Common Bookkeeping Mistakes Startup Founders Make (and How to Avoid Them)

avigating your startup's finances can be tricky, especially if you're managing the books on your own. Here are some common pitfalls we see startup founders encounter with their bookkeeping, and tips on how to avoid them. No guilt trips here—just practical advice to help you get it right from the beginning.

‍

‍
1. Procrastinating on Bookkeeping

• Mistake: Delaying bookkeeping tasks.
• Impact: Leads to rushed, error-prone financial reports and signals disorganization to investors.
• Solution: Schedule regular bookkeeping sessions to keep records up-to-date.

2. Relying on Excel Instead of Professional Software

• Mistake: Using Excel for bookkeeping instead of specialized accounting software.
• Impact: Increased risk of errors and difficulty reconciling accounts.
• Solution: Use software like QuickBooks for accurate and efficient bookkeeping.

3. Using Cash Basis Instead of Accrual Basis

• Mistake: Recording transactions only when cash changes hands.
• Impact: Results in uneven financial records, making it hard to track true financial health.
• Solution: Use accrual accounting to recognize revenue and expenses when they occur, not when cash is exchanged.

4. Misjudging Burn Rate and Expenses

• Mistake: Not keeping timely records, leading to surprises in burn rate and cash runway.
• Impact: Unpleasant surprises for you and your investors, potentially risking your startup's stability.
• Solution: Regularly update and review your bookkeeping to monitor burn rate accurately.

5. Failing to Invoice or Collect on Time

• Mistake: Not invoicing on time or failing to collect payments.
• Impact: Cash flow issues and strained relationships with clients.
• Solution: Send timely invoices and follow up on collections regularly to ensure steady cash flow.

6. Double-Paying Contractors

• Mistake: Paying contractors multiple times due to disorganized invoicing.
• Impact: Wasting valuable resources and funds.
• Solution: Implement a second set of eyes to verify contractor payments and avoid duplicates.

7. Ignoring Payroll Integrations

• Mistake: Manually handling payroll instead of using integrations.
• Impact: Extra work and potential errors.
• Solution: Use payroll services like Rippling, Gusto etc. that integrate with your accounting software.

8. Booking Equity as Revenue

• Mistake: Booking equity fund raises (e.g., preferred equity, SAFE notes, convertible equity) as revenue.
• Impact: This error can result in showing a false profit and paying unnecessary taxes.
• Solution: Ensure equity is recorded on your balance sheet, not as revenue.

9. Incorrectly Booking Deferred Wages

• Mistake: Booking deferred wages as a tax deduction.
• Impact: Incorrect tax filings and potential issues with the IRS.
• Solution: Book deferred wages as liabilities on the balance sheet, not as tax deductions.

10. Overlooking Tax Filings and Deadlines

• Mistake: Forgetting to file taxes or pay necessary fees like Delaware franchise tax.
• Impact: Penalties, fines, and unnecessary stress.
• Solution: Keep track of all tax deadlines and ensure timely filings with the help of a professional.
  ‍

_{Fondo is the all-in-one accounting platform for 1,000+ startups. Get your books closed, taxes filed, and cash back from the IRS (the average startup gets back $21,000). Need help? Get an instant quote here.}

‍