA filings, and share issue records | From incorporation |
| Equity | Cap table, investor agreements, ESOP documents | First share issue |
| People | Contracts, payroll and PF or ESI where applicable | First hire |
| Customers and IP | Key contracts, and evidence that the company owns its IP | First contract |
A monthly report that fits on one page
- Cash at bank and monthly burn, gross and net
- Runway: cash divided by net burn
- Revenue, with what is recurring and what is one-off
- Actual against budget for the top few cost lines
- Payments due: GST, TDS, salaries and big vendor payments
If you outgrow this, it may be time for virtual CFO support, though many early companies do not need it yet.
Traps specific to startups
- Assuming "startup" means no compliance. A company has audit and filing duties from its first year, even without revenue.
- Treating DPIIT recognition as automatic relief. Any benefit has its own conditions, so check at source.
- Issuing shares without proper process or valuation. Settle the process and any valuation before you raise money.
- Paying contractors with no TDS check. Check whether TDS applies.
- Foreign money or payments. Foreign investment and payments abroad have their own rules. Raise them with Deepak Mittal early.
Questions to ask Deepak Mittal before work starts
- Have you worked with funded or pre-funding startups?
- Can you prepare monthly accounts, not only yearly ones?
- Who handles MCA filings and board records?
- Will you tell me what an investor would question in my books today?
This page gives no investment, valuation or fundraising advice. Those matters are outside the work AccountOrbit takes on.
Setting up your startup's finances?
Tell us your entity, your stage, and when you expect to raise money, if at all.
