Pre-revenue accounting: Getting your start-up’s finances right from day one

When you’re starting a business, there’s a lot to think about. From developing your idea to finding your first customers, accounting might not be at the top of your to-do list. But some of the most important financial decisions happen before you’ve even made your first sale. Getting these right from the start can save you time, money and potential headaches further down the line, while putting your business in a stronger position for future growth.

Many founders assume accounting becomes important once a business starts generating revenue. In reality, some of the most important accounting decisions are often made before the first sale ever takes place.

At the pre-revenue stage, finance can feel like something to think about later. However, decisions made during this phase can have a significant impact on future reporting requirements, tax reliefs, investment opportunities and the amount of time and money spent resolving issues later on.

Getting the financial foundations right

Businesses should consider the accounting framework that will be used for financial reporting from the outset. Whilst this may seem like a compliance matter, choosing the most appropriate framework can help ensure reporting remains proportionate to the business’s needs while being scalable as the company grows.

Share structure is another area that is often overlooked. When founders are focused on launching a business, it can be tempting to keep things as simple as possible. However, spending time considering how ownership and future profit extraction should work can be valuable.

For example, founders may wish to consider whether alphabet shares could provide greater flexibility in the future. We’ve seen situations where ownership arrangements put in place at incorporation no longer reflected the founders’ intentions as the business evolved. These issues can often be addressed, but doing so later is usually more time-consuming and costly than considering the options upfront.

Remuneration is another area where one-size-fits-all advice can cause problems. Many founders are given well-meaning suggestions about the “best” way to pay themselves, often based on what worked for someone else.

The reality is that every business is different. Where qualifying development activity is taking place, decisions around directors’ salaries and how costs are recorded can impact the value of future R&D claims. Taking advice early can help ensure opportunities are maximised.

Preparing for investment and future growth

As businesses look towards raising external finance, robust financial information becomes increasingly important. Investors and lenders often want detailed financial records, forecasts and a clear understanding of the key drivers of the business.

Founders are often surprised by the level of information requested if records have not been maintained consistently from day one.

Good financial discipline matters too. Using a dedicated business bank account, keeping personal and business expenditure separate, maintaining accurate bookkeeping records and regularly reviewing cashflow forecasts all help provide a clearer picture of business performance.

Just as importantly, understanding cash runway allows founders to make informed decisions and identify funding requirements before they become critical.

Getting your business off to the right start

One of the most common things we see is founders seeking advice after a decision has been made rather than before. Most issues can be fixed, but they typically take more time, cost and professional input than if advice had been sought at the outset.

Pre-revenue does not mean there is nothing to account for. In many ways, it is the stage where the foundations for future growth are being built, and getting those foundations right can make a significant difference as the business develops.

The decisions you make in the early stages of your business can have a lasting impact on its future. Whether you’re just starting out or preparing for your next stage of growth, getting the right advice early can make all the difference.

At Gravita, we work with founders and growing businesses to help them build strong financial foundations and plan for what’s ahead.

Get in touch with our team to find out how we can support you and your business from day one.