Some of the most common questions that I have received by startup clients revolve around fundraising, organizational structure, and tax compliance. On fundraising most questions revolve around raising capital in the early stages without losing a large part of their equity in the business. They want to understand how SAFEs, convertible notes, and preferred stock rounds would impact their overall ownership, control, or dilution. Another question I encounter often revolves around organizational structure, where clients are not certain whether they should operate as an LLC or a C-Corp. They want to learn more about the entity structures and limitations when raising capital. Tax compliance is often the subject of discussion as well. Client's major concerns are determining how to structure their entities to lower tax obligations. Especially in the early stages, large tax liabilities will prohibit clients from staying afloat when operational expenses are large. Therefore, strategizing ahead helps clients avoid large tax bills and purchase assets or conduct R&D activities that are both beneficial for growth and lower tax liabilities.
We get a lot of questions from law firm owners about cash flow and payroll timing. Questions like, can they afford to hire an associate? Can they pay themselves consistently without putting the firm in danger? That's especially true for law firms, because revenue comes in waves. You might settle a case and get a big check, but that doesn't line up neatly with ongoing payroll. When fundraising does come up, the question is usually: how do I even talk about my firm's value? Law isn't like a tech startup with predictable multiples. So the advice I tell them is to keep their books and track revenue per lawyer, track client acquisition costs. As for compliance, law firm founders especially want clarity on IOLTA trust accounting and making sure client funds are handled exactly right. A mistake there can put the entire practice at risk. What I tell founders is that payroll, bookkeeping, and compliance are the foundation for growth. If your books are airtight, everything else. Then you can raise capital and make hiring decisions a lot more clearly.
Jumping in from the UK as an ACA certified accountant as I guess the startups have the same problems all over the world. People start businesses at many different stages of life, and experience, so the questions we get asked range from very basic to pretty complex The most common ones are: What is legally required of me - in terms of my business? How should I keep my records? Do I need to keep the actual paper receipts? What expenses can I claim? How do you get funding? What is my company worth? How do I know how much to give an investor in my business? Should I set up payroll? How do I set up payroll? Although in some cases these might seem silly, but it's better to answer them right at the start, than letting them go their own way, because answering these questions saves a lot of headache later on.
Accounting Beyond Numbers As a Certified Public Accountant, startup founders often approach me with the same three questions. First, "Is this weird thing tax deductible?" The answer is usually "yes" if it's for business purposes. Second, "What's my burn rate?" Most startup founders can't accurately answer this until delayed by the investors asking. Third, "How do I do equity compensation?" Stock options reset your tax economic models and create fallout if 83(b) elections aren't made. The real issue isn't bookkeeping but it's cash flow forecasting. Most founders assume that accounting is recording what happened. The smartest founders do accounting to preemptively predict what will happen next. As a professional, I'd say that good accounting prevents disasters. Great accounting creates opportunities that the competition doesn't see.
Fundraising is one frequent question of concern building on a wide range of founders seeking tips on the most effective way to find finances to fund his business. The issue of valuation also appears to be a common one since the founders attempt to comprehend the value of their company, as well as how to identify a reasonable price of equity offerings. Payroll and bookkeeping are also popular issues and founders are seeking answer as to how to manage compensation to employees and maintain proper financial accounting. Lastly, is regulatory requirements where a startup is always at the top of my mind when I am asked about compliance to laws of this nature concerning the set of taxation, license and reporting among others.