When Should Your Startup Switch from Cash to Accrual Accounting?

Eimservices29 Oct, 2025Other

The Problem: As a startup founder managing cash-based accounting, investors are requesting accrual reports. Your contracts span multiple months. Your revenue recognition feels increasingly misaligned with reality. You know you need to switch, but when, and how, without disrupting operations? The Solution: According to EIM's experience with Canadian and international startups, the transition point is clear: switch when complexity outgrows simplicity. Specifically, when you're signing multi-month contracts, managing deferred revenue, or reporting to investors on a regular basis. Timing Indicators: After your first successful funding round Once annual recurring revenue (ARR) passes $500K When preparing for due diligence or grant applications When day-to-day cash snapshots no longer reflect true financial performance