Every startup looking for funding needs an accountant?
But what kind of accountant do you need? Let’s find out…
What you don’t need…
1. You don’t need a top 5 accountant.
This is an accountant from a large accountancy practice who mainly work with complex international businesses in order to remove any corporation tax liability or meet auditing or public company reporting rules. The example of firms such as Google and Starbucks and firms that can move money around the world to avoid tax come to mind. Well, you don’t want an accountant from a big firm that works with this kind of business.
2. You don’t need an hourly rate
As a startup, managing cashflow is a key challenge. So, to help manage any unexpected surprises, make sure all agreements are based on a fixed fee.
3. You don’t need complex tax solutions
Again, your primary aim is not mitigating tax, it is raising money and growing a successful business. Hence, complex tax solutions are not going to be a reason to select an accountant.
What you do need…
Most startups engage an accountant because they want someone who can help them to pitch and raise finance.
4. Seed EIS or EIS knowledge
In the UK, tax breaks for business angels is significant – typically between 30% and 50% of the money invested is returned via the tax system. Therefore, your accountant must understand the legislation to ensure that both your business qualifies at the outset but also avoids anything that might cause it to miss out on the tax breaks.
5. Someone to challenge you
Startups and early stage businesses are different. They are based on a lot of assumptions (sometimes hopes) and only a little real evidence.
Hence, a key part of building a business plan is working with an accountant who can challenge some of your business assumptions.
Thus, key to this process will be a good working relationship with your accountant. So, do you like and respect each other? If not, then keep looking for your accountant.
6. Create simple and clear business plans
An accountant once apologised to me for creating such a long business plan with “I’m sorry this is such a lengthy plan, I didn’t have time to write a shorter one”. Remember, it is a special skill to be able to present the financial information in a simple, clear yet credible fashion. This will be a critical skill that your accountant will need. So ask to see some examples.
To keep costs down, you probably want an accountant who is local to you – or at least in your region. This helps to reduce travel costs or the costs of sending paper files, however, this is not insurmountable, so
8. Bookkeeping and tax returns
Once incorporated you will need to file tax returns. If you are vat or sales tax registered, then you will need to file more often – typically quarterly. This is where an efficient accountancy service can take a significant burden off your shoulders. Alternatively, you can help yourself and your accountant by maintaining good records either on a spreadsheet (if you are capable and efficient or better still, via accountancy software such as quick books).
9. Fixed and Flexible Fees
Accountants fees are often flexible and many firms take the view that they would rather take on more clients with high potential and take a risk on the fees than miss out on potential future business. Therefore, you should be able to negotiate fees that work for you and your accountant. However, whatever you do agree, make sure it is a fixed fee so that you can budget.
There are two ways to search for an accountant. First, ask other entrepreneurs and startups to see who they can recommend. Secondly, conduct an internet search using an online service to get quotes from local accountants.
A key question to ask a potential accountant is about their experience of creating cashflow forecasts.
Why? Simple, most early stage businesses go bust because of cashflow than any other reason. Hence, a cashflow forecast, which is sound and as accurate as possible, is critical to managing your startup or high growth business. In fact, any wise business angel who is looking at investing in your business is going to ask to see the cashflow forecast first.
Also, until you have a realistic cashflow forecast, it is impossible to say how much money you may need to raise.
12. Fund raising route
Lastly, fund raising routes require different presentations and levels of complexity. Ask your accountant which he or she is most familiar with and then see if that matches your expectation of where you’ll find your funding. For instance, do they know about equity crowdfunding or raising money via VCs or business angel networks?
For most startups the role of ‘accountant who does the tax returns’ and ‘finance director who manages the cashflow’ will get merged into one role. This is simply because the startup has only a little real accounting work to do (raising invoice, collecting cash, paying bills) but a lot of work to raise funds. At the same time, the cash limitations on the startup mean that you can’t afford to pay for both services.
Perhaps, therefore, the most important factors will be likeable and trust? Do you like and trust each other? If so, then most other things will fall into place.