ARTICLE
20 August 2025

Accounting Tips For Startups: Setting Up Financial Systems For Success

MG
MGO CPA LLP

Contributor

As a global team of more than 500 financial service professionals, we stand ready to serve you through assurance, tax, consulting, outsourcing, and private client services where and when you need us.
Starting a business is exciting, but it's easy for accounting to fall to the bottom of the to-do list in the rush to develop products and build a customer base.
United States Accounting and Audit

Key Takeaways:

  • Accurate accounting helps startups attract investors, access credit, and make informed business decisions.
  • Implementing a scalable accounting system early supports growth and compliance.
  • Outsourcing accounting can save time, reduce risk, and provide strategic financial advice as your startup grows.

Starting a business is exciting, but it's easy for accounting to fall to the bottom of the to-do list in the rush to develop products and build a customer base.

Laying a strong financial foundation early on is crucial for long-term viability and growth. Whether your startup is bootstrapped or venture-backed, sound accounting practices help you track performance, attract investors, access credit, and comply with tax rules.

Why Accounting for a Startup Company Is Necessary

Startups face a unique set of financial pressures. Many operate with limited resources while attempting to scale quickly. In these circumstances, accurate and timely financial reports are critical for making informed decisions, managing cash flow, and demonstrating fiscal responsibility to potential lenders or investors.

Investors may require financial statements if you're looking for venture capital or preparing for Series A and beyond. Investors want to see a clear picture of burn rate, runway, margins, and revenue growth. Banks and other lenders typically require financial statements to underwrite loans or lines of credit.

Beyond external stakeholders, accounting helps internal teams understand what is working and what isn't. It shows your true customer acquisition cost (CAC), identifies where you can improve margins, and helps uncover early signs of inefficiency and waste.

How to Set Up Accounting for Your Startup

Follow these steps to establish a solid accounting foundation for your startup's financial health:

Step 1: Choose an Accounting Method

One of the first decisions you need to make is whether to use cash basis or accrual basis accounting.

  • Cash accounting records income when you receive cash and expenses when you pay them. This method is simple and often suitable for early-stage startups with minimal inventory or accounts receivable. However, it can give a misleading picture of profitability — especially if there are large timing differences between revenue and expenses.
  • Accrual accounting records income when you earn it and expenses when you incur them, regardless of when cash changes hands. This approach provides a more accurate view of financial performance, and investors generally prefer it.

Many startups begin using cash basis accounting but switch to accrual accounting as they mature. Whichever method you choose, consistency supports comparability and compliance.

Step 2: Open Business Bank Accounts

One important yet often overlooked step in setting up an accounting system is opening separate business bank accounts and credit cards.

Mixing business and personal transactions in the same account makes it tough to track income and expenses. Using a separate bank account simplifies bookkeeping and streamlines monthly reconciliations.

Using a business bank account to pay vendors, receive payments, and manage cash flow conveys professionalism to clients, suppliers, and financial institutions. It also provides a clearer audit trail when getting audited financial statements for investors, lenders, and regulators.

Similarly, a dedicated business credit card can help establish a credit history for your company, help you track expenses by category, and potentially earn rewards while keeping personal spending separate.

Taking this step early lays the groundwork for organized and transparent financial management.

Step 3: Use an Accounting System

Implementing reliable accounting software early on helps you avoid costly errors and inefficiencies down the road. Your accounting software should support basic accounting tasks such as:

  • Recording financial transactions — including sales, purchases, payroll, etc.
  • Reconciling bank accounts
  • Paying bills
  • Managing accounts payable and receivable
  • Expense tracking by category or project
  • Generating financial reports — including a balance sheet, profit and loss (P&L) statement, and cash flow statement

For most startups, cloud-based accounting software is the logical choice. Platforms such as QuickBooks Online, Xero, or Sage Intacct offer scalability, automation, and access for remote teams. They also integrate with other tools —, including payroll, customer relationship management (CRM) systems, inventory management, and e-commerce platforms.

Also, consider who will be responsible for entering data, approving payments, and reviewing reconciliation and other financial reports. Even with automation, you need oversight to maintain accuracy and prevent fraud.

Step 4: Plan for Tax Preparation

Taxes are often an afterthought for startups, but early planning prevents surprises and supports smoother compliance.

Here are a few areas to address early on:

  • Business structure: The choice between sole proprietorship, LLC, partnership, S corporation, or C corporation impacts how you pay taxes. It also affects eligibility for certain deductions and credits.
  • Sales tax nexus: Startups selling goods or services across state lines may have sales tax obligations in multiple jurisdictions. It's crucial to understand where and when to collect and remit sales taxes.
  • Payroll taxes: Hiring employees triggers payroll tax filing and remittance requirements. Misclassifying employees as independent workers or missing deadlines can result in penalties.
  • Estimated taxes: You need to start making quarterly estimated tax payments as soon as the business starts generating profits.
  • Tax deductions and credits: Startups involved in product development may be eligible for incentives, such as the research and development (R&D) tax credit. This credit can offset federal and state income taxes and, in some cases, payroll tax liabilities. However, it's important to document qualifying activities and costs to claim these benefits.

Should Your Startups Outsource Accounting?

While many business owners attempt to handle bookkeeping themselves in the early stages, outsourcing is a strategic decision that saves time and reduces risk.

Outsourced accounting services range from recording transactions and preparing monthly reconciliations to controller or CFO-level oversight. For startups with limited staff, this approach provides access to financial guidance without the cost of building an in-house team.

Outsourcing is especially valuable when:

  • The business has multiple revenue streams or international transactions
  • Investors or lenders require formal financial statements

Before engaging an external accounting services provider, evaluate their process, technology stack, and service model. Look for a professional who is experienced with early-stage companies in your industry and one who can scale services as your needs evolve.

How MGO Can Help

Accounting is the foundation for making strategic decisions and building financial credibility. Startups that invest early in solid accounting practices are better equipped to manage growth, appeal to investors, and handle their tax obligations.

MGO helps founders build a strong accounting foundation — from selecting an accounting method and accounting software to managing outsourced accounting functions and preparing for tax obligations. Our team understands the unique challenges startups face and provides practical, reliable support to help you reach your business goals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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