The tech journey

A shareholder agreement is a document which sets out in writing the relationship between shareholders and the company. It will cover many eventualities, but will typically cover things such as dividend policy, process for any joining and leaving shareholders, agreed principles of valuations etc. Whilst it is arguably vital, there is no legal requirement to produce one, yet this one document set up correctly at the start of the company’s life can prevent major disputes.

At the commencement of a new tech start up, the initial shareholders will often be friends or relatives with agreed principles of what they want to achieve. In those early days, everyone has the same goal and generally will work together harmoniously. However, as time goes by, conflict between shareholder objectives or a change in focus as new tech is developed can lead to significant disputes. A body of people previously good friends and united by a common goal can quickly become anything but friendly! Without a shareholders agreement to act as arbiter, there is more often than not, no documented way of resolving disputes and at this point. The common outcome is stalemate; a company which cannot move forward and some very expensive legal bills!

Why UHY?

Our tech experts will ensure you consider the importance of this document and can help make sure that all parties sign up to it at an early stage in the lifecycle. We can bring our experience of potential pitfalls and help you to set out a robust document, to be agreed with your solicitor, that will ensure there is a sound agreement that will minimise disruption to your company in the event of a dispute.
 

Tech start-ups will need to prepare a 'pitch deck' to showcase their company’s business idea, and of course the people behind it. This is used primarily for prospective investors, customers and strategic partners in order to articulate the opportunity and business model through an engaging and interesting story of your journey so far and the road map ahead.  

If you can provide a compelling story then interest may well shift to your underlying technology, although this will be a key component and where you may want to dive into the detail, it’s important to remember it’s only one of the key elements that will make your business successful. 

The pitch deck should intentionally be short, as more detailed information can always be provided later. The goal is to be able to communicate your proposal succinctly and in a manner that anyone can understand whilst building credibility with your audience.

Why UHY?

Raising capital and winning new customers can be difficult, time consuming and complex. Missing opportunities by not being properly prepared can be costly to the business in many different ways. 

UHY can advise you by reviewing your pitch deck, ensuring you have the right content, giving you comment and guidance along the way, whilst ensuring you maintain a professional approach. 

We aim to look at the business afresh and provide an external view perspective asking some fundamental questions such as:

•    can you show your target market is big enough?
•    how will you make money?
•    what is your ask from the coming meeting? 

Having a pitch-deck to hand, which is practiced, and rehearsing anticipated questions ensures you are fully prepared – even when called upon to present at short notice. 

We are here to help and can assist you further on your business plan and financial forecasting if required. 
 

One major feature of tech companies is that the cradle to grave evolution of the business tends to happen in a very short time period, which means that new tax issues and requirements become a constant feature of your growth.

At each stage high quality tax advice is therefore a necessity to ensure that all reliefs are claimed wherever possible, from EIS relief on raising finance, use of EMI share options or other share incentive schemes to help retain and incentivise your key employees, maximising R&D tax credits on all possible innovation costs (including some that are not always that obvious) and getting the best possible cross border advice when you go international.

As well as ensuring you take advantage of claiming and maximising all of your tax reliefs, we also want to ensure that you do not run the threat of incurring corporate or even personal penalties. These can be levied by HMRC for not complying with all of the numerous and ever-changing tax reporting requirements that are now part and parcel of running a business.

Why UHY?

We partner with you to ensure a joined up service all of the way through your journey. By ensuring we have continual update meetings with you, we can spot the tax issues and opportunities that arise at each stage. We will also ensure you remain fully compliant with any reporting requirements. 

We can help put in place defence mechanisms such as facilitating risk assessments  for dealing with, for example,  the Criminal Finances Act 2017 (affects all companies), the Senior Accounting Officer requirements  (groups turning over more than £200m), and even for the new cross border reporting under what is known as DAC 6 (all companies in involved in cross border transactions).

We aim to help you manage your tax liabilities and requirements all of the way and will be at your side when that hoped-for exit route finally arrives by ensuring your optimum structure is already in place to reduce tax liabilities and we will be on hand to deal with all of the tax aspects of the sale for you.

After the sale, you will have new tax issues and opportunities and we shall be there to help guide you on this new path, including dealing with your inevitably more complex tax return, providing inheritance tax advice and advising on any new business ventures (once a tech entrepreneur, we tend find that you always are).

A cap table can be described simply as a record of the share capital that has been issued, with details of who owns those shares. As a company grows, the cap table can become more complex and can be expanded to include the impact of options, new rounds of shareholdings and changes in share classes to name but a few.

It is important that at all times a company is able to identify all shareholders and have up to date information; there may be circumstances where a course of action needs a certain percentage of shareholders to approve the proposal, or there might be a round of funding that requires approval by a certain class of shareholder. If the cap table is not up to date, the company could lose out if unable to contact the required shareholders. 

Why UHY?

An accurate cap table is often something that is overlooked. We can provide an outsourcing solution to ensure the cap table is maintained and update regularly, ensuring shareholders can be easily traced should a rapid decision be required.
 

Cash flow forecasting is essentially predicting what the company expects to physically receive and pay out over a given period of time. A cash flow is incredibly important, to have the knowledge and understanding of what your cash runway and cash burn will look like, so you can make key business decisions. This is all the more vital to tech companies, particularly those in pre revenue, or certainly pre profit generation, phases.

More than 45% of start-up companies do not prepare a cash flow forecast and the absence of such information can often be linked to failure of such businesses. When embraced properly, a cash flow becomes the back bone of a company’s financial reporting and decision making.

We recommend starting with a 13 week rolling cash flow which is updated on a weekly basis. This will ensure you always have visibility of your cash requirements for the quarter ahead to allow for plans to change as needed.

Why UHY?

We work alongside tech companies to support them achieve their growth plans by helping to build out their budgets and forecasts, including posing relevant questions to facilitate the setting of realistic assumptions and, where appropriate, the use of scenario planning to illustrate the difference in potential outcomes through changing certain key variables. 

Our team work with a range of tech and high growth companies and are able to apply their specialist knowledge of the sector to add real value to the process and ensure delivery of a robust management tool. 

Attracting, retaining and motivating talent is a constant challenge for tech and high growth businesses. Until larger funding rounds are closed, cash can sometimes be tight and this creates a practical constraint in the salaries that can be offered to key team members. So, a long term incentive plan (LTIP) that includes equity rewards or deferred cash rewards can be a really powerful tool. Moreover younger parts of the workforce are keen to understand, and engage with, a company’s vision and the prospect of being in an actual ownership position is likely to be a big factor for them in deciding who they want to work for.

Why UHY?

We offer a wide coverage of the most popular types of LTIP. We work closely with our clients to understand the key objectives for the plan, and then help to design, implement and maintain their LTIPs.

The default choice of LTIP is the Enterprise Management Incentive (EMI) scheme. As well as offering attractive tax advantages, an EMI scheme can be targeted at a few key individuals and can offer flexibility in areas such as how and when option shares vest in those individuals. You can read more about what’s involved in our guide.

Growth shares schemes have also increased in popularity in recent years (sometimes in conjunction with EMI schemes). Here, employees only participate in growth in equity value beyond what might be called an equity hurdle.

There may be good reasons why an equity based LTIP is not the right solution, and where that’s the case, a Phantom Share Plan can be used to get minds collectively focused on building equity value without equity ever actually being issued.

If you would like to discuss the alternatives available to your business, please get in touch with your normal UHY contact or contact one of our technology sector experts using the Let’s talk form below.

In fast moving tech companies that are encountering sustained growth, it is key that the founders and senior team members are fully focused on bringing their business strategy to life whilst effectively managing their external and internal stakeholders.  In focusing on ‘guiding the business’ and ‘getting the business’ it is often the case that ‘running the business’ can be deemed to be the lowest priority and the first to fall by the wayside.

Why UHY?

Our team of qualified advisors are experienced in dealing with a wide range of technology companies and are aware of the challenges faced by business owners and senior management teams.  We are well versed at providing an outsourced CFO and/or finance department using cloud-based accounting software to ensure that books and records are kept accurately and up to date and ensuring that deadlines, including payroll processing and VAT submissions, are met.  

We help business owners understand both the historic numbers and forward-looking forecasts to help advise them on strategic planning matters to grow their business.  We are seen by our clients as trusted advisors and advise founders and owners of technology companies across the lifetime of their journey, from setting up the company to helping them to plan their exit.

Our Business Advisory and Accounting pages show a range of services that we can offer to a growing Technology company.  This includes, but is not limited to, Interim Management, Accounting Outsourced Services, Payroll & book-keeping.  To find out more, please speak to your usual UHY contact or to one of our technology sector experts using the Let’s talk form below.

Over recent years, we have seen businesses come under increased regulatory pressures to ensure appropriate corporate values are in place in businesses.  In a fast moving, growth situation as often experienced by technology companies it is paramount that the founders, board and/or investors know and understand the underlying financial position of the company and that a forum is in place to discuss the relevant key financial and non-financial metrics.

Why UHY?

As advisors to technology clients of all shapes and sizes we have experience of advising on governance matters and are aware of issues that can arise at all stages of the business lifecycle.  We advise boards by producing meaningful management report packs based on accurate data and ensure that relevant this data is available in a consistent and easy to digest manner. 
We are cognisant of key financial and non-financial metrics and are well versed in advising and assisting board members to make the strategic and tactical decisions necessary to help grow Technology companies.

Our Corporate Governance page gives further details on some of the ways we could help your business.  Our annual Corporate Governance Behaviour reviews can be found here.  Please speak to your usual UHY contact or to one of our technology sector experts to find out more.
 

An audited set of annual accounts contain an independently provided report to say that the financial statements presented show a true and fair view. Only a registered auditor is permitted to provide such a report. Certain companies which fall below the statutory limits can take exemption from the requirement to produce audited accounts. However, just because a company can claim exemption doesn’t mean it should.

An audited set of accounts will give a high level of creditability to the company accounts, especially if the audit report is from a top 20 firm. Investors as well as providers of finance may insist on an audit being performed both as a prerequisite to funding and as an ongoing covenant of that funding. If significant funding rounds are planned, having the financial statements audited already may provide a head start on such funding and enable funding rounds to proceed more efficiently if less due diligence is required as a result.  

Why UHY?

We can provide an audit report that ensures that your financial statements have a high degree of credibility. Our experienced audit teams can provide a robust and pragmatic audit which can be relied upon, as well as producing recommendations for internal controls using our insights and sector knowledge which can assist you in ensuring that the accounting system continues to grow with the company and does not get left behind.
 

Tech companies tend to go global very quickly, due to the inherent ability to scale up operations or simply to be able to sell online with ease in most countries, particularly if delivery of product is also digital.

This is a great opportunity for you, but it can also lead to new issues and compliance responsibilities that you may not have considered before.

International tax has changed dramatically since the advent of the Base Erosion and Profits Shifting framework of 2015. These rules are being rapidly incorporated into domestic tax legislation throughout the world – very broadly, they are designed to prevent transactions from getting greater relief by the payer than the tax that the payee has to suffer on receipt. It has had the effect of massively increasing complexity of analysing a proposed transaction - such as avoiding a taxable presence in a high tax country, using high levels of debt to shift profits or using a (hybrid or mismatching) structure designed to create different and advantageous tax treatments in each country. It is vital, therefore, to get continuous and first class tax advice to reduce the impact of these new prohibitive and punitive tax rules. 

Tax issues will include whether actually trading in a country rather than with it, which could then mean a taxable presence in that country. You will also need to deal with VAT and its equivalent in other countries. Customs duty management following Brexit is now more important than ever. You shall need to ensure you have adequate transfer pricing documentation for all international intra-group transactions and be able to demonstrate you have used approved OECD methods to satisfy tax authorities in each country concerned. You or your intermediary need to report all international transactions where certain hallmarks are present under the new DAC 6 rules.

Why UHY? 

We have a team of specialists in all of these areas, including VAT and customs specialists and a full transfer pricing team. Our team are constantly watching tax issues taking place around the world.   

We have a well established UHY network continually spreading further across the globe and now representing approximately 100 countries. Within that network, we’ve got experts who can help you expand into just about any country you’re aiming for. As they’re part of the UHY family, you’ll get the level of excellent service and responsiveness that you expect.

We have a vibrant international tax team within that network, led by the UK, who have access to the very best international tax libraries and who constantly meet to ensure we are all aware of all of the developments in global taxation. We are supported by leading tax software to provide you with benchmarking data to strengthen your transfer pricing policies and to review the international tax efficacy of your group structure. We aim to provide you with a first class international tax solution at all points of your journey.

Your business is on a continuous journey and may have been through a number of financing rounds with ups and downs along the way. However, once your business becomes more established and has reached a certain scale and is stabilised with predictable growth (even if rapid growth), it may be time to consider your and your business’s future needs. 

If the founders are considering a full or partial exit, the realisation of shareholder value is in the company’s future earnings potential. Therefore, being able to demonstrate sustainable growth will drive up the valuation. The most common forms of exit being: 

•    Public listing (IPO)
•    Full or partial Equity Sale to Trade or Private Equity
•    Management buy-out

An IPO has to be realistic and it’s important to choose the most appropriate market. Being a listed company will increase your company’s profile and further fundraising can be achieved depending on the growth plans of the business. However, a public listing requires greater governance and will incur substantial listing costs with a much higher level of reporting. 

A full or partial Equity Sale will require the investor to be committed to the business and its intended projects. The deal structure and objectives of the parties will determine the amount of shares acquired, but existing shareholders (founders) can retain equity in the company. 

• Often Private Equity investors will be prepared to provide follow-up funding as the business grows. Private Equity investors typically seek a return of 20% to 30% or a minimum of two times cash invested.
• A higher price might be secured from a Trade buyer as they may pay for synergies. The business can either remain largely autonomous or integrated, with the trade investor targeting additional value creation through synergies and scale. 

A management buy-out will normally require both external equity and debt funding. The value is achieved from acquiring shares at an economic price versus the future growth of cash flows, with the subsequent repayment of leverage debt. Funders are attracted to sectors with the right sector dynamic and actively seek quality assets, with a backable management team that is not solely or heavily reliant on the founder.

How UHY can help

At an early stage it is important to identify an experienced Corporate Finance advisor to deliver your objectives and work through the right option with you and for the business. The process can be a long and arduous, and you need a trusted advisor as it can be a trying and emotional journey that is not just about financial gain.

UHY has extensive experience of working with founders and companies to achieve a public listing and has relationships with key private equity and debt provides. Whether a minority or majority investments or full buy-out, we aim to understand what it is you want to achieve from an exit, and work with you to develop a detailed plan to get you there.