header
header
header

Summing It Up

Keeping you ahead of the curve with timely news & updates.


Ten Characteristics of an Effective Trusted Advisor

Find Advisors That Marry Integrity with Capability

trusted advisorsAs your company makes the transition for early stage to growth, it only gets more confusing, complex and fraught with possibilities of missteps that could bring it to a crashing halt. That’s why it’s important for your management team to surround itself with trusted advisors that can help you make the leap.

The type of markets you serve, your business goals, and the skill set of your management team will all help determine what types of advisors are necessary. It’s likely, however, that you’ll need a strong relationship with an accountant, a lawyer, a banker, a marketing consultant, and an insurance broker at a minimum. As your business grows, your cadre of trusted advisors will also grow and include technical experts and other specialized professionals.

The Characteristics of a Trusted Advisor

high technology companiesWhat should you look for in a trusted advisor, and what roles should they play in your transition strategies?

Trusted advisors need to be able to earn the trust of company management and build relationships. They need to be credible, reliable and always have the interests of your company at heart. But they also have to be honest and challenging when necessary, especially when it comes to separating emotion from business realities.

According to Searl Street Consulting (www.searlstreet.com.au) an effective Trusted Advisor will have the following 10 characteristics:

1. Have a predilection to focus on the client, rather than themselves.  They have:

-  enough self-confidence to listen without pre-judging

-  enough curiosity to inquire without supposing an answer

-  willingness to see the clients co-equal in a joint journey

-  enough ego strength to subordinate their own ego

2. Focus on the client as an individual, not as a person fulfilling a role

3. Believe that a continued focus on problem definition and resolution is more important than technical or content mastery

4. Show a strong “competitive” drive aimed not at competitors, but with constantly finding new ways to be of greater service to the client

5. Consistently focus on doing the next right thing, rather than on aiming for specific outcomes

6. Are motivated more by an internalized drive to do the right thing than by their own organization’s rewards or dynamics

7. View methodologies, models, techniques and business processes as means to an end. They are useful if they work, and are to be discarded if they don’t, the test as effectiveness for this client

8. Believe that success in client relationships is tied to the accumulation of quality experiences.  As a result, they seek out (rather than avoid) client-contact experiences, and take personal risks with clients rather than avoid them

9. Believe that both selling and serving are aspects of professionalism.  Both are about providing to clients that you are dedicated to helping them with their issues

10. Believe that there is a distinction between a business life and a private life, but that both lives are very personal.  They recognize that refined skills in dealing with people are critical in business and personal life; the two worlds are often work alike that they are different, and for some, they overlap to an extraordinary event

From our experience in working with hundreds of early stage companies looking to make the leap to the growth stage, having the right team of advisors is a critical and fundamental element. Freed Maxick CPAs would welcome the opportunity to discuss how we might be a trusted advisor to your high tech company.

Please call us to talk with one of our CPAs or consultants about our accounting, tax and advisory services. Call us at 716.847.2651, or contact us here.

View full article

Financing Your High Tech Company’s Growth

Tap Your Trusted Advisor for Help in Building a Finance Acquisition Plan

financing high technology companiesIf there’s one common denominator for all high tech companies, it’s that they are always on the search for money to fund their growth. The transition from start up to growth is particularly tough because of the need for the company to balance growth with the need to build infrastructure, but in many cases, that just isn’t possible without financing assistance.

Having a well-conceived and structured business plan is fundamental to securing financing, but it has been our experience that successful firms find, and fight tooth and nail for every available dollar, without sacrificing too much in the way of equity or loss of control.

It’s a good idea to work with your trusted advisors to develop a financing plan that weaves’ several sources of financing together, along with a way to retain as much equity and control over the business as possible. Here are a number of ideas for sources of financing that you might consider:

  • high technologyAdvance payments from customers
  • Angel equity
  • Bank loans
  • Crowdfunding
  • Debt: factoring, asset based lending, mortgages
  • Federal or state government grants, loans or credit guarantees
  • Friends and family members
  • Funding out of cash flow
  • Local and state economic development organizations
  • Maximizing tax deductions
  • Small Business Innovation Research Grants
  • Smart leases
  • Refundable tax credits
  • Vendors
  • Venture capital

Of course, not all of these are going to be appropriate for helping to finance your company’s leap from start up to growth stage, but likely that some combination of these will be required.

Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our business advisors on structuring a plan that will help you secure financing for your business. Call us at 716.847.2651, or contact us here.

View full article

A 10 Point Business Plan Checklist for Your High Tech Company

Making the Leap from Early Stage to Growth Requires Planning and Documentation

business planningHigh tech companies that are looking to make the leap from start up to growth stage must have a business plan. Business plans are not only important for raising funding, they’re a way to describe and promote your business, critical for getting shareholders and employees on the same page, and represent a reality check against both market and competitive situations.

There is an abundance of information about how to write a business plan and our CPAs and consultants have helped hundreds of companies though the strategic and business planning process. Based upon our experiences, we offer the following checklist that can help you assess your business plan efforts:

A 10 Point Checklist for Your Business Plan.

high technology companiesDoes your plan have:

                A short, concise, and clear executive summary

                A business rationale based upon your vision of the unsolved problems or needs that the business will address – i.e. – a convincing business case or “reason for being.”

                A concise description of your differentiating product or service 

                A clearly defined target market

                A competitive analysis and a SWOT analysis

                A statement of goals and objectives for the business over time

                 A comprehensive marketing plan, including both traditional and digital marketing strategies

                Bios of key team members, with particular attention to their responsibilities and key skills and capabilities they bring to the business

                A roadmap or implementation plan for reaching goals or objectives

                A credible financial plan, including projections

What Else Do You Need?

In addition to a full written business plan, we recommend that you also have available:

  1. An elevator pitch that delivers your value proposition in 2-3 sentences;
  2. A handout/executive summary of 1-2 pages that clearly outlines key aspects of your business;
  3. A PowerPoint presentation of 8-20 sides.

Writing a business plan is a fundamental and necessary step for making the leap – your current and potential investors will require one. But its value goes far beyond financial projections – it’s a roadmap to the future. 

Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our business advisors on structuring a business plan that will help you with strategic, financing and operational strategies and tactics.  Call us at 716.847.2651, or contact us here.

View full article

Choosing the Right Type of Legal Entity for Your High Tech Company

Your Decision Today Can be of Great Value – or a Hindrance - Tomorrow

entity selectionA critical decision for your high tech company that must come at a very early stage of life is the selection of the most beneficial legal entity. This requires a bit of crystal ball gazing, but the decisions you make early in the company’s history can be invaluable in helping the company achieve its goals, or a significant obstacle to growth down the road.

When choosing a business entity, owners need to consider issues like flexibility to raise capital for future growth, tax consequences – both on the company and its individual owners, and limitation of liability on owners, which is the starting point for making a decision.

The question is, do you as an owner want to incorporate so as to avoid being held responsible for debts of the business, or do you not incorporate and find yourself personally liable for the debts and obligations of the business?

Key Questions to Discuss With Your Trusted Advisors

Your trusted advisors will be asking you a number of questions in order to help you make the right decision on business entity type. We recommend that you come prepared with some insight about these questions to facilitate the discussion:

  • How will the business be funded now and in the future?
  • How many owners are there and would you ever bring on co-owners in the future?
  • Do you plan on having employees?
  • How much control over the business are you willing to give up?
  • Are you going to issue stock or membership interests?
  • What type of investors/owners are you willing to accept (trusts, foreign individuals, etc.)?
  • What will your exit plan be when you retire or leave your business?
  • Where will you do business?

A Guide to Types of Entities

This guide provides should only serve as a preliminary reference tool for helping you in your decision process.

Type of Entity

Discussion

Tax and Liability Consequences

UNINCORPORATED ENTITIES

Two types of unincorporated entities:

Sole Proprietorship - is owned by one individual who retains complete managerial control over the business

Partnerships exist when two or more people operate a business, and may be either general partnerships or limited partnerships.

Owners are personally responsible  for the  debt of the business

Profits and losses are reported on the owner's personal federal and state tax returns

In a general partnership, the partners are jointly liable for the debts of the business and share managerial control

Limited partnerships are comprised of both general and limited partners, but only general partners maintain managerial control and are personally liable for the debts of the business end.

INCORPORATED ENTITIES

 

Incorporated entities have rights, privileges, and liabilities distinct from those of its members, and  the obligations of an incorporated business remain those of the business

C Corporations  can issue multiple classes of stock and are may be an appropriate choice for businesses anticipating the need to raise a significant amount of capital

S Corporation may only issue only one class of stock and must have under one-hundred shareholders. An S Corp provides liability protection to owners, but is treated differently from a C corp regarding taxation.

C Corporations are double taxed, first when the corporation, as an entity, is taxed on its profits, and second, when the corporation makes distributions to its shareholders, who must also pay tax on the money they receive.

An S Corporation is not a separate taxable entity for federal, and most state, income tax purposes. Profits and losses are divided pro rata among the shareholders and "passed through" to their personal returns.

LIMITED LIABILITY COMPANY

An LLC is a hybrid entity that combines the best aspects of a partnership with those of an incorporated business.

Note that if venture capital is required for growth or operational funding, many LLCs are formed with the understanding that to ease the way, it will convert to an S or C Corporation.

LLCs protects the owners from personal liability while allowing business profits and losses to be "passed through" to their personal returns.

                                           

Can You Switch Entities?

high technologyIt is possible to switch types of entities, but this must be done with great care and consideration, and for valid reasons. Again, we urge you to consult with your team of trusted advisors on the merits of making a switch, and the liability, taxation and funding consequences of making a switch. Converting an LLC into a C Corp is a relatively easy transition (with proper legal and accounting guidance) as there may be minimal tax consequence and with the proper assistance, the economic rights of the owners and employees of the LLC may be readily transferred to the corporate format. This transition will make the company more attractive to venture funding sources.

Switching from an incorporated status to an LLC is more difficult and problematic from a tax perspective, and should only be considered for good reasons and with the counsel of your trusted advisors.

FreedMaxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on selecting the right entity type for your high tech company.  Call us at 716.847.2651, or contact us here.

View full article

Options for Your High Tech Company’s Stock Compensation Plan

Navigating the Bewildering Maze of Options, Laws and Requirements

high technologyOne of the key ways that high tech companies recruit and retain loyal employees is through the use of stock based compensation plans. In addition to giving staff the opportunity to participate and share in the company’s growth, stock compensation plans serve as a way to align their interest with those of shareholders and investors. And, it’s a way to save cash.

However, there’s a bewildering maze of options, laws and requirements. These considerations include:

  • Securities law considerations (such as registration issues)
  • Tax considerations (tax treatment and deductibility)
  • Accounting considerations (expense charges, dilution, etc.)
  • Corporate law considerations (fiduciary duty, conflict-of-interest)
  • Investor relations (dilution, excessive compensation, option re-pricing).

The first step in creating a stock based compensation plan is to consult with your team of accountants and attorneys. They’ll help you understand what options are available, and the pros and cons of each. For starters, here’s a brief overview of the major type of stock based compensation plans:

Stock Options

 

Stock options give employees the right to buy a number of shares at a price fixed at grant for a defined number of years into the future. They are generally subject to satisfaction of vesting conditions (i.e. continued employment) or achievement of performance goals. There are two types of stock options:

Incentive stock options:  These are a creation of the tax code that can only be granted to employees. If and when certain requirements are met, the holder of the option can receive a favorable tax treatment when the option is exercised.

Nonqualified stock options: Non-qualified options do not provide special tax treatment to the recipient, but the corporation will get a deduction equal to the employee’s income upon exercise.

Restricted Stock

 

Restricted stock gives employees the right to buy a number of shares at a price fixed at grant for a defined number of years into the future. However, acquired shares aren’t fully owned by the employee until specified conditions occur like vesting if the employee continues to work for the company for a certain number of years.

Unrestricted stock

 

An employer corporation can give shares outright to the employee, subject to no restrictions.  The employee can pay full fair market value for the shares, pay a discounted amount, or pay nothing at all, but will get an immediate equity stake in the company. 

Phantom Stock and Stock Appreciation Rights (SARs)

 

These are bonus plans that grant the right to receive an award based on the value of the company's stock, hence the terms "appreciation rights" and "phantom."

If the employer corporation wishes to reward an employee based upon the performance of the company’s stock value but without giving up any actual ownership of the company, then stock appreciation rights (SARs) or phantom stock may be used. Phantom stock provides a cash or stock bonus based on the value of a stated number of shares, to be paid out at the end of a specified period of time.

Employee Stock Purchase Plans (ESPPs)

 

Employee stock purchase plans (ESPPs) provide employees the right to purchase company shares, usually at a discount. These plans allow employees to set aside money over a period of time (called an offering period), usually out of taxable payroll deductions, to purchase stock at the end of the offering period. Plans can be qualified under Section 423 of the Internal Revenue Code or non-qualified.

Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on selecting the stock based compensation plan for your high tech company.  Call us at 716.847.2651, or contact us here.

View full article

20 Ideas for Improving Your High Tech Firm’s Cash Flow and Inventory Management

Cash Flow Management Can Spell the Difference Between a Successful High Tech Firm and a Failed One

cash flow and inventory managementAt the point where your high tech firm is looking to make the leap from early to growth stage, it’s likely that cash flow and management of cash is becoming an increasingly more difficult challenge. Cash flow management can spell the difference between a successful business and a failed one, because in any business venture cash is always the king.

While your firm may be profitable, that doesn’t necessarily translate to a cash rich business. Cash management and having enough cash on hand is generally a function of timing – between selling an item and collecting a payment; or between times you purchased items for your business and paid for them. So cash management really deals with knowing where cash is coming from, when you will get it, where it needs to go, and when it needs to get there.

Having the right accounting systems in place is fundamental to understanding and budgeting for cash flow. These are functions where your accountant can be of enormous assistance. With your management team, they can also recommend strategies for improving cash flow, for example:

  • high technology companiesSet and stick to a cash management budget
  • Managing and tighten  your customers' credit
  • Weed out unprofitable customers, those that cost more to maintain than they add to the bottom line
  • Invoice promptly and take measures to encourage prompt payment
  • See if payments to suppliers can be extended
  • Renegotiate contracts
  • Attract new customers or sell additional goods or services to your existing customers
  • Keep a close eye on budgets and expenses for new product development
  • Kill pet projects that are unproductive and a drain on  cash

Another critical area of cash management for high tech companies moving to the growth stage is effective inventory management, and for companies looking to protect their cash it’s smart to minimize inventory. According to Chris Gordon of WIPRO Consulting Service, “high-tech businesses often cannot satisfy demand for their most popular products due to availability issues, and also experience inventory overhangs when a slump in demand catches them off guard.”

Your inventory management best practices may include the following strategies:

  • Make your vendors keep your inventory
  • Have vendors ship the inventory to customers
  • Outsource components of the manufacturing process
  • Order inventory just-in-time
  • Pay only as you use the inventory
  • Order in real time
  • Educate employees about your goal to reduce inventory and give them an incentive for making it happen
  • Make products to order instead of to sell
  • Allow only limited access to inventory to minimize theft
  • Use the same inventory items to create multiple products
  • Stock only items that have a quick turnaround
  • Get rid of obsolete inventory

There are, of course, other more sophisticated inventory control strategies and technologies that require greater involvement with your team of accounting and operations management advisors.

It’s unfortunate that so many high tech companies fail to make the leap to a growth stage because of cash management issues. While this blog post provides a brief overview of why cash flow management is important, and  a number of strategies for improving cash flow, our recommendation is that you make this issue a priority in your planning efforts.

Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on cash management and inventory control strategies for your high tech company.  Call us at 716.847.2651, or contact us here.

View full article

Is it the Right Time for Business Process Management in Your High Tech Firm?

8 Core Elements of Business Process Management

High tech companies that are successfully making the leap from start up to growth stage continuously seek ways to improve productivity and operational efficiencies. With growth comes more exposure to competition, and demands from customers for more value and higher quality at lower prices. Customer loyalty and satisfaction becomes increasingly more important, as does requirements for cost and time savings and greater levels of employee productivity.

High tech firms moving to a growth stage need to consider increasing productivity though Business Process Management approaches and technologies. According to SearchCIO, Business Process management (BPM) is “a systematic approach to making an organization's workflow more effective, more efficient and more capable of adapting to an ever-changing environment. A business process is an activity or set of activities that will accomplish a specific organizational goal.”

BPM pinpoints opportunities to improve key business processes through analysis, measurement, and use of benchmarks to identify ways to streamline these processes for effectiveness and efficiency. Employing BPM for your firm should result in increased productivity levels, improvements in staff morale, and positive impacts on customer loyalty and relations. 

Michael Stanleigh, President and CEO of Business Improvement Architects, offers these insights on the core elements of Business Process Management include:

  • high technology companiesIdentifying Key Business Processes - Select only key business processes that have a direct impact on the organization and its customers, and develop the benchmark against which success will be measured.
  • Identifying the Voice of the Customer - Collect data through your internal and external feedback mechanisms to get their perspective on the good the bad and the ugly of your key business processes. 
  • Develop a Current Value Stream Map - Use subject matter experts to identify everything that is included in completing each portion of the key business process, and then create a detailed flowchart of this information to identify what is being done and why.
  • Measure the Process - Identify the direct costs, people costs, overhead costs and opportunity costs associated with the business process.
  • Completing a Root Cause Analysis of the key business process - Identify all of the blockages and barriers preventing the business process from immediately reaching its defined "improvement" requirements.
  • Developing the Ideal Value Stream - Identify the blockages and barriers to reaching your defined success measures. Create the "ideal" process map that will address the root causes of all identified issues, concerns, problems and challenges in the current process.
  • Developing Solutions - Generate a list of possible options and solutions that can be implemented, and then select the best possible options and solutions, ensuring that these will overcome the root causes. Some firms employ business strategies such as Six Sigma to improve quality and productivity.
  • Developing the Implementation Plan -Develop a detailed implementation strategy to ensure that the solutions are successfully realized. Include who needs to do what, when and with what resources.

BPM has the potential to reduce costs, enhance efficiency and productive, and minimize risk and errors. It also serves as a means for helping company management direct, monitor and measure company resources.

Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on business process management for your high tech company.  Call us at 716.847.2651, or contact us here.

View full article

Is Your High Tech Firm Outgrowing Its ERP System and Software?

Use This 17 Point Checklist to Get Started on Selecting a New ERP System

ERP system selectionThere’s going to be an inevitable point in your high tech firm’s evolution from start up to growth stage where you will outgrow your IT and Enterprise Resource Planning (ERP) platform and software. In fact, without an ERP system that meets your needs and is scalable, your ability to make the leap onto the growth stage may be severely hampered.

Selecting, installing, managing and using an ERP system is expensive and fraught with risks. Considering that most systems have a shelf life of between 10 and 15 years, you don’t want to make a mistake at the beginning of the process that will haunt you for years to come.

So, our first piece of advice is to hire an ERP system consulting specialist who can work with your management and ERP implementation team throughout the process. This consultant should be independent (i.e. not a software vendor representative), have at least a high technologybasic understanding of your industry, and a well-defined process. This is a huge investment requiring an exhaustive change management process, undertaken with the promise of huge returns over time.

At the 10,000 foot level, selecting the right ERP system involves defining what you need, pinpointing expectations for results or benefits from the system, becoming familiar with the ERP market, and then searching for the right solution. Along the way you’ll get into a discussion of cloud based ERP systems, vendor recommendations and references, and get exposed to lots of horror stories about ERP projects that have gone horribly wrong.

17 Point Checklist

Here is a 17-point checklist from www.erpsoftwareblog.com that can help you navigate the daunting process of selecting the right ERP system for your company. This is, of course, a very preliminary list and we offer it as a starting point for your journey:

Functionality requirements

 

1. What business challenges do you plan to solve with ERP?

2. What key issues and concerns do you have with your current system? What functionality do you think your system is missing but needs?

3. What functionality will you actually use? This way, you don’t pay for features your company doesn’t need now or don’t foresee using in the future.

4. Is the solution scalable and flexible to meet today’s needs – and provide a framework for future growth?

5. What will define success for your new system? How will you quantify this success – in terms of increased productivity, reduced costs, or other factors?

Integration requirements

 

6. What’s unique to your industry and business that new software would need to address?

7. Does the ERP solution strategically align with its purchase justifications (business case, return on investment, etc.)?

8. How much customization will be involved – and what is the impact of that customization upon the solution? 

Training requirements

 

9. How intuitive is the user-interface for employees? In other words, does the ERP system offer an interface similar to software that most employees already use – which reduces training time and improves employee buy-in? Or is this something totally new that employees need to learn from scratch?

10. How much employee training will actually be required to optimize the value of the new system once deployed?

Deployment requirements

 

11. What deployment options do the software and vendor offer – on-premise or hosted or combination of the two; one-time license fee or monthly subscription? 

12. What is the deployment process and expected timeframe?

13. What will be required of your in-house staff during deployment?

Vendor support requirements

 

14. What on-going services should you expect from your ERP vendor?

15. What are the different levels of support plans offered by the vendor?

16. What is the availability of after-hours support?

17. What response times can the vendor commit to achieve?



Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on ERP system selection for your high tech company.  Call us at 716.847.2651, or contact us here.

View full article

Occupational Fraud: Is There a Thief in the Next Office?

technologyPrevent Your Business from Losing Revenue

Earlier we published a blog post about about that discussed not losing your business to occupational fraud. Check it out here.

Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on fraud detection and prevention for your high tech company. Call us at 716.847.2651, or contact us here.

View full article

Technology Update: Staying Ahead of the Curve

Look for us twitterThis spring Freed Maxick will be at SXSW Interactive as well as Internet Week NY. It's all part of the Firm's corporate culture and an effort to stay ahead of the curve and innovative in all that we do.

From emerging media tools, social media platforms and the web, to the rapid growth rate of mobile and even blogs, Freed Maxick recognizes the importance of technology and wants to communicate effectively with our employees, clients and the community. The best way to do that is to stay on top of the trends, and learn all that we can to best serve our clients.

From our Twitter account where we relay the most up to the minute updates concerning taxes, accounting and industries such as manufacturing, healthcare or real estate, to our careers blog featuring insight into the accounting profession, Freed Maxick aims to stay connected.

Attending SXSW Interactive or Internet Week NY? Make sure to look for Freed Maxick on Twitter @FreedMaxickCPAs, using the event hashtags #SXSW and #IWNY. We're there to learn from thought leaders in the industry and apply new knowledge to the way we do business. We'll be sure to communicate helpful info for high tech companies, share best practices learned and take part in the innovative coversation.

View full article