How Start-up Businesses View and Use Accounting in Early Year Operations

Abstract

This research analyzes how start-up companies implement accounting in their early operations and if that use of accounting (or lack thereof) has played a role in acquiring funding. Prior research shows that the quality of financial statements positively affects investing efficiency for companies in emerging markets (Chen et al., 2011). In this paper, we evaluate the hypothesis that start-ups using financial statements more extensively receive more outside funding than their counterparts. This was tested with a 27-question survey broken into three sections: demographic, accounting use, and financial information. There were 44 participants. The typical start-up profile is 5-6 years old, employs ten people, and identifies in the technology industry. Approximately 75% of participants reported using financial statements. While mostly viewed positively, some participants feel strongly against using standard accounting practices. Results showed companies who use financial statements more often reported a higher percentage of debt and investment funding received than those who used financial statements less frequently or not at all. In conclusion, accounting helps start-ups communicate higher quality information to investors, thus leading to a better chance of receiving capital investment/debt financing. This sample selection was not chosen randomly and is not a statistical depiction of the entire population.