How to Clean Up Your Books Before Fundraising
Get your financials audit-ready and avoid due diligence surprises. A practical guide to preparing your books for Series A scrutiny.
"Your books are a mess." No founder wants to hear this during due diligence. Yet it's surprisingly common. Messy financials don't just slow down your raise—they signal operational immaturity and can reduce your valuation or kill deals entirely.
This guide walks you through getting your books clean before fundraising. For the broader picture, see our Complete Guide to Series A Readiness.
Start Early
Book cleanup typically takes 4-8 weeks. Don't wait until you're in the middle of fundraising. Start at least 3 months before you plan to raise.
Why Clean Books Matter
Faster Due Diligence
When investors can quickly verify your numbers, the process moves faster. Delays during diligence lose deals.
Builds Trust
Clean books signal that you run a professional operation. Messy books make investors wonder what else is messy.
Protects Valuation
Issues discovered during diligence give investors leverage to renegotiate terms. Clean books protect your deal.
Enables Good Decisions
You can't make good business decisions with bad data. Cleaning your books benefits you beyond fundraising.
What "Clean Books" Actually Means
Reconciled Accounts
All bank accounts, credit cards, and payment processors reconciled monthly with no unexplained differences.
Proper Revenue Recognition
Revenue recognized according to GAAP principles. Deferred revenue properly tracked for annual contracts and prepayments.
Organized Chart of Accounts
Expenses categorized consistently with clear separation between COGS, R&D, Sales & Marketing, and G&A.
Documented Policies
Written accounting policies for revenue recognition, expense categorization, capitalization, and other judgment areas.
Supporting Documentation
Invoices, contracts, and receipts organized and accessible. The ability to trace any transaction back to source documents.
Common Issues to Fix
Unreconciled Transactions
"Uncategorized" expenses or suspense accounts signal neglected bookkeeping. Every transaction should be properly categorized and reconciled.
Mixed Personal/Business Expenses
Founder expenses paid from company accounts need proper documentation and often need to be reclassified or reimbursed.
Inconsistent Revenue Recognition
Some months you recognized all cash received; other months you deferred. Inconsistency makes trends unreliable.
Missing Accruals
Payroll accruals, vacation accruals, or expense accruals not recorded. This makes period comparisons inaccurate.
Contractor Misclassification
Workers classified as 1099 contractors who should be W-2 employees. This creates liability and is often caught in diligence.
Equity Accounting Issues
Stock compensation not recorded at fair value, or missing 409A documentation for option grants.
Revenue Recognition
Revenue recognition is one of the most scrutinized areas. Getting it right is essential.
SaaS Revenue Recognition Basics
- Monthly subscriptions: Recognize revenue in the month service is provided
- Annual subscriptions: Recognize 1/12 per month over the contract term
- Prepaid contracts: Cash goes to deferred revenue; recognize as service is delivered
- Implementation fees: Often recognized ratably over expected customer lifetime
- Usage-based revenue: Recognize as usage occurs
Common Revenue Issues
Aggressive Recognition
Recognizing annual contract revenue upfront instead of ratably. Makes revenue look higher but creates liability.
Missing Deferred Revenue
Not tracking the deferred revenue balance properly. Investors will want to see the schedule.
Documentation Matters
Document your revenue recognition policy in writing. Even if you're not following strict GAAP, investors want to understand your methodology and see that it's applied consistently.
Expense Organization
How you categorize expenses matters for calculating margins and demonstrating where you're investing.
Standard SaaS Expense Categories
| Category | What's Included |
|---|---|
| COGS | Hosting, customer support salaries, implementation costs, third-party software in product |
| R&D | Engineering salaries, product management, QA, development tools |
| Sales & Marketing | Sales team, marketing team, advertising, events, sales tools |
| G&A | Finance, HR, legal, facilities, insurance, admin tools |
Why This Matters
- Gross margin calculation: Requires accurate COGS categorization
- R&D tax credits: Need clear R&D expense documentation
- Benchmarking: Investors compare your expense ratios to industry standards
- Planning: Accurate categories enable better budgeting and forecasting
The Cleanup Checklist
Bank & Account Reconciliation
Revenue & Deferred Revenue
Expenses & Categorization
Payroll & HR
Compliance & Documentation
When to Start
3-4 Months Before Fundraising
Start cleanup. Assess current state, identify issues, engage help if needed.
2 Months Before
Major cleanup complete. Policies documented. Begin monthly close process.
1 Month Before
Final review. Data room populated with clean financials. Ready for diligence.
Related Articles
Complete Series A Readiness Guide
Everything founders need to know
Data Room Checklist
What investors expect to see
Due Diligence Red Flags
What kills Series A deals
Fractional CFO Guide
Get financial leadership
Need Help Cleaning Up Your Books?
Eagle Rock CFO helps startups get their financials audit-ready. We'll clean up the mess and get you ready for due diligence.
Get Audit-Ready