Here is a recent article that we did for CoFounders Lab that was picked up by a bunch of other sites too =

I’m an accounting and finance pro and have worked with dozens of start-ups over the years. Among the management there’s usually great excitement over launching the new product or service – and less excitement about setting up the new accounting system. In fact I’ve seen more than a few new companies wait until well into their second year before getting serious about accounting. And a few have even approached me saying “the IRS is getting upset because we haven’t filed taxes for three (or more) years – can you get our system fixed so that we can file our tax returns?” In fact my favorite client these days hasn’t filed taxes since 2011.

One reason that he’s my favorite is that I will need to bill him a lot of money to get everything properly entered. The ironic thing is that he would have spent less money if we had done this in real-time. He would have had useful, real-time information too. When I finally show him profit-and-loss statements from 2011, they won’t help his current decision making very much.

Accounting System Reports for Investors, Tax Authorities and Management

I realize that for most start-ups there is a race to market, an urgency to get revenues coming in and grow. Accounting is not in the front-line of this battle. But an accurate accounting system set up in the correct way produces financial statements and reports that are expected by your investors, required by the panoply of tax authorities out there (e.g., IRS, state, payroll, sales tax, city/county), and needed by your management to compare results and make the best decisions.
So what’s the best way through this?

Different Accounting Levels at Different Rates

At various times, start-ups need lower-level bookkeepers, accountants, financial pros, a CPA and even a CFO – different skill levels at differing rates. Eventually, you will staff all of these positions with dozens of full-timers, but to begin there’s usually no need to hire anyone – just contract the needed skills on an hourly basis.

Interim Controller

First, contract an accounting person who is familiar with accounting practices (“Generally Accepted Accounting Principles” or “GAAP”) in your industry to set up the accounting system, enter transactions for the first 3 months, produce reports, and review them with you. Metrics and objectives can then be set for the future. This is your “Interim Controller.” Someone with a lot of experience will be just as good as a CPA – for about half the price.

Bookkeeper

The Interim Controller will only be needed maybe one day per week. In the meantime someone needs to enter the common, daily transactions – and this is a Bookkeeper. Avoid relegating bookkeeping to unqualified people. For example, many firms tell the receptionist “Our situation is so simple – figure out how to do this until we hire a full-time bookkeeper.” Things will seemingly get done for a while, but it’s only a matter of time until big errors are found in reports that are obviously incorrect.

Once the system is set up, Bookkeepers can then make about 70% to 80% of the monthly entries as directed by the Interim Controller and based upon historical practices. Bookkeepers often know narrow areas of accounting but not the entire picture nor accounting theory. Don’t expect a bookkeeper to do it all. An Interim Controller can sometimes provide bookkeepers too.

CPA

Don’t worry about a CPA for the first year or so. CPA’s should be retained just for income tax filings, and sometimes for special “CPA Reviewed” reports requested by outsiders (e.g., banks, investors). Get a CPA referral from your Interim Controller. They often work together. The CPA will ask for the accounting data-file and if everything is in order (and it should be), taxes and other CPA work will be fast and (relatively) inexpensive.

Accounting Best Practices for Start-ups

And just a few more accounting best-practices for start-ups:
•Most small and medium sized firms use QuickBooks and that will be fine for just about everyone.
•The accounting sys should be available remotely. There are a few ways to do this. Remote or cloud-based access is easy to set up these days, and inexpensive.
•Payroll can no longer be done manually by mere mortals; use cloud-based solutions like Intuit Payroll (there are many others). You are asking for trouble if anyone other than an experienced accountant or CPA sets-up or administers this complex and critically important task.

After a few months, things will get easier. And a continuing, up-to-date accounting system will actually cost less than trying to fix errors and catch-up later on, not to mention avoiding the agony of realizing that important decisions were made based upon incorrect information. Your financing stakeholders will appreciate this too, tax compliance will be easier, and management will be able to make decisions based upon the best information.