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We're sharing a guest blog post from Sonia Nagar on the accounting basics for marketplaces. This was previously shared on Sonia's Substack here and also as a post in the community here.
Accounting might not be the most glamorous part of building a marketplace startup, but it’s one of the most important. A solid accounting foundation not only helps you operate more smoothly day to day—it also becomes critical when it’s time to raise capital, navigate audits, or prepare for an exit. The earlier you set up a clean, functional financial foundation, the easier everything else becomes—from understanding your burn rate to raising capital or preparing for due diligence. This post is a simple guide to what marketplace founders should do in the earliest stages to avoid messy books, missed insights, and costly cleanup down the line.
When it comes to bookkeeping and accounting software for marketplace startups, there are several strong options depending on your stage and complexity. QuickBooks Online is the most popular choice for early-stage companies due to its ease of use, affordability, and broad integrations. For startups with more complex needs Xero and NetSuite are worth considering. If you're looking to fully outsource bookkeeping, firms like Pilot, Bench, or Finta offer tech-enabled services tailored to startups, often including monthly closes and investor-ready financials. For marketplaces with lots of transactional volume, it's also helpful to integrate tools like Ramp or Brex for expense management, and Gusto for payroll.
A chart of accounts (COA) is a structured list of all the financial accounts your company uses to record transactions in its general ledger. Think of it as the backbone of your accounting system—it organizes every dollar flowing in and out of your business into categories like:
Having a clean, well-structured COA is crucial for accurate financial reporting, budgeting, and making sense of your startup’s performance—especially when talking to investors or preparing for diligence.
Here’s a sample chart of accounts for a typical early-stage marketplace.
Accrual vs. cash accounting refers to two different ways of recording revenue and expenses in your books. Here's a quick breakdown:
You record revenue when you receive cash, and
Example: You sell a service in January but don’t get paid until February. In cash accounting, that revenue shows up in February.
Pros:
Cons:
Example: Same as above—you deliver a service in January, get paid in February. In accrual accounting, the revenue is recorded in January when it was earned.
Pros:
Cons:
While many early startups default to cash basis accounting, accrual gives a clearer picture of your financial health. Accrual accounting records revenue when earned and expenses when incurred—not just when cash changes hands. This matters when analyzing contribution margin, matching platform revenue with related expenses, and preparing for investor diligence.
The cash conversion cycle (CCC) measures how long it takes from when a marketplace facilitates a transaction to when it actually has access to the cash from that transaction. For B2B marketplace founders, understanding and managing this timeline is crucial—especially when payments flow between buyers, sellers, and the platform. Factors like payment terms (e.g., net-30 invoicing), payment processor delays, and seller payouts can stretch your CCC and create cash flow bottlenecks. A long CCC can put pressure on your working capital and limit your ability to reinvest in growth, even if your revenue looks strong on paper. To manage this, track metrics like Days Sales Outstanding (DSO) to measure how long it takes to collect from buyers, Days Payable Outstanding (DPO) to monitor how quickly you’re paying sellers, and your net cash conversion cycle to understand overall timing. Tightening this cycle—through faster collections, prepayment models, or negotiated payout terms—can be a powerful lever for improving liquidity and scaling sustainably.
A trick: Set up separate cash flow tracking that reconciles to your P&L monthly. Try a simple three-bucket system:
Advanced tip: Build a rolling 13-week cash flow forecast that accounts for seasonal payment timing, refund patterns, and payout schedule changes. This can alert you to potential cash crunches (that ironically can be caused by rapid growth).
The basics you need to know:
The practical approach:
The costly mistake: Waiting until you're "big enough" to worry about sales tax. We've seen marketplaces face six-figure back-tax bills because they didn't track state-by-state sales from the beginning.
Most marketplace founders spend weeks closing their books each month. Here's a suggestion for a streamlined process that gets you to a 3-day close:
Day 1:
Day 2:
Day 3:
Automation tip: Most of this can be automated. Invest in proper accounting software integration early—it pays for itself.
DIY phase (0-$1M GMV): QuickBooks + a marketplace-experienced bookkeeper
Growth phase ($1M-$10M GMV): NetSuite + fractional CFO who understands marketplaces
Scale phase ($10M+ GMV): Full accounting team + nationally recognized audit firm with marketplace experience
The most expensive mistake: Trying to save money on accounting help during rapid growth. Clean books become exponentially harder to fix as transaction volume increases.
Good accounting enables better decision-making, smoother fundraising, and easier exits. Get it right early, and you'll thank yourself later.
Let me know if you have any questions in the comments below and please also share any accounting tips or recommendations that you might also have for others.
You can connect with Sonia to discuss this post in the Everything Marketplaces community here. A big thanks to Sonia for also being active in the community, where she is often sharing her marketplace experience, insights, and helping earlier stage founders.
