accounting

# Accounting & Bookkeeping

Messy books cost you money in taxes, missed deductions, and accountant fees. This skill helps you set up clean financial tracking from day one — 30 minutes a week keeps you legal, informed, and out of trouble.

## Core Principles

- Bookkeeping is not optional. Messy books cost you money in taxes, missed deductions, and accountant fees.
- Separate business and personal finances completely. Day one. No exceptions.
- SaaS revenue recognition has rules. Stripe payments are not the same as "revenue" for accounting purposes.
- You don't need a full-time accountant until $50k+ ARR. But you do need a system from day one.
- 30 minutes a week keeps your books clean. 30 hours in April fixes what you ignored all year.

## Getting Started: Financial Foundation

### Day 1 Checklist

```
Before your first dollar of revenue:
- [ ] Open a separate business bank account (checking)
- [ ] Get a business credit card (or dedicated personal card for business only)
- [ ] Set up accounting software (see recommendations below)
- [ ] Create a simple chart of accounts
- [ ] Set up Stripe (or payment processor) to deposit to business account
- [ ] Save a folder for receipts (digital — Google Drive, Dropbox, or in your accounting tool)
- [ ] Note your fiscal year start date (usually Jan 1 for calendar year)
```

### Separate Your Finances

**Why it matters:**
- Legal protection (LLC/corp separation requires it)
- Tax deductions are easy to prove with clean records
- Makes tax prep 10x faster and cheaper
- Investors and lenders need clean books

**How:**
- Business bank account (Mercury, Relay, or any bank with no/low fees)
- Business credit card (Ramp, Brex, or a separate personal card dedicated to business)
- Never pay personal expenses from business accounts
- Never pay business expenses from personal accounts
- If you must (emergency), document it as an owner draw/contribution

---

## Accounting Software

### Recommendations by Stage

| Stage | Tool | Cost | Why |
|-------|------|------|-----|
| Pre-revenue | Spreadsheet | Free | Don't over-invest before revenue |
| $0-5k MRR | Wave | Free | Full accounting, free, good for solo |
| $0-10k MRR | QuickBooks Self-Employed | $15/mo | Simple, widely supported by accountants |
| $5k-50k MRR | QuickBooks Online | $30+/mo | Standard. Every accountant knows it |
| $5k-50k MRR | Xero | $15+/mo | Clean UI, good for SaaS |
| Any stage | Bench | $299+/mo | Done-for-you bookkeeping service |

**The short answer:** Start with Wave (free) or QuickBooks Online. Switch to QBO when you hire an accountant — it's what they all use.

### Stripe + Accounting Integration

Connect Stripe to your accounting software to auto-import transactions:
- QuickBooks: Use the Stripe integration or Synder
- Xero: Use the Stripe integration
- Wave: Manual import via CSV (or use a connector like Zapier)

---

## Chart of Accounts (Simplified for SaaS)

Your chart of accounts is the list of categories for your money. Keep it simple:

```
REVENUE
  Subscription Revenue      (MRR from customers)
  One-Time Revenue          (setup fees, lifetime deals)

COST OF GOODS SOLD (COGS)
  Hosting & Infrastructure  (Vercel, Supabase, AWS, etc.)
  Payment Processing Fees   (Stripe fees, ~2.9% + $0.30)
  Third-Party APIs          (SendGrid, Twilio, OpenAI, etc.)

OPERATING EXPENSES
  Software & Tools          (GitHub, Figma, analytics, etc.)
  Marketing & Advertising   (Google Ads, sponsorships, etc.)
  Contractors & Freelancers (developers, designers, writers)
  Legal & Professional      (lawyer, accountant, registered agent)
  Domain & DNS              (domain registrar, Cloudflare)
  Office & Equipment        (computer, monitor, desk — if home office)
  Education & Training      (courses, books, conferences)
  Insurance                 (if applicable)
  Miscellaneous             (catch-all — keep this small)

OTHER
  Owner Draw / Distribution (money you take out for yourself)
  Owner Contribution        (money you put in from personal funds)
```

---

## Weekly Bookkeeping Routine

Spend 30 minutes every week. It prevents the year-end panic.

```
Weekly (pick a day, be consistent):
- [ ] Categorize new transactions in accounting software
- [ ] Upload receipts for any expense over $75
- [ ] Reconcile bank account (does your software match your bank?)
- [ ] Note any unusual transactions to ask your accountant about

Monthly (first week of each month):
- [ ] Review Profit & Loss statement
- [ ] Check: Is revenue matching what Stripe shows?
- [ ] Check: Are expenses categorized correctly?
- [ ] Review cash balance — how many months of runway do you have?
- [ ] Set aside estimated tax payment (see Tax section)
```

---

## SaaS Revenue Recognition

### The Basic Rule

Revenue is recognized when you deliver the service, not when you receive payment.

```
Example:
- Customer pays $1,200 for annual plan on March 1
- You DON'T book $1,200 as March revenue
- You book $100/month for 12 months (March through February)

Why: You owe them 12 months of service. Until delivered, it's "deferred revenue" (a liability).
```

### When It Matters

- **Pre-$50k ARR:** Most bootstrapped founders use cash-basis accounting (revenue = when you get paid). This is simpler and fine for tax purposes.
- **Post-$50k ARR or seeking investment:** Switch to accrual-basis accounting with proper revenue recognition. Your accountant handles this.
- **Lifetime deals:** Recognize over the expected customer lifetime (usually 3-5 years).

---

## Taxes

### Estimated Tax Payments (US)

If you expect to owe $1,000+ in taxes, the IRS wants quarterly estimated payments:

```
Due dates:
- Q1: April 15
- Q2: June 15
- Q3: September 15
- Q4: January 15 (of the following year)

How much to set aside:
- Rule of thumb: 25-30% of net profit (revenue - expenses)
- Transfer this to a separate savings account each month
- Pay quarterly estimates from that account
```

### Common Tax Deductions for SaaS Founders

```
Likely deductible (confirm with your accountant):
- [ ] Hosting and infrastructure costs
- [ ] Software subscriptions used for business
- [ ] Payment processing fees (Stripe)
- [ ] Contractor payments
- [ ] Home office (dedicated space, % of rent/mortgage)
- [ ] Internet (business % of your bill)
- [ ] Computer and equipment
- [ ] Domain registration and renewal
- [ ] Professional services (legal, accounting)
- [ ] Business insurance
- [ ] Education directly related to your business
- [ ] Marketing and advertising expenses
- [ ] Travel for business purposes (conferences, customer meetings)
```

### When to Hire an Accountant

```
Do it yourself:    Pre-revenue to ~$2k MRR (use software, keep clean books)
Annual tax prep:   $2k-10k MRR (hire a CPA for year-end, do bookkeeping yourself)
Monthly accountant: $10k+ MRR (hire a bookkeeper or service like Bench)
```

**Finding a good accountant:**
- Look for CPAs who specialize in small businesses or startups
- Ask other founders for referrals
- Expect to pay $500-2,000 for annual tax prep (depending on complexity)
- A good accountant saves you more than they cost in missed deductions and avoided mistakes

---

## Financial Reports You Should Read

### Profit & Loss (P&L)

Shows revenue minus expenses = profit (or loss) for a period.

```
Review monthly. Ask:
- Is revenue growing month over month?
- Are expenses growing faster than revenue?
- What are my top 3 expense categories?
- What's my profit margin? (profit / revenue × 100)
```

### Cash Flow

Shows money in and money out, regardless of when revenue is "earned."

```
Review monthly. Ask:
- How much cash do I have today?
- How many months of expenses can I cover? (runway)
- Am I cash-flow positive? (more coming in than going out)
```

### Balance Sheet

Shows what you own (assets), what you owe (liabilities), and your equity.

```
Review quarterly. Less important at early stage, but needed for:
- Applying for business loans or credit
- Talking to potential investors
- Understanding deferred revenue
```

---

## Common Mistakes

| Mistake | Fix |
|---------|-----|
| Mixing personal and business finances | Separate bank accounts from day one |
| Not tracking expenses | Categorize weekly. 30 minutes prevents 30 hours of cleanup |
| Ignoring estimated tax payments | Set aside 25-30% of profit monthly in a separate account |
| No receipts for expenses | Save digital copies of everything over $75 |
| Doing books once a year | Weekly categorization, monthly review |
| DIY taxes past $10k MRR | Hire a CPA. They pay for themselves in avoided mistakes |
| Confusing Stripe revenue with accounting revenue | Stripe payouts include refunds, fees, and timing differences |
| No emergency fund for the business | Keep 2-3 months of expenses in the business account |

---

## Success Looks Like

- Clean books that take 30 minutes/week to maintain
- Tax payments estimated and saved quarterly (no April surprises)
- Clear understanding of monthly profit/loss and cash runway
- Receipts saved and categorized for every business expense
- An accountant relationship in place before you desperately need one
- Business and personal finances completely separated

---

## Related Skills

- **finances** — Financial modeling, unit economics, and cash flow planning
- **payments** — Set up Stripe and connect to your accounting software
- **legal** — Business entity formation and legal compliance
- **pricing** — Set pricing that supports healthy unit economics