What Tech Entrepreneurs Are Asking Their Business Advisors
January 26, 2018
By Dave Plaskow
The technology sector certainly has its own pace, nuances and challenges. I asked John Pennett, the partner-in-charge of EisnerAmper’s Technology Group, about the three questions tech entrepreneurs ask him the most.
Q: John, what’s a question you often get from entrepreneurs in the tech sector?
A: The first is: What do I need to know about expanding internationally? In this instance, you really need to look at a few things:
- Determine if the overseas business structure will consist of subsidiaries, branch offices, outposts or some other format.
- Agree how cash will be distributed among them, for example through loans or equity contributions or via service agreements. You need to get money from here to there efficiently from both an operations and a tax perspective.
- Decide the documentation process so you’re meeting each country’s regulations. (This is where transfer pricing, cost-plus pricing and inter-company loans come into play.) You also want to put the company in the most advantageous tax position possible.
Q: How do you make those things happen?
A: You need a business advisor with a strong international network, tax-planning resource base, and track record of working with technology companies across the globe.
Q: How do you know you’ve succeeded?
A: At the end of the day, you’ll have an advisor who understands your business and has the expertise compatible with your goals and objectives.
Q: What’s another question you get a lot?
A: If I plan on having staff and operations in multiple states, how does that impact sales taxes and income taxes? Nexus is always a big issue. And as technology has become more cloud-based and states are becoming more aggressive in tax collection, this area has gotten much more complex (and risky). It really boils down to what constitutes nexus, and which sales are taxable. But this requires you to take a closer look at your deliverables, how you sell, your length of time in a particular state, and so forth.
Q: What should you look for in an advisor here?
A: You want that hard-to-find combination of deep and broad SALT expertise, together with a fluency in how data and technology products are delivered. This includes an understanding of contracts in areas such as software and servers.
Q: What’s the desired result here?
A: Both parties are focused on successfully maintaining compliance and minimizing risk in each jurisdiction in which the entrepreneur operates.
Q: And last but not least?
A: How can I raise more money? It’s certainly a question most companies can relate to. Entrepreneurs often start the investment process with friends and family. However, the next big step is convincing institutional investors to provide funding. The difference between these two steps can be astronomical.
Q: So what would entrepreneurs need from a business advisor at this critical step in the tech company life cycle?
A: I see the advisor as part matchmaker and part devil’s advocate. Our capital market specialists can certainly refer you to the appropriate individual and group investors. But the process starts well before, with us preparing you to be in the best position to succeed when you get to that investor meeting. We’ll help:
- Refine your pitch.
- Review and adjust your projections.
- Select funding sources who represent the best fit and, hence, the best chance for investment success.
Q: And the devil’s advocate part?
A: We’ll try and poke holes in your balloon first, so you are prepared when investors ask their probing questions. We’ll challenge you to articulate things like why your product is different, who you ideal partners are, and your thoughts on an exit strategy.
Q: What’s the key here?
A: Because staying ahead of the pack is so difficult in technology, your advisor really needs to establish a mindset of not just where you are now, but what you could become. You and your advisor also need to candidly discuss both opportunities and challenges. These are the types of things investors want to know.
Q: What’s the common thread through all of this?
A: The technology sector moves fast, which means entrepreneurs have to continually adapt. Where business advisors add value is knowing your business and its evolutionary changes, and by establishing a framework for success in that environment.