Setting up a startup's books on day one

The cheapest time to get a startup's books right is the week it's incorporated. Everything after that is cleanup.

1. Separate the money completely

Open a business checking account and a business card in the corporation's name, using its EIN, as soon as the company exists. Run every company expense through them and no personal expense. Mixed accounts are the single biggest cause of slow, expensive year-end work — and in a dispute, commingling is one of the facts courts look at when deciding whether to disregard the corporate form.

2. Record how the founders bought their stock

Founders typically buy common stock at a very low price per share when the company is formed. Record the cash received:

Account	Debit	Credit
Cash	100
Common stock (at par)		10
Additional paid-in capital		90

Par value times shares issued goes to common stock; the rest goes to additional paid-in capital. If founders contributed IP or other property instead of cash, record it at the value in the stock purchase agreement and keep the agreement with the entry. (Founders receiving stock subject to vesting should also ask counsel about a timely 83(b) election — see our 83(b) guide.)

3. Bring in pre-incorporation spending

Founders usually pay for things before the company or its bank account exists: incorporation fees, domain, early software. Decide, document and record how each is treated:

• Reimbursed: the company owes the founder. Record each expense with a credit to Due to founder (a liability), then clear it when the company pays them back.
• Contributed: the founder doesn't want the money back. Credit additional paid-in capital instead.

Either way, keep the receipts. Costs incurred to organize the corporation and start the business can have special tax treatment, so tag them clearly for your preparer.

4. Set up the chart of accounts and connections

Start from a startup-oriented chart of accounts (see Bookkeeping Fundamentals) with cost of revenue separated, payroll liabilities, deferred revenue, and a dedicated account for each financing instrument. Connect every bank, card and payment processor so transactions arrive automatically — but plan to review categorization weekly; automation is only as good as its review.

5. Build the diligence folder as you go

Every round will ask for the same things. Keep them in one place from the start: certificate of incorporation, bylaws, board consents, stock purchase agreements, 83(b) elections with proof of mailing, SAFEs and side letters, EIN letter, state registrations, and the monthly close packages. A clean folder is the difference between diligence taking a week and taking a month.