Recording money from founders and investors
How a start-up records money put in by founders or investors, as share capital or as a loan, from the bank line to the approved journal and the file.
By Achekam · · 4 min read · For Software (SaaS) businesses in South Africa, Nigeria, Kenya
In the early life of a software company, money arrives from people rather than customers. A founder transfers savings to cover the first cloud bills. A co-founder's parent lends the company money to pay a developer. An angel investor wires the first cheque under a signed subscription agreement. A seed fund follows.
Each of those deposits looks the same on the bank statement, and each one means something different in the books. Get it wrong, and the balance sheet shows debts the company does not owe, or hides ones it does. Untangling it a year later, in the middle of a funding round, is painful. This article sets out how to record founder and investor money correctly from the first rand, naira or shilling.
Equity or loan: decide before the money lands
There are two basic kinds of money from owners and backers.
Equity is money paid for shares. The company issues shares to the person, they become a shareholder, and the money is not repaid on a schedule. It belongs in equity, as share capital.
A loan is money the company must repay. It may carry interest or not, and it may be subordinated to other creditors, but it is a liability. Founders often lend the company money in the early months before any shares are formally issued for it.
Some instruments sit in between, such as convertible notes or agreements for future shares. How those are recorded depends on their terms, so ask your accountant before the first one is signed.
The point is to decide which kind each deposit is, in writing, before it arrives. "We'll sort it out at year end" is how founders end up with a loan account nobody can explain.
Accounts for share capital and shareholder loans
Each business in Achekam has its own double-entry ledger with a standard chart of accounts, and accounts can be added, renamed or switched off. Set up, with your accountant's agreement:
- a share capital account in equity, and any further equity account your accountant wants for amounts paid above the shares' nominal value, depending on your company law;
- one loan account per lender in liabilities, named for the person, such as "Loan from founder A" or "Loan from director B".
Separate accounts per lender matter. When one founder leaves, their loan balance needs to be visible at a glance, not dug out of a shared "shareholder loans" account.
Matching the deposit on the bank statement
Import the bank statement as PDF, CSV, Excel, OFX, QIF, MT940 or CAMT.053; each import is checked so that the opening balance plus the movements equals the closing balance. The investor's transfer appears as a line.
Because the deposit is not yet in the books, it becomes a suggested journal for a person to approve, and the reconciliation completes only once every line is matched or explained. Point that line at the right account: share capital for a subscription, the named loan account for a loan.
Check the reference on the bank line against the agreement. Investors sometimes pay from a holding company or a trust rather than in their own name, and the agreement should say so.
The journal a person approves
For a straightforward share subscription paid in cash, the entry is:
- debit the bank account with the amount received;
- credit share capital, and any agreed further equity account, with the same total.
For a founder loan, the credit goes to that founder's loan account instead. Either way, a person approves the journal before it posts. A journal that does not balance is refused, and so is one dated in a closed month. If a journal turns out to be wrong, for example a loan posted as share capital, it is corrected only by a reversal and a new entry, so the history stays visible to anyone reviewing the books later.
Write a useful description on every one: the investor's name, the agreement's date and the number of shares or the loan reference. That description is what a due diligence reviewer reads first.
Keeping the signed agreements with the entry
Document Centre is a folder-based store where a business uploads, previews, renames, moves, tags and searches files, and a new version keeps the earlier ones. Create a folder for each round, file the signed subscription or loan agreement there, and tag it with the investor's name. Then put the document's name in the journal description, so the entry and the paper point at each other.
The legal records themselves, such as share certificates and the share register, are your company secretary's or lawyer's responsibility. South African companies can see the records the Companies Act requires every company to keep, including the share register, on CIPC's company records page. Nigerian and Kenyan companies should ask their lawyer what CAC or BRS needs when shares are issued. When the round comes, these files go straight into your due diligence folder.
Checking the balance sheet afterwards
After posting, run two checks:
- Trial balance. The trial balance shows each account at a date and says whether debits equal credits. Look for the new share capital or loan balance and confirm it matches the agreement.
- Balance sheet. Management accounts show a balance sheet at period end. Equity should rise by each share subscription; liabilities should rise by each loan. If a founder's loan appears in equity, or an investor's subscription in liabilities, fix it now with a reversal.
Investors will read this part of your balance sheet closely in every monthly update, so it pays to keep it clean.
A rule for the founders' channel
Agree one rule between the founders: nobody puts money into the company account without first telling whoever keeps the books whether it is a loan or for shares, and sending the signed paper. That one message saves an argument at every year-end and every funding round that follows.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
