By: Buck Hollister
The need for a business tax consultant and attorney in Austin
Why do you need a business tax consultant and attorney in Austin? There are two professionals every successful business will need early on: a CPA and a lawyer.
The reasons for hiring a CPA include:
- Helping you plan out projected financial statements showing how much money your business strategies will cost to execute and at what point you may need external debt or equity financing, manage budgets and value the price per each unit of equity interest (e.g., share for corporation, membership interest for limited liability company);
- Helping you set up your “chart of accounts,” review your numbers periodically and prepare all necessary federal, state and local tax returns; and
- Providing guidance on suggested tax strategies that are attractive to prospective external debt and equity investors.
Having a business attorney is also essential. It can:
- Better position you to manage risks;
- Help keep the business and its key principals out of trouble and in a safe zone; and
- Address all critical business issues.
Plan early for success
For example, issuing equity to the early team often triggers time-sensitive filings with the IRS. Successfully commercializing a product or service depends upon clean and clear lines of intellectual property ownership. Raising outside financing requires compliance with complex securities laws. A misstep on any of these items could mean an early exit for a startup company (and not the good kind). If one of your team members is an attorney, he or she can help navigate these and other common set-up requirements.
Lawyers – particularly corporate transactional lawyers – have exposure to the types of deals and the associated risks a startup will face. The dynamics between a CEO and/or founder and the company investors, board of directors and board of advisors are a function of the legal arrangements articulated in the financing agreements. The relationship between a company and its customers stems from a license agreement governing how users may interact with a product. Partnering with a larger company in a similar industry can, in the best case, open new markets or, in the worst, box a company into a corner, severely limiting options for growth and eventual acquisition. Lawyers understand these transactions and the perspectives of the negotiators.
Having a lawyer as one of your team members at the startup stage of the company life cycle enables you, the entrepreneur, to select the right business entity, determine the right company structure for both domestic and international plans (if that option is in your book of entrepreneurial cards) and effectively manage the growth of your business. This is far better than always being in a reactive, damage-control position.
The issues highlighted above are especially crucial to not only successfully launching a business but also to managing the growth of the company to achieve the entrepreneur’s objective – typically a successful exit. I have seen entrepreneurs fail in their business endeavors because they did not take the time to find the right CPA and attorney to help them. Two examples illustrate this point: one on the CPA side and one on the legal side.
Don’t pay the consequences
Don’t take any chances by not hiring an Austin CPA. One company tried to execute a business strategy without involving a CPA to help it financially plan out how to price its service and plan for how much external financing (money) would be needed and at what points financing would be needed. This resulted in the company losing customers when it came time to re-negotiate higher prices because the company was hemorrhaging cash. The company was also at a disadvantage with other customers that had acclimated to the initial low price offering but with no expectation prices would later be increased. The company needed financing sooner than anticipated and the founders ended up giving away more of the company equity than it had planned because of a lower valuation to third parties providing financing, despite extensive sweat equity put forth on the business. In the end, the founders did not have much financial return to show for their efforts. With the right financial planning, however, a different end result might have happened.
The other example is of a startup company that developed proprietary cutting-edge software to help streamline its sales process. The company intended to license its software on a non-exclusive basis to a wide variety of global customers. The only problem was that the initial customer agreement, which was not subject to legal review and while seemingly beneficial to the company, referenced assignment of the company’s intellectual property rights to the customer and not a license. This language effectively assigned ownership of the company’s intellectual property rights to the customer, effectively precluding the company from licensing to third parties. The customer did not want to renegotiate terms. If the company had engaged an attorney early on the attorney could have drafted a licensing agreement that would have enabled the company to retain its intellectual property rights, license those rights to third parties and yield an outstanding return to company founders.
Bottom Line Walkaway Point
It does take a village of people to successfully launch a business and manage it to an exit. If you want to be a wise and successful entrepreneur and help minimize your pain points, it is critical to include a CPA and attorney early on in your village of people. Feel free to reach out to me if you would like to discuss these issues in further depth. We hope this article answers any questions or wonder as to why you would need a business tax consultant and attorney in Austin
About the Author
Buck Hollister is an attorney and CPA having broad breadth and depth of experience working with start up, emerging growth and established companies in both the legal and financial roles. When providing these services, Mr. Hollister draws on his experience as an investment banker, securities litigator, corporate venture capital legal counsel and legal counsel to clients requiring legal and financial support for their domestic and international growth strategies.
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