US/ German Startup Differences – Accounting

It should come as no surprise that Germany has different accounting and financial requirements than the US.  As neither an attorney, nor CPA, nor tax consultant, I try to limit this post to a general background on some of the issues that Americans will experience with German accounting which may differ from their previous experiences with GAAP.

Generally speaking, the culture in German is much more oriented towards Managerial Accounting (“Controlling”) rather than financial accounting.  Midsized companies have shown a greater willingness to invest in controlling mechanisms like ERP and more detailed analysis of cost centers than their American counter parts. (Source)

To understand the actual differences in the required financial principles, we start with a short background of the key components in Germany. The basis of German commerce laws is the Handelsgesetzbuch (HGB—the German Commercial Code).  Section 243 (1) of the HGB declares that financial statements must be setup following the Grundsätze ordnungsmäßiger Buchführung (GoB—German principles of proper accounting).  However, the standards are not explicitly defined within the GoB, but rather assembled based on multiple sources and principles, including statutory laws on tax and corporations, as well as external sources like the IFRS.

Some examples:

  • Revenue recognition can be a key difference between US GAAP.  For example, under IFRS, if a company has a contract with a customer but there is not a guaranteed payment, then revenue recognition is differed until collection.
  • Customer Loyalty programs are another area of difference.  For example, if free samples or gifts are recognized as marketing expenses, and when.

Extensive analysis from PWC available here.

KPMG also has a good guide of the differences between the IFRS and the HBG here.

And finally, a handy translation guide for some accounting key terms:



As an investment manager at a large VC firm in Germany, I find myself answering many questions from start up founders on my experiences and thoughts on how VC and start ups work.  These entries are intended as a way of addressing some of the most commonly asked questions as well as any other random thought I have which I think might be helpful for others.

There are already many, many blogs out there on the VC world – I know, I read many of them daily.  As a venture capitalist working in Germany, I will try to address some of the particulars of German and European venture capital investing, while still keeping it interesting enough for other audiences.  I don’t mean this to be limited to just German start ups.

I believe my perspective is a bit unique on this.  Together with my cofounders I successfully founded a hardware (WiFi) company in the US (I am American) out of my dorm room in 2005, and stayed with it until 2010, in the meantime going thru several VC due diligences and one Angel Round and one VC “seed” round.  The company is still going strong, but I was ready to try the other side of the table, so when I was offered an investment manager position at a VC firm in Germany, I jumped at it.

This means my perspective on venture capital is from both the start up and venture capital side, as well as being both US and German.  There are alot things that are radically different from the two systems, from both a legal and cultural stand point.  When German founders are reading the wealth of information about starting a company, much of this literature is US-based.  It can be confusing to try to understand how vesting would work with a German GmbH (it can’t without some really convuluted legalese) or if anti-diluation protection is important (German statues for GmbHs make it all but redundant unless we’re talking about down-round protections).