This guide is designed for founders of VC-backed startups in the US or those looking to secure VC funding. While parts of it may be applicable to other types of businesses, VC-backed startups are our main focus.
This guide is particularly useful if you:
Have started or are about to start a company registered in the United States.
Don't have a dedicated finance professional managing your finances on a regular basis, such as a CFO or Financial Controller.
Are an international founder launching a business in the USA but operating from another country.
The guide explores two key areas of running a company:
Corporate Governance: This involves how you structure your company and manage relationships with shareholders.
Financial Operations: This is the day-to-day management of business finances, including paying vendors, employees, and contractors, as well as managing expenses.
The guide touches on Corporate Governance only when it intersects with Financial Operations.
Essential startup finances recommendation
In the early stages of a startup (up to Series A/B), focus is on building your product and gaining users. Finances are important, but shouldn't be your main worry.
The only financial metric you need to keep an eye on is your runway - that's how long you can keep going before you run out of money and need more funding (or start making profit). You don't need to calculate this down to the last dollar. A rough estimate with a few months of wiggle room is enough: take your total bank balance at the end of the month from the balance sheet (sum of all your bank accounts) and divide it by the net difference between bank balance at the beginning of the month and bank balance at the end of the month.
But be careful. This method doesn't work if you prepay for expenses or if your customers pay in advance. Imagine you're making $10k MRR, and have a customer who paid $120k for an annual contract. That's earned (or recognized) throughout the year, so you've doubled your revenue to $20k MRR. That's great! But if you look at your incoming cash flow, your growth is (120+10)/10 = 13x. You might be tempted by your expenses by 13x, too, but you can't afford that unless you know you're going to close a $120k annual contract every month going forward.
The same goes for expenses. If you buy an annual contract, you should spread it over the whole year. Misinterpreting expenses isn't as catastrophic, but you should still be careful.
If you've got this kind of prepaid revenue or expenses, spend more time managing your runway.
Do I need a professional to manage my finances?
You'll definitely need a professional accountant to file most annual tax reports. The list of necessary filings is provided below. You'll need their services once a year, and they typically offer this for a flat fee (around $1,000-$2,000 depending on a complexity of your shareholder and business structures). Anything beyond that can be managed without external help. The following factors will influence the amount of effort required to manage your finances:
Do you have the personal time to handle all of this?
Are you hiring employees across different states in the US?
Does your business go beyond just selling software on the Internet?
Do you have a complex revenue and expense structure, such as annual contracts (see above)?
Company Incorporation
This topic is mostly outside the scope of our handbook. Clerky has a great handbook about incorporation. However, we are going to give a few essential pieces of advices anyway based on common mistakes we have seen:
If you ever consider raising VC money, incorporate as Delaware C-Corp
It’s recommended to use standard legal document templates for all paperwork. Services such as Clerky and Stripe Atlas are the way to go. They also handle other things such as Registered Agents and filing 83(b).
You can hire a law firm to do all the above. Sometimes, they’ll do it for free or for a very moderate fee, hoping that you grow big and they get a piece of the business. Just make sure that the firm you are hiring has experience working with well-known VC-backed startups in the US.
Every founder must file 83(b). We won’t go into details about not filing 83(b), it could vary from moderate to devastating. The important things to note:
This applies to both domestic (US) and international founders, even if you haven't been in the US and don't have plans to move there. If your company becomes widely successful and you reconsider your decision to stay outside the US, it will lead to a significant tax burden. On the other hand, there's no downside to filing 83(b) from overseas.
Clerky and Stripe Atlas will give you detailed instructions on how to file 83(b). If you proceed with a law firm, they should handle that too.
Incorporation is not the final step of company inception: you’ll need other things too. Let’s dive in!
Registered Agent
Every company incorporated in Delaware, unless it has a physical office there, must have a registered agent. Registered Agent is a company that provides you a mailing address in Delaware and handles communication between your company and the state of Delaware's Division of Corporations.
Clerky and Stripe Atlas provide registered agent services. The price is usually around $100 per year.
You almost never interact with your registered agent. Although they can handle mail for you (yes, many things in the US are coming through the mail), it’s better to set up a separate business address closer to the actual place of business. See below
EIN (Tax ID)
Once you incorporate, you’ll need to get an Employer Identification Number (EIN). Clerky and Stripe Atlas will help you to get it, although the process can be rather lengthy (months) if you are not from US (don’t have an SSN). EIN is a unique id of your company you’ll use everywhere.
IMPORTANT: you will receive by mail the official letter from IRS with EIN assigned to your company. It’s super important to keep this letter along with your incorporation documents. We recommend to use a US address in the Form SS-4 when applying for EIN (make sure you have access to the mail at that address). Do not use non-US address when applying for EIN.
If you are incorporating through the law firm, make sure they know how to get EIN, especially if you are an international founder.
Opening a Bank Account
After incorporating your company and obtaining your EIN, the next step is to open a business bank account. This is crucial for managing your company's finances, receiving payments, and paying expenses. The process can vary depending on the bank, but generally, you will need your EIN, incorporation documents, and documents confirming the identity of beneficial owners.
Beneficial Ownership Information (BOI) Reporting
Companies incorporated on or after 1st January 2024 and before 1st January 2025 must file their initial BOI report with FinCEN within 90 days after incorporation. Companies incorporated on or after 1st January 2025 must file their initial BOI report with FinCEN within 30 days after incorporation.
If there is any change to the required information about a reporting company or its beneficial owners in a BOIR that a reporting company filed, the reporting company must file an updated BOIR no later than 30 days after the date on which the change occurred.
When incorporating your company, ask your lawyers if they filed this report for you. Otherwise, you can do it by yourself, as the process of filling is pretty straightforward (unless you have a complicated ownership structure at the incorporation stage). You can file the BOI Report directly on the FinCEN website.
Mailing Address
You’ll need a mailing address to run your business. A lot of things are still coming via mail in the USA, and the address will be asked on any form.
Registered Agent will provide you some address somewhere in Delaware, however, this address won’t be recognized as a physical address, which you’ll need sometimes.
Stable is a YC startup that provides addresses in NY and SF. However, there are a few caveats;
Stable gives you a virtual address, they are a layer on top of Mailaccess (at least in SFs). Some banks and other financial require a physical office address. They have a list of virtual addresses, and they will spot yours. Also, they might require a lease agreement or utility bill to confirm the address.
The good news is that modern banks - such as Mercury, Brex don’t care - and they are good with Stable address
If you physically live in the US, you can use your home address. Old-school banks will recognize this as a legitimate address; however, we advise against it. First, if you move, you’ll need to update your address everywhere, which can take time, especially with the IRS.
If you live in the US, use your home address only when a Stable address doesn’t work
Banking
To operate your business, you'll need a bank account. Two great neo-banks to consider are Brex Cash and Mercury.
These aren't traditional banks. They're user interface layers atop other institutions. For example, Mercury uses Choice or Evolve as an underlying bank. This means that some aspects of your banking relations, like compliance, are controlled by the underlying banks, not Mercury. As an example, if Evolve or Choice labels your account as high risk, say because you're not a US resident, Mercury can't intervene.
Another concern is reliability, especially given the recent troubles of Silicon Valley Bank (SVB) and First Republic Bank (FRB). While we believe your funds in Mercury are safe, even above the FDIC limit, some people may feel differently. Plus, it can be stressful to stay calm during a crisis.
To mitigate these issues, we recommend opening multiple accounts — one operational (e.g., Mercury) and a few reserves (e.g., JPMorgan Chase, FRB).
The operational bank account will be your daily use account for expenses and revenue. Opt for the one that provides the best user interface and the least friction for regular operations. Brex Cash or Mercury would be ideal choices.
Open two reserve bank accounts. One is with a major bank, such as Chase, Wells Fargo, or Bank of America, and the other is with Brex or Mercury.
If you're worried about the safety of your funds and you hold a significant amount, keep them in the major bank and transfer them to the operational account as needed.
Hiring
Once you've secured funding, you're likely to start hiring, with the first hire typically being yourself as a founder. The hiring process can vary greatly depending on the location of your staff.
Hiring in the U.S.
Hiring in the U.S., or running payroll, can be quite challenging. Although modern software makes the process easier, it has numerous pitfalls. The main issue is state taxes and state registration. The U.S. has 50 states, each with its own taxes and regulations. To hire someone, you must file a foreign qualification in the employee's home state and manage local taxes there. This can pose a challenge for remote companies with employees scattered all over the country.
Professional Employer Organization (PEO)
One way to alleviate this is to use a PEO, or professional employee organization. PEO becomes responsible for local tax filing, registration, etc. An employee becomes co-employed by you and the PEO.
Two major PEO providers are TriNet and Rippling. TriNet has been around for over 30 years, while Rippling is a younger startup out of YC. They both might have a minimum full-time employee requirement, usually around 3. However, these requirements are frequently changing, and they might have special programs for startups. It's worth checking what they currently offer.
Plus, PEOs often offer better health insurance plans. More on insurance is below.
Payroll Provider (not a PEO)
You can use a payroll software provider (e.g., Gusto or Rippling) if a PEO isn't an option. Like PEO, they will file and pay payroll taxes for your company but they won't handle state registration (aka foreign qualification). For that, you can use any law firm (e.g., CorpNet).
Choosing not to use a PEO will lead to more admin work. You'll have to file foreign qualifications, handle mail from different states, and forward it to your payroll provider, among other things. So, if you have more than 3 full-time employees and they are scattered among different states, we recommend using a PEO.
Here’s the table with the latest known PEO requirements and pricing
minimum 3 full-time employees, 50% of employees must be enrolled in health benefits plans
around $100
Health insurance
Your US-based employees will likely expect that the company provides/covers health insurance. It's not legally required, and you might manage without it for your first few hires, but scaling your team becomes significantly harder without offering it.
Note that you can't selectively offer insurance to some employees; you have to offer a policy that is more or less identical to everyone.
If you choose a PEO, various insurance plans will be included in their offering. You'll need to decide which plans to cover and whether to cover dependents (children, spouses, etc.). Your PEO account manager will be happy to present your options and guide you through the process.
If you're using a payroll provider like Gusto, it gets a bit more complicated. They will offer many options too, but to enable them in some states, you'll need to have more than one employee there.
Alternatively, you could let employees buy their own insurance and reimburse the cost. But it's not as simple as just sending them money. You'll need to set up a QSEHRA or ICHRA policy limiting how much you will reimburse each employee. Such policies must be well documented as health insurance reimbursements can be tax-free for your employees. Various companies provide services for managing health insurance policies (e.g., TakeCommand).
Keep in mind, the plans your employees buy individually (known as "Marketplace insurance") are generally worse and more expensive than those you can offer through a PEO or payroll.
Other benefits
In the U.S., tech companies often offer additional benefits, including a notable 401k pension plan. However, this isn't as common or expected as health insurance, so you might skip it for your initial hires.
For setting up a 401k, Gusto and Rippling can assist, typically through a partner like Guideline.
Equity compensation
Startups often offer equity compensation, in the form of stock options or similar, to key employees. However, it's crucial to understand that you can't just hand out equity randomly. This could unintentionally lead to a hefty tax bill for your employees before they've seen any money from your startup's success.
There's an excellent guide by Clerky on equity compensation. It's highly recommended to read it before making any equity offers and always consult your lawyer. One important concept is the 409a valuation, which sets your company's fair market value (or FMV). Contrary to what some may believe, this isn't the same as your last funding round valuation or cap. It's usually significantly lower. Also, the 409a valuation expires either within a year or after a funding round, whichever comes sooner.
Before offering equity, ensure you understand the process to avoid unplanned tax implications for your employees.
International Hiring
Hiring staff from outside the USA is surprisingly more straightforward than hiring within the country. The US doesn't heavily regulate foreign hires, and foreign authorities have limited influence over US-based companies.
You have three options for hiring abroad:
Independent Contractors: This is the easiest method. You only need to worry about sending payments every month. Platforms like Deel take care of the rest, including collecting the W-8BEN form (more on that form below) and other paperwork. Your employees might have experience working remotely for a US company and be comfortable with independent contractor status.
Employer-of-Record (EOR): If your potential hires prefer formal employment for job security and government benefits, you can hire them through an EOR. An EOR is a local entity that pays them a salary. However, be aware that EOR fees are significantly higher than for independent contractors, typically $300-600 per month per employee versus $20-$40 per month. If you need to use an EOR, Deel and Rippling offer good global coverage.
Open a Subsidiary: This is usually not the best option unless you have dozens of employees in a specific country and plan to operate there permanently.
We suggest hiring people as contractors through Deel or Rippling
If your hires prefer formal employment, an EOR is an alternative, though it's more expensive. Opening a subsidiary should be your last resort, considered only if you plan to have a permanent presence in a specific country.
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Recently, Deel has been warning customers about a "misclassification risk." They suggest that a foreign government might consider your contractors as full-time employees, potentially leading to a large tax bill. While their claims are technically valid, such a scenario is highly unlikely unless you have dozens of contractors in a specific country. Deel's motivation is clear — EOR fees are significantly higher. However, it's always a good idea to do your own research before moving to EOR.
Generally, opening a subsidiary is never a good option. Consider this only if you have a substantial number of employees in a specific country and plan to have a permanent presence there.
Expenses
Apart from hiring, you'll likely spend money on various services such as consultants and software. It's important to keep paperwork for every expense:
Every expense needs to be backed by a receipt or invoice.
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You don't need to be overly meticulous with record-keeping when running a startup. Startups typically operate at a loss, so even if some expenses are rejected by the IRS during an audit, your startup won't suddenly become profitable, and you won't owe back taxes. Still, keeping records is a good habit, as long as it doesn't distract you from your main activities: building the product and growing the business. Luckily, modern software makes bookkeeping less time-consuming.
If you pay more than $600 per year to a US-based vendor who is an individual or LLC, you must collect a W-9 form from them. You don't need to collect W-9 forms from corporations. Most startups and software vendors are corporations. The W-9 forms you collect will be used for filing the 1099 report (due by 31st January for the previous calendar year).
For every non-US vendor (individuals or legal entities), you should collect a W8-BEN(-E) form, regardless of the amount of money you pay them.
While collecting W-9 and W8-BEN forms might sound complicated, the process is usually straightforward and heavily automated. Deel, for example, handles the collection of W8-BEN forms for overseas contractors. US-based vendors are often asked for W-9 forms, so they should be able to provide you with one quickly.
You don’t need to collect W-9 forms from contractors if you use third party settlement organizations (TPSOs) such as PayPal, Venmo, credit cards (Ramp, Brex, etc), etc. TPSOs are obligated to issue 1099-K to your contractors.
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Here's a tip: always request a W-9 or W8-BEN form before making any payment. Getting these forms will be much more difficult after transferring the money as one-time contractors are no longer motivated to respond to your requests.
Expense Management Platforms
For routine expenses, such as software subscriptions, buying equipment, client lunches, ,etc., there are a few options:
Let employees use personal cards and reimburse them later. Expensify is a good platform to manage this; also corporate credit cards companies such as Brex and Ramp have this functionality too.
Mercury allows you to issue debit cards tied to your bank account.
Ramp and Brex have certain requirements, like minimum account balance or type of legal entity (Ramp doesn’t work with LLCs). If you qualify, that’s the way to go. Both platforms allow you to issue credit cards for employees with limits and policies, reimburse employees for expenses carried on a personal card. They make record keeping very easy, allowing you to send receipts as text messages or emails and match them with transactions automatically.
As a bonus, Ramp and Brex can help pay bills by forwarding them to an email address.
If you don’t qualify for Ramp and Brex, you can use Expensify (or something similar), and maybe cards issues by Mercury. Unfortunately, Mercury cards are not as robust: for example, you can’t email an invoice to automatically match it with the transaction; you’ll need to log into online banking and upload the document manually. However, all these software providers constantly working on implementing new features, so it make sense to double-check on their website what they offering.
Revenue
Making the first dollar as a startup company is always exciting. There are two ways a typical startup makes money:
Self-service: your customers sign up for your service and provide you their credit card information;
High-Touch Sales: after a few calls with a customer, they sign a contract and you send them an invoice which they pay through the bank. This usually makes sense when invoice is at least few thousand dollars.
Most startups, especially B2B will have both. For self-service, you should optimize towards customer experience and speed of building the product, not for accounting. However, Stripe is an excellent choice for both aspects, so we strongly consider going with them unless you have a good reason not to.
For sending invoices, you can either use Quickbooks, which you’ll likely need to do accounting (more on that below), or you can use Stripe too — their invoicing capabilities got a lot better recently. Just make sure to disable credit card payments for big invoices to avoid processing fees, which are typically around 3%.
If you’re using QuickBooks, make sure to apply for Quickbooks pay. This is a solution that improves an experience of paying your invoices significantly. For example, instead of logging into a bank account and typing your credentials, Quickbooks allows your customers to provide their bank details so Quickbooks can pull money from them.
To setup Stripe and apply for Quickbooks Payments feature you will be asked to provide SSN (social security number) of one of the founders or trusted persons (e.g., secretary, C-level employee/contractor, etc.).
It’s worth noting, that in some industries in the US customers would like to pay with checks. In this case, Stable can deposit those checks for you.
Bookkeeping and budgeting
Bookkeeping involves arranging and sorting out business transactions. It must be done at least once a year before you file your annual taxes. Even if you do not have a bookkeeping process in place, the CPA handling your taxes will review your bank statement and categorize each transaction anyway.
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Keeping your books organized saves you time and money during tax preparations.
There are benefits of keeping your books updated monthly. At the start of each month, you can review all the sales, expenses, and bank transactions from the previous month and categorize each one. As a result, you'll have two key reports:
Profit and Loss (P&L) report: This report shows you how much money you spent during the previous month and what you spent it on.
Balance Sheet reveals, among other things, how much money you actually have. Roughly it includes:
Once you have your P&L and Balance Sheet, it's simple to calculate your "runway" - the amount of time you have before your money runs out.
There are other ways to calculate your runway, but the simplest is to divide your bank balance at the end of the month by the difference between the balance at the beginning and end of the month. This gives you a very precise estimate, unless you prepay for expenses or your customers prepay for your services or delay invoice payments.
If your business operations are more complex than just receiving payments through Stripe and paying salaries, or if you have significant funding and minimal expenses, you'll need to do bookkeeping on a monthly basis. Moreover, potential investors may ask to see your financial statements if you're actively seeking funding.
Although a skilled professional could manage your books using Excel or Google Sheets, it's more efficient to use specialized software. The most common software used for bookkeeping is QuickBooks Online.
You can outsource your bookkeeping. CPAs who prepare your taxes usually offer bookkeeping services. However, ensure they understand startups and can close the books promptly, ideally within a few days after the month ends.
You could also consider bookkeeping services like Pilot or Bench. At first glance, they might seem attractive, but they do have some drawbacks compared to traditional CPA or bookkeeping firms. They cost about the same, but they lack a personal touch. Also, they're somewhat restricted by the software they've developed for bookkeeping.
Budgeting
If you're keeping track of your monthly expenses, you'll likely need a budget. Expenses can quickly get out of control, especially when you start hiring. Remember, reducing payroll expenses isn't easy. If you need to let people go, you'll often need to pay severance, usually equivalent to 1-2 months' salary, or at least give a 1-2 months' notice.
To monitor your runway closely, particularly as your business grows and starts generating significant revenue, you'll need to budget expenses ahead of time. Otherwise, you might suddenly find yourself with only three months of runway left and no funding in sight.
Keep in mind that the budget is only useful if you check it before spending money and compare your actual expenses with it every month (this is known as a plan-fact analysis). It's completely okay to tweak your budget monthly, especially since your revenue situation can shift.
You have way more control over expenses than revenue, so focus heavily on expenses when building a budget and make revenue assumptions. If unsure, always choose the more conservative option.
Prepare and maintain a budget for the next 6-18 months. Startups are unpredictable, and anything beyond 18 months is largely out of your control.
From our experience, budgets are best prepared in Google Spreadsheet or Excel. Special budgeting software exists, but it's usually too complex for companies up to Series B.
Taxes
Every US company must file and pay taxes. The Internal Revenue Service, or IRS, collects federal taxes. The good news is that if your startup is not profitable, the paperwork is often more significant than the tax bill itself.
The most common taxes are paid with each payroll - payroll taxes. Your payroll provider or Professional Employer Organization (PEO) will handle this for you.
Other taxes are paid quarterly or annually. Here's a high-level overview of what you should expect to pay:
Franchise Tax (state of the registration of your entity): This is an annual payment (Delaware FT is due on March 1st; California tax is due on 15th April). You can pay this tax online by filing a simple form. The minimum fee in DE is $250, and in CA - $800. However, it can be higher if your company has a significant cash balance or your cap table is complicated.
There are two methods to calculate Delaware Franchise tax. The first method is based on the number of authorized shares. If your startup is incorporated with 10 million shares, the tradition for many startups, the tax bill will be significant, around $10,000. The second method is based on gross assets, which usually means the cash you have in the bank at the end of the year. If you have less than $2M in the bank, you'll end up paying $250-$400. The method you choose can significantly impact the amount you owe.
1099 report: This is a list of all US-based vendors you paid over the year (LLCs and individuals). Remember those W-9 forms you collected from vendors? They form the basis of these reports. The deadline is January 31st.
Tax Return: The deadline is April 15th or October 15th if you file for an extension. Tax return shows your taxable income or loss.
In addition to these federal taxes, if you have a physical presence (or Nexus) in any US state, you might need to file a tax return in each of those states. A Nexus could be a physical office in the state, or employees, or significant revenue derived from that state. Each state has its own criteria, so consult your CPA.
Form 5472 (foreign shareholders): If you have a foreign shareholder, you should notify the IRS. The penalty for not doing so is severe, up to $25,000.
If your financial records are well-organized and you've diligently collected W-9 forms, a CPA can handle these filings quickly. You just need to share your QuickBooks information.
If you haven't been keeping up with your finances for the whole year, the filing will take more time to prepare. The most challenging report is usually the 1099 report. The deadline is quite strict - January 31st - and it can be difficult to get in touch with all your vendors at the end of the holiday season.
Appendix A: Software and Services Summary
We mentioned a lot of software and services in this handbook. Here’s a comprehensive list of all we mentioned, along with a brief overview and costs
Legal disclaimer: This guide is not intended to and does not constitute legal or tax advice, recommendations, mediation, or counseling under any circumstance. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular problem.
