When a company is in its early phases, a good accounting advisor can help with the decisions and strategies that will impact the future success of the business.
Starting (and growing) a business is tough, we all know that. Access to capital, attracting the right talent, technical challenges of building your product/service, finding that ever-elusive customer base … these are all significant challenges that early-stage entrepreneurs face.
In Atlantic Canada, there are many collectively working to build a startup eco-system to support and help grow burgeoning startups into great companies, and firms of independent accounting professionals have a role to play in that eco-system. The goal for an external accounting advisor is to recognize the clients’ entrepreneurial vision and provide support so they can achieve financial and business success. From the initial start up to maturity, consider engaging a firm that can help the business today and into the future, scaling services to accommodate the characteristics of successful, rapidly growing businesses.
In the early-stages of any business, there are some key areas where an external accounting firm can help startups succeed:
- The first advice that many external accountants can offer startups is understanding what’s involved in claiming Scientific Research & Experimental Development (“SRED”) tax credits (a cost-recovery program delivered through the tax system, including refundable tax credits regardless of whether the company has taxable income). A good accounting advisor can help prepare SRED (and other tax incentive) claims, as well as help shepherd the startup through the government review of the claims.
- While many startups are reluctant to spend time and effort on administrative details like bookkeeping, the reality is that such tasks are a necessary compliance effort that allows for other financial options (for example, without bookkeeping, a company cannot produce a corporate tax return that is a requirement for receiving SRED funding). Other administrative tasks (such as payroll deductions) can result in significant penalties if not deadlines are not met. Given the cash-strapped nature of most startups, up-to-date bookkeeping can help founders manage cash flow and burn rates. A good external accounting advisor will help its startup clients set up a basic bookkeeping structure and facilitate an internal/external source to provide that service.
- Since the planned trajectory for most startups is a period of rapid growth ending in some type of exit (typically a sale), the founding entrepreneurs often need tax planning advice around the structure of their ownership. For example, since every individual has a lifetime tax exemption upon the sale of shares, founders should consider available tax strategies to multiply that exemption (such as a family trust).
- At year end, every company must file a corporate tax return to report the financial results for the year (if for no other reason than to access the SRED funding). Most external accounting advisors can help startups produce the financial statements required and process this corporate tax return. As a startup progresses, some investors will require external accounting communication on the year end financials (such as a review engagement or an audit) that can only be provided by external accountants.
- Valuation is a common topic of discussion as startups raise capital. A good external accounting advisor can help entrepreneurs engage in valuation discussions by arming them with current valuation multiples relevant for their industry sector.
- As startups grow, they inevitably need tax advice on matters, such as commodity taxes in other jurisdictions and corporate structures to optimize income taxes.
The goal of most firms of accounting professionals is to become a trusted business advisor to their clients, including startups, such that the external accountants bring valued-added advice in each major business decision and milestone.
To learn more about how BDO can help, please go here or contact me at email@example.com or 902 444 5540.