Start-Up Success. A guide to growing your Technology Business. kpmg.ie. Proud to support

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1 Start-Up Success A guide to growing your Technology Business kpmg.ie Proud to support

2 CONTENTS Introduction...01 Create the Idea...02 Preparing a Business Plan...05 Legal Structure...07 Branding and Business Identity...08 Getting Assistance...10 Using a Mentor...13 Raising Finance...15 Finding and Keeping Talent...18 Tax Matters...20 Doing Business Abroad...24 Maintaining Accounts, Filing and Audit Requirements...26 The need for Good Financial Information...28 Your Board of Directors and Professional Advisors...30 How KPMG Can Help...33

3 INTRODUCTION Ireland is full of ambitious people with great ideas for starting and growing a business. Starting that business converts your dreams into reality. This guide is designed to give you an overview of the business issues that matter most and practical steps that need to be taken. It is based on our own extensive experience of working with highgrowth businesses across Ireland, together with that of our international network. At KPMG, we believe that businesses maximise their chances of success when they concentrate on what they are best at. With conveniently located offices in Dublin, Belfast, Cork and Galway, we d be delighted to speak with you about how you can benefit from our experience and expertise, whilst you focus on building your business. Our contact details are at the back of this publication. We look forward to hearing from you. Good luck with your endeavours! 01

4 CREATE THE IDEA Your idea may come from a variety of sources years of experience in the industry, a bad experience as a customer or a problem that arose in work. Ideas may start small at an individuals level but to turn them into a successful business they must be capable of being big. How do you determine if your idea has what it takes to become big? Consider the following: Does a problem exist and does your idea fix it? Do enough people experience this problem to provide sufficient scale for a business? Is the benefit of fixing the problem enough that people will pay for it, i.e. can you monetise your idea? Can your solution be delivered in a practical manner at a reasonable cost? If the answers to the above are yes, your idea may be a business proposition and you have started to validate the idea. The validation process may be slow but it is critical if your product or service is to be a success, as you must ensure you are delivering something that people want and will pay for. What further steps are required? Consider: Secondary market research using market research already available Primary market research carrying out your own survey of potential users and customers. Consider using one of the many on-line tools Competitive analysis what are the current offerings and where do they fall short? Discuss with mentors and colleagues objective views are always welcome When appropriate, discuss with experienced industry players and entrepreneurs. Once you are satisfied that there is a sound business proposition, what next? You need to give something to people to look at or touch. Consider building a prototype or model of your product. If you are designing a piece of software a prototype is still desirable or screen mock-ups may suffice in the short-term. Currently, in the area of software development, there are many proponents of following Lean Start- Up principals. These principals can be applied to most products, even if not technology based, and are: Build a basic prototype or Minimum Viable Product ( MVP ) Test it technically Get feedback from potential users. Establishing a panel of people from your earlier discussions might be useful Continuously modify, develop and retest Launch in market. Research has shown that startups take 2-3 times longer to validate their market and generally significantly over estimate their potential market. It is highly likely that your product development will change direction a number of times, i.e. Pivot as a result of regular feedback. This is positive and not to be feared. Once you have validated your idea, it s time to build a business! 02

5 BEING THE RICHEST MAN IN THE CEMETERY DOESN T MATTER TO ME GOING TO BED AT NIGHT SAYING WE VE DONE SOMETHING WON- DERFUL THAT S WHAT MATTERS TO ME. STEVE JOBS 03

6 04 A BUSINESS PLAN WILL BE REQUIRED BY POTENTIAL INVESTORS. IT IS A KEY TOOL IN SELLING YOUR BUSINESS IDEA TO OUTSIDERS.

7 PREPARING A BUSINESS PLAN Whilst critical for raising finance, the business plan s use is not restricted to this purpose. It will also be a useful for explaining your business proposition to employees, customers, investors or joint venture partners. Furthermore, it will provide you with a road map for the development of your business. The process of preparing the business plan is a useful one as it challenges you to define your business proposition and identify and address issues that are going to arise in your business s development. A business plan should include: A brief summary outlining the market opportunity, the product or service being proposed, the management team and brief financial information The Company history, directors, shareholders The Product features, benefits, delivery method The Market size, likely customers, competition Sales & Marketing marketing strategy, pricing, route to market Management Team existing and future requirements, retained consultants Technical product specification, technical requirements, capital expenditure requirements, maintenance & support Financial Information historic and projected profit and loss accounts (3 years), balance sheets and cashflows, assumptions, funding requirement (capital and working capital), funding proposal and exit strategy. Other Advice: The assumptions in the financial projections should reflect the information outlined elsewhere in the document. Be as specific as possible Be conservative in your assumptions, in particular regarding development costs and the time taken to generate revenues. Include sensitivity analysis on key assumptions Include key milestones in the business plan. This will focus management efforts and the achievement of particular milestones can be communicated to potential financiers as evidence of your focus and ability Whilst you may outsource the preparation of the business plan, stay involved in the process and on top of the detail. You will have to communicate the plan and deliver on it Keep your business plan up to date and relevant. 05

8 06 AN APPROPRIATE LEGAL STRUCTURE IS AN IMPORTANT FOUNDATION TO ANY BUSINESS.

9 LEGAL STRUCTURE It is important to structure your business from the outset. Investors will expect a transparent structure to protect their investment. If you have ambitions for growth, typically you will operate through a limited liability company. Given the various technicalities involved, legal advice should be sought on the most appropriate business structure. Forming a company Usually carried out by your accountant or solicitor, who will be familiar with the process and paperwork Choose a company name. Carry out a company search to ensure the chosen name is not taken. This can be performed on-line or we can do this search for you The formation of a new company involves choosing and agreeing an appropriate name, compiling suitable Memorandum and Articles of Association, lodging these and other documents with the Registrar of Companies and obtaining a Certificate of Incorporation, see You will need to authorise and issue shares. Consider future shareholders when deciding on the number of shares to authorise and issue Irish law allows the creation of single member (i.e. one shareholder) companies Prepare a Memorandum and Articles of Association. These set out the purpose of the company and how it should be run. Standard documents are often used The directors are responsible for organising and minuting board meetings, maintaining corporate registers and making filing obligations. In practice this work is often outsourced to your accountant. Although often tedious, ensure this work is carried out to avoid problems in the future Consider preparing a shareholders agreement which will formalise the relationship, roles, rights and obligations of the early shareholders. Domain name Choose a name that reflects your company name, product name or brand Carry out an online search, using one of the various registration agents, to ensure your chosen name is available Consider which Top Level Domain ( TLD ) is appropriate for your target market. If your business is intended to be international, then.com is advisable. You may also want to purchase other TLD s e.g..org,.net or country specific TLD s, to protect your brand identity. 07

10 BRANDING AND BUSINESS IDENTITY Your brand helps your business stand out. It is worth spending time on branding at an early stage and possibly obtaining input from outside creative professionals. The good news is that Ireland has many talented brand and design experts. In order for your business to grow and be sustainable, it has to be about more than simply a product or service. It is about building a great brand and creating brand value. Consider the following when creating your business identity: Brand Name: Choose a name that will appeal to your customers - not just you Choose a name that invokes positive thoughts Don t pick a name that is too long or confusing Consider whether you want to use a descriptive or abstract name there are pros and cons to both Ensure it is available search for trademarks. You will build your brand identity around your name and both should be worked on at the same time. Brand Identity Your brand should be easily identifiable and memorable It should reflect your business values and corporate culture and reinforce key elements of your business It should also resonate with your target customers Remember that the more it communicates about your business, the less effort required to explain it! Ensure it has longevity as change can be time consuming, expensive and commercially risky Use your brand consistently across your website, and paperwork Your brand should be supported by an appropriate marketing strategy Consider legal disclosure requirements in your paperwork and documents e.g. corporate registration number, registered office, directors and secretary, tax registration numbers etc. 08

11 BRAND IDENTITY GIVES POTENTIAL CUSTOMERS A FIRST IMPRESSION OF YOUR BUSINESS. 09

12 GETTING ASSISTANCE In preparing your business plan, you will have identified a range of shortcomings and needs to be addressed. If your business is to succeed, it is important that these are not ignored. Seeking assistance is not a sign of weakness! Assistance can take a number of forms and all of these should be considered: Financial an obvious requirement that is dealt with later in more detail Mentoring input into your business from an experienced entrepreneur or someone with key technical or commercial industry experience Technical to address specific shortcomings in the skills and experience of the management team e.g. technical development, finance, legal or marketing Introductions assistance in making contact with financiers, key industry players, suppliers or customers Facilities the practicalities such as premises, technical equipment or temporary overseas office space. The above assistance can be accessed from a range of sources: State agencies: Enterprise Ireland Science Foundation Ireland The Department of Social Protection Private sector some organisations have developed specific initiatives to promote innovation in their industry. On an informal basis, many organisations and business leaders have a track record of providing assistance to start-up businesses. Universities A good source of knowledge. Some universities operate programs which connect their researchers with the private sector, in particular start-up businesses Dublin City University (DCU) University College Dublin (UCD) Trinity College Dublin (TCD) University College Cork (UCC) University of Limerick (UL) University College Galway (UCG) Industry associations both nationally and internationally. Membership provides access to market information, relevant resources and industry intelligence. Venture capitalists/angel networks typically willing to provide advice to promising early stage businesses prior to investment Incubators & accelerators Ireland now has a number of top quality investors and accelerator programmes. 10

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15 USING A MENTOR In the early days, there is an incredible amount of information to consider, and decisions to be made. Many of these early decisions can determine the success or not of your new business. This is where access to a mentor can be invaluable. What is a mentor? Experienced professional or industry player Provides advice in an informal manner, not by drafting lengthy reports. What benefits will using a mentor bring to my business? Experience and technical knowledge Wisdom associated with past mistakes Objective opinion Sounding board for your ideas Credibility with potential stakeholders Access to their contacts in the industry or investment circles Will help you focus on key task and milestones Provide feedback on your work Identify potential future employees. When choosing a mentor, ensure: They have the necessary experience and skills Have credibility in the market Are accessible They are affordable, so as not to discourage you from seeking their advice when required. GETTING GOOD ADVICE AND THE BENEFIT OF SOMEONE ELSE S EXPERIENCE IS INVALUABLE IN THE EARLY STAGES. 13

16 14 ALL GROWING BUSINESSES NEED ACCESS TO FINANCE TO DELIVER ON THEIR POTENTIAL.

17 RAISING FINANCE Finance matters typically arise early in a business s development and financiers will expect the founders to show belief and commitment by taking on risk and investing some of their own resources. The business s finance needs will have been addressed in the business plan. You should already have considered: The amount of finance required What it is required for The timing of the financing demands The potential to repay and provide a return on the finance. Each source of finance has its own characteristics and these should be considered seriously: Equity Bank finance is generally not appropriate for start-up businesses. They represent too great a risk and lack repayment capacity in the shortterm. For this reason, early finance usually takes the form of equity (i.e. at-risk capital). Equity can be sourced from the following: Founders, friends and family typically sourced through personal contacts Angel investors individuals that invest in early stage businesses. Angels can bring knowledge and experience to the business as well as finance. Introductions can be made through business contacts or via Angel networks e.g. Halo Business Angel Network ( The Employment and Investment Incentive Scheme (EIIS) can be attractive in securing funding from private individuals (see section on Tax Matters for further information) Seed capital relief may also be available to founders who were previously employed (see Tax Matters). This allows someone who leaves employment and invests in share capital of a new company to claim a refund of income tax paid in the previous six years. It can be a useful source of finance. Seed and Venture Capital Ireland has a vibrant seed and venture capital industry deploying funds to grow companies, providing support and using their networks to assist investee companies reach their goals. There are Irish venture capitalists active at all stages of the development curve from early stage seed funding to later stage pre-ipo funding. The Irish Venture Capital Association ( IVCA ) is the representative industry body and their website provides details of the main industry participants. In addition to the domestic participants, a number of foreign venture capital firms have invested in Irish technology companies. In addition, in order to incentivise venture capital activity in Ireland a number have been supported through the Innovation Fund Ireland. Tax incentive rates of 15% and 12.5% apply to carried interest profits accruing to certain venture capital fund managers. The rate of 15% applies to partnerships and individual venture fund managers and the rate of 12.5% applies to companies. This relief is designed to enable fund managers to invest in both early stage and more established companies and requires them to remain invested for a period of 3 years in order to secure the benefit of the lower tax rate. 15

18 RAISING FINANCE (Cont.) Enterprise Ireland ( High potential start-ups (HPSU s) are companies that can develop innovative technologies, products and services for sale on world markets. Enterprise Ireland supports these companies in a number of ways including: HPSU Fund Enterprise Ireland established the Innovative HPSU Fund to support start up and development costs of High Potential Start-Up companies. The Innovative HPSU fund allows Enterprise Ireland to offer equity investment to HPSU clients, on a co-funded basis. This investment goes towards the achievement of an overall business plan, rather than funding towards discrete elements of a business plan, such as R&D or employment creation. The funding of a business plan in this way is similar to the approach adopted by a venture capital (VC) investor. The level of investment will be determined by several factors including viability, growth potential and quality of a project. Competitive Start Fund The purpose of the Competitive Start Fund is to accelerate the growth of start-up companies that have the capability to succeed in global markets. The fund is designed to enable them to reach their key commercial and technical milestones. The Competitive Start Fund is open to applications from early stage companies from the following sectors: Games, Mobile, Apps, SaaS, Cloud Computing, Enterprise Software, Telecoms, Life Sciences, Cleantech and Industrial Products Applications are considered on a competitive basis. The maximum support available is 50,000, for a 10% ordinary equity stake in the start-up company, subject to additional new equity of at least 5,000 injected into the company. International Start-Up Fund ( A 10 million international startup fund is available for overseas entrepreneurs locating their start-up business in Ireland. This fund will invest equity in innovate start-ups, led by strong teams and focussed on international markets. Specific grant aid is also available from Enterprise Ireland. HPSU Feasibility Grant The aim of this grant is to help start-ups or entrepreneurs asses the viability of a new export orientated business or proposition Applicants are considered on a case- by case basis. The maximum grant available for a feasibility study is 50% of eligible expenditures, up to a maximum grant of 15,000. R&D Fund: Small projects This fund supports products, processes or service R&D projects where expenditure is less than 150,000. Up to 50% of the total cost of the project may be grant funded, depending on the size of your business. R&D Tax Credits R&D Tax credits can be another valuable source of funds. The legislation provides that for every 100 of qualifying R&D expenditure (Revenue or capital) a company could be entitled to 25 in tax credits in addition to a 12.5% corporation tax deduction. Thus, the total benefit could be worth for every 100 spent 16

19 For start-up companies, or indeed any company that is loss making, this relief can also be very attractive as it may be possible to recover the credit and secure a cash refund against payroll taxes. It is also important to remember that the legislation provides for R&D in a broad range of industries and contexts, and as such can apply to much more than lab work. See section on Tax Matters for further information on R&D tax credits. European Commission & European Investment Bank The European Commission and the European Investment Bank supports R&D to boost competiveness across the EU. The EC funds the FP7 programme, a seven year research fund with a total budget of 50 billion. Funds are available to both public and private bodies. There have already been many Irish recipients of FP7 grants and the development agencies are keen to ensure that Irish companies benefit from this programme. Horizon 2020 will be the successor to FP7 and will operate from 2014 to 2020 The European Investment Bank also provides risk capital to fund R&D in its 10 billion Risk Sharing Finance Facility (RSFF). The RSFF is a debt facility tailored for large research, development and innovation projects. It is aimed at companies or projects mature enough to demonstrate a capacity to repay debt on the basis of a credible business plan. Other sources of Finance The following bank finance may be available to new businesses once trading: Debt typically 3-5 years with regular capital and interest repayments Overdraft short-term revolving credit suitable for working capital management Leasing typically 3-5 years and available to fund equipment Vendor finance similar to leasing but provided by the equipment supplier Trade Finance short term finance to fund debtors and stock. Usually repaid in bullet payments. In order to access the above, collateral will be required and repayment capacity proven. 17

20 FINDING AND KEEPING TALENT Your people will be one of your most important assets. It is important to put a strong team in place at an early stage. This increases the chance of success and instils confidence in financiers and potential customers. In Order to Build your Team: Founders should carry out an honest and comprehensive assessment of their own skills and experience Staff requirements should be incorporated into the business plan The cost of acquiring and retaining staff should be incorporated into financial projections and funding requests. Remember to include all employment costs e.g. taxes, insurance, and benefits Remember that you are creating a business, not just a product, and your management team and structure should reflect this. For example, you may be a technical genius but who is going to sell your product effectively if that is not one of your strong points? Given the challenging environment and demands on resources, a particular focus should be placed on team building and motivation 18 Consider that early joiners are likely to take on responsibility at an early stage and will have to be flexible and fast learners. This should be reflected in your candidate selection criteria You may need to be innovative in rewarding early joiners through non-cash benefits, and an attractive working environment and working arrangements Share based payments are likely to be a part of an early joiners remuneration package. This should be considered in your finance structuring and funding requests Reliance on a small number of key personnel is a risk that will have to be mitigated against. As your business grows, remember to reward past loyalty and sacrifices. Early joiners are likely to remain key staff members. There are a number of people specific areas you should pay attention to at the start to ensure your business plans have the best chance of success. Share Based Payments Retaining and attaching key talent can be a real challenge particularly in start-up and high growth stage companies where cash is tight. While recent tax changes have impacted upon the tax cost and administrative obligations for companies and their employees, awarding shares can still be an attractive way of retaining and motivating employees. There have been significant changes in recent years in how share based remuneration and reward schemes are taxed. Make sure you get the appropriate advice when considering this important area - we d be happy to help. R&D Tax Credit It may be possible to pass part of a company s R&D credit on to key employees involved in the R&D process. This can be used to incentivise employees. Further details details can be found in the Tax Matters section.

21 Pensions You will also need to consider if, and how, you might fund a pension. If you operate as a sole trader you can fund your pension through a Retirement annuity Contract (RAC), or a Personal Retirement Savings Account (PRSA). If you operate through a company, it may be possible to fund your pension through an occupational pension scheme. You should note that if you hire employees through your company, you must provide access to a PRSA for your employees if an occupational pension scheme is not available. The following additional points should also be noted: The right pension arrangement has the considerable advantage of achieving tax savings. You should ask your tax advisor what the taxation consequences of a scheme are before entering a particular scheme. Also, you should commit to your Pension Scheme only as much as you or your business can afford You should consider joining an approved permanent health benefit scheme. The premiums qualify for income tax relief subject to a maximum of 10% of total income in any one year. Benefits received under such schemes are charged to tax under PAYE. IT PAYS TO HANG AROUND WITH PEOPLE BETTER THAN YOU ARE, BECAUSE YOU WILL FLOAT UPWARD A LITTLE BIT... WARREN BUFFET When starting a business you should obtain the advice of a pension consultant, accountant or bank manager about the alternatives available to you. If you have a deferred pension from a previous employment, you should review its adequacy and if necessary consider a further plan to enhance your existing benefits 19

22 TAX MATTERS It is important that taxation is addressed when starting your new business. Obtaining early advice is essential to prevent mistakes being repeated and consequently significant taxation liabilities arising. Some of the areas you should seek advice include: Tax Planning Planning your remuneration package, and that of your key staff Enabling founders and key talent and staff to participate in the equity of the company before there is a significant increase in value Organising your affairs to facilitate a fully compliant R&D tax credit claim and cash refund, where possible Maximising your ability to capitalise on Ireland s low rate of Corporation Tax of 12.5%. This is important when most other countries you are likely to do business in have higher Corporate Tax rates Minimising your exposure to withholding tax. Many technology companies doing business abroad experience withholding tax costs. It is important to anticipate likely issues and deal with them Setting up a suitable investment structure from the outset. Not alone can it ensure you minimise tax leakage on an ongoing basis but it can maximise the after-tax return which can be realised by investors and shareholders. 20 Companies and Corporation Tax The standard rate of corporation tax is 12.5% for trading income, and 25% for other (non-trading) income. Companies also pay corporation tax on capital gains (33% rate). Some important points to note in relation to corporation tax: A company cannot receive a tax deduction for any expenses which are not incurred wholly and exclusively for the purposes of the trade (e.g. Private expenses, non-staff entertainment, etc), or expenditure that is capital in nature (e.g. Fixed assets) Directors may take a salary from the company which is allowable for tax purposes against the company s profits Capital Allowances are available for capital expenditure on intellectual property, industrial buildings, equipment, furniture, plant, commercial vehicles and cars. The amount qualifying for tax relief is reduced if the costs are grant aided Trading losses can only be set against income or capital gains arising in the company (or against income of a company within the same tax group - 75%) or carried back one year or carried forward in the same company. Tax Incentives and Reliefs There are a number of tax incentives and reliefs which are available to a company and a brief summary of some of these are set out below. Corporation Tax Relief for Start-Up Companies Tax relief is available for companies that commence to trade in the period from They will be exempt from corporation tax on both trading income and certain capitals gains, in each of the first three years for which the trade is carried on, provided the annual corporation tax liability does not exceed 40,000. Marginal relief applies where the company s tax liability is between 40,000 and 60,000 but is tied to the amount of employers PRSI contributed. If you believe your company may be eligible for this relief further advice should be sought.

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24 TAX MATTERS (Cont.) Start Your Own Business Relief If you have been unemployed for fifteen months or more and start your own business in 2014 then you may be entitled to earn up to 40,000 tax free for each of the first two years. Capital Gains Tax Relief Entrepreneurs who reinvest in a new business between 2014 and 2018 and hold it for at least three years may be entitled to secure reduced CGT on the disposal of that business. Research and Development Tax Credits The Research and Development (R&D) tax credit is a valuable tax- based incentive designed to encourage R&D investment. The scheme gives companies a credit of 25% of the amount they spend on incremental R&D during a given accounting period (in excess of the amount spent in the base year, i.e. 2003). Companies can avail of a volume- based regime on the first 300,000 of qualifying expenditure (i.e. a 25% R&D tax credit for every euro incurred.) In the first instance the credit is offset against corporation tax. In cases where there is little or no corporation tax liability, companies can receive a cash payment from Revenue. This is generally issued over three years and is subject to a reasonably complex set of rules. 22 The 25% credit is available in addition to the 12.5% corporation tax deduction, giving a potential benefit of up to 37.5% of eligible R&D spend. The relief is generally available for R&D activities carried out in a wide variety of science and technology areas such as software development, engineering, computer science, mathematical modelling etc. The main areas in which eligible R&D tends to occur are the development of new and improvement of existing products, processes or systems. Key employees who have been actively involved in R&D can benefit from an employee reward mechanism, effectively allowing them to receive part of their remuneration tax free. This is subject to complicated rules and should be investigated thoroughly before implementation. Companies considering making an R&D tax credit claim should see professional advice. More information on R&D tax credits can be found on KPMG s website: Potential benefits may also be gained by assessing both the Employment and Investment Incentive Scheme and Seed Capital Relief. Employment and Investment Incentive Scheme (EIIS) The Employment Investment Incentive (EIIS) scheme provides tax relief to investors in certain corporate businesses. The relief has now been liberalised somewhat and the expectation is that it should now be easier for start-up and growing companies to secure investment through this measure. The relief allows an investor (who is not connected to the company) to obtain 41% tax relief (in two tranches) on investments in qualifying companies. The maximum amount of the tax relieved investment is 150,000 per annum and the relief should be available up to The minimum eligible investment is 250. Tax relief of 30% is granted in the year the shares are issued, the remaining 11% tax relief is granted in the tax year following the date on which the three year period expires, where certain employment targets or R&D targets are achieved. The required holding period for investments is three years. The maximum amount of funding that a company can raise through EIIS is 10 million, with a maximum of 2.5 million in any 12 month period. Further information is available on the Revenue website:

25 Seed Capital Relief An employee who leaves employment and invests in shares in a company, which carries on a new business, may claim a refund of income tax paid in the previous six years. This incentive is known as Seed Capital Relief. The maximum amount of the refund is capped at tax on 100,000 per year and it is possible to claim back the taxes paid in any and all of the previous 6 years subject to the annual limit (capped by the amount of the investment). Full details are available on the Revenue website: Given the unique circumstances of every business it is vital to get professional advice to see how your business might best maximise the potential benefits available under these schemes. Information is also available at Payroll Withholding Taxes If you employ someone in your business or company, you are responsible for withholding income tax, PRSI and the USC through the PAYE system and remitting the collected accounts to the Collector General. It is vitally important to note that if you decide to operate through a company, you will be obliged to withhold payroll taxes from any amounts you extract from the company for personal use (other than dividends), whether by way of salary, directors fees, or other drawings. The detailed procedures relating to the operation of PAYE are included in the Employers Guide to PAYE booklet issued by the Revenue. This is available to download from Revenue s website: The Employers Guide to PRSI- Booklet issued by the department of Social Protection is available to download from the Department website: Value Added Tax You must register your business for Value Added Tax (VAT) as soon as taxable supplies (i.e. your business transactions that are liable to VAT) exceed or become likely to exceed the limits for registration. For Irish established businesses, the current limits are 75,000 for the supply of goods and 37,500 for the supply of services for any continues period of 12 months. As soon as you become registered for VAT you must collect VAT on all taxable supplies made to customers. This is known as your output tax. Whether you are registered or not, you will be charged VAT on the majority of purchases, on the same basis, by your suppliers. This is known as your input tax. Information relating to VAT is available from the revenue website at: VAT is complex and it is important to seek advice from the outset. 23

26 DOING BUSINESS ABROAD In an increasingly global economy, more and more Irish companies are trading abroad. As well as considerable reward, foreign trade has its own difficulties and risks. Specialist advice is recommended when entering a foreign market. Matters to be Considered: Corporate structure aside from adopting a structure that works for your business, it is important to consider tax and minimise tax costs both in the markets themselves and on remittances Transferring assets and staff any such transfers are likely to have tax costs for the individual and/or the company. Ireland has introduced a Foreign Earnings Deduction (FED) to support efforts by companies to expand into the emerging markets. The FED will apply where an individual spends 60 days a year or more developing markets in Brazil, Russia, India, China, South Africa and a number of African countries. The FED allows a reduction in the income liable to income tax, calculated by reference to the qualifying income (salary and share awards) and the amount of qualifying days spent in the relevant countries. For further information on doing business abroad see Transfer pricing specific tax rules govern the price at which goods and services are transferred within a group structure Double taxation agreements these agreements, where they exist, avoid tax being charged locally and at home on the same profits. A list of Irelands current treaty partners can be found at Impact on staff do staff want to relocate? At what cost? What is the local recruitment market like? Regulation How well do you understand local laws and regulations? Do you understand their impact on your business? Foreign currency where relevant, can you mitigate against foreign exchange risk? Language and culture the impact of differences should never be underestimated Finance if required, is it available locally? In choosing a location, all of the above factors should be considered. In addition the following are important considerations: What markets does the location give you access to? Does it help you access new capital? Are there incentives or tax reliefs available to companies establishing a presence there? Do foreign companies have a history of success in the location? What are the costs, in particular taxation costs, to exiting the location? Remember to use your network of professional advisors, contacts and state agencies to source information on new markets. They can also use their own networks and contacts to open doors and make the process easier for you. Foreign expansion provides great opportunities. However don t under estimate the difficulties - all the implications should be carefully considered. We have a lot of experience in this area so do talk to us about how we can help. 24

27 FOREIGN EXPANSION MAY BE A KEY DRIVER OF GROWTH AND NECESSARY TO ACHIEVE SCALE. 25

28 MAINTAINING ACCOUNTS, FILING AND AUDIT REQUIREMENTS For an Irish registered company, it is a legal requirement to maintain proper books of accounts. Talk to us about how we can help you ensure compliance with all of your obligations. Properly maintained accounts will: Provide you with essential management information on a regular basis Save you considerable time and expense in preparing annual accounts Satisfy the requirements imposed on you by the Revenue Commissionaires Add value by facilitating financial due diligence for investment or exit purposes. The early stages Keep it simple, until you have mastered the basics Completeness and accuracy are the priorities Focus on cashflow not accounting entries Meet your tax compliance requirements When upgrading, seek to future proof your software by ensuring it will continue to meet your requirements as your business grows, in particular in respect of management information. Controls Money will probably be a scarce resource, so controls are critical. They will also instil confidence in your financiers. Focus on: Monthly bank reconciliations to ensure completeness and accuracy of records Track your actual expenditure against projections and consider in the context of available finance. Review expenditure to minimise waste or exuberance Review and understand your sales. How do they compare with your projection assumptions and your expectations of customer acquisitions, pricing etc.? Is gross margin as expected and if not, why not? Monitor debtors and stock levels closely to ensure that cash invested is not excessive Seek advice on revenue recognition, as it may not be appropriate to recognise all revenue when invoiced. Filing Requirements A basic requirement for all companies, whether trading or not is to file an annual return (Form B1) with the CRO (Companies Registration Office) at least once in per calendar year. Each company has an annual return date which is set when the company is registered. An Annual Return Date (ARD) of a company is the latest date to which an annual return must be made up. The annual return must be filed with the CRO within 28 days of the date to which it is made up. Companies are also required to disclose details of their accounts at the Annual General Meeting (AGM) of the company and to attach a copy of those accounts to the annual return filed with the CRO. In the cases of small and medium sized companies, as defined, abridged accounts are only required. The annual accounts and directors report must be signed on behalf of the board of directors by two directors. In addition, there must be a certificate, signed by both a director and the secretary, certifying that the accounts and reports are true copies of those laid before or to be laid before the company s AGM. 26

29 Audit Requirements The basic requirement is for a company to file a set of audited accounts with the CRO on an annual basis. However, in certain instances a company can avail of an exemption from the requirements of having its accounts audited. The Basic Conditions are as follows: In respect to the financial year concerned and the year preceding this: The company must be a company to which the Companies (Amendment) Act 1986 applies i.e. a Private Limited Company The amount of turnover of the company must not exceed 8.8 million The balance sheet total of the company is less than 4.4 million at the end of the financial year The average number of employees must not exceed 50; and The company must not be a parent company or a subsidiary company. Detailed information in respect of a company s filing requirements and the audit exemption is available on the Companies Registration Office website 27

30 THE NEED FOR GOOD FINANCIAL INFORMATION In the early stages you will have many demands on your limited resources. You will also have to closely monitor your business s performance to determine if the correct strategies are being followed. As you seek to raise finance or indeed exit, there will be extensive demands for financial information. The following criteria are essential features of your financial information: Accuracy, reliability and consistency Accessibility Relevance. By putting in place proper financial systems and controls you will ensure that the information you are basing your decisions on can be relied upon to be accurate and is consistent, thereby allowing meaningful comparisons over time. You must be able to access the information relatively quickly and without the need for extensive manipulation, which as well as taking time, increases the risk of errors. Ensure whatever financial systems you put in place, both computerised and manual, meet these requirements. Businesses can generate vast volumes of financial information and it is important that you focus on the critical information, often referred to as Key Performance Indicators ( KPI s ). In order to determine what your KPI s are, you need to understand: Your business s value drivers Your revenue drivers e.g. pricing, volume, discounts Your cost base e.g. fixed, variable, sunken. Obvious KPI s may include revenue per customer or location, cost per unit, margin per customer or unit etc. However, depending on your business you may need to consider more nuanced KPI s such as customer acquisition costs, churn rates, subscription rates etc. You should also consider monitoring cashflow and working capital through KPI s such as debtor days, creditor days and monthly cash-burn. Obtaining advice from your accountant at an early stage is very beneficial in ensuring that the correct KPI s are monitored and that your systems can generate the necessary information to do so. MAKING GOOD DECISIONS DEPENDS ON HAVING ACCESS TO RELEVANT AND RELIABLE FINANCIAL INFORMATION. 28

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32 YOUR BOARD OF DIRECTORS AND PROFESSIONAL ADVISORS There are minimum legal requirements in respect of director numbers. However, a growing company should look to expand on this at an early stage. It is important to bring in experience and knowledge early in your business development. Board of Directors Your board has a number of purposes: Determines strategy for the company Monitors performance Challenges the management team Ensures appropriate controls and procedures are in place to safeguard assets Ensures risk is managed appropriately Ensures good corporate governance is adhered to Provides a sounding board to senior management Provides comfort to outside financiers. Your Board will Comprise: Chairman (non-executive) Key member who sets the agenda and provides a link between the CEO and the Board Executive directors Key members of the senior management team, including CEO, CFO and COO Non-executive directors Non-employees who bring experience, specialist knowledge, contacts, but importantly, objectivity to proceedings. Prior to expanding your board, you may wish to consider establishing an advisory panel, with whom you can discuss your business in an informal manner. This provides you with an opportunity to develop relationships with potential nonexecutive directors prior to a formal appointment. Professional Advisors Professional advisors can be critical partners to supplement your teams expertise and include: Accountants Lawyers Corporate Financiers Marketing Professionals When Choosing External Advisors: Ensure they have specific experience relevant to your industry and can meet your technical requirements Look at their track record Choose those that can add value by being proactive and creative in their advice Ask for the basis of their fees. Focus on value and service not necessarily cost Ensure they have adequate resources to meet your needs, as and when they arise. Use your advisors wisely. Excessive consultation will increase costs. However, under-utilisation could result in inefficient use of your staff s time and possible costly mistakes. 30

33 DIRECTORS, EXECUTIVE AND NON-EXECUTIVE, HAVE COMPANY LAW OBLIGATIONS, WHICH THEY SHOULD FAMILIARISE THEMSELVES WITH, PRIOR TO ACCEPTING AN APPOINTMENT. 31

34 32 AT KPMG, WE ADVISE MANY AMBITIOUS HIGH GROWTH COMPANIES AND WE UNDERSTAND THE CHALLENGES YOU FACE.

35 HOW KPMG CAN HELP If you re an entrepreneur or high-growth company you ll know all about the need to deliver a return in the shortest possible time-frame and the pressures you re under to make a success of every project. That s where KPMG can help. We understand start-ups and high-growth companies and all the pressures you re under from yourself, your investors and everybody else who matters to your business. We have a proven record of working with ambitious entrepreneurs here in Ireland and all over the world. We work with businesses large and small helping the smaller ones grow and the larger ones stay large. If you are looking to grow - we should be talking. Especially if you believe you have a great product but know that you need help with other important things like tax, raising finance and figuring what really matters when you re trying to build a business. So please do get in touch. You ll find us friendly, approachable and interested in what you do. We can talk with you about matters at every stage of your business. We ve listed just some of things we think are important for you and your business at every stage of success. Start-up stage - Business model validation - Financial and commercial forecasting - Company incorporation - Corporate structuring - Tax Compliance - Securing tax and R&D incentives - Seed fund raising - Shareholder issues Growth and maturity stage - Funding - Development of financial reporting processes - Managing international tax issues - Tax planning - Audit and assurance services - Access to global industry experts within our network of contacts - Rewarding talent Mergers and acquisitions stage - Target search - Financial, tax and commercial due diligence - Transaction management - Structuring Exit stage - Option analysis - Business valuation - Investor search - Tax and corporate structuring - Transaction management - IPO support We understand what matters and we look forward to hearing from you. See our contact details on the back. 33

36 RECAP: START-UP SUCCESS THE BIG IDEA DOES YOUR IDEA MEET A NEED? Just because you love your idea doesn t mean it will work- so make sure it meets a need or is different or better. It s hard to build a business on novelty alone and many businesses fail as a result. Don t become a statistic! PLAN YES YOU KNOW YOU RE GREAT And of course your idea is the best ever. But if you don t have a properly costed and realistic business plan no one else will believe you or give you any money to help fund it! LEGAL GET IT RIGHT FROM THE START A limited company is usually the best approach - talk to us about what you need to do to set this up. BRANDING WHO SAYS LOOKS AREN T EVERYTHING? People do judge the book by its cover so make sure your business has a memorable, relevant brand identify that will stand out. And one that will stand the test of time. ASSISTANCE YOU NEED HELP No - you really do! So don t be afraid to ask. There are lots of resources to tap into - so talk to us about how we can help you short circuit the process. MENTORS HAVE YOU ANY FRIENDS? Seriously, you almost certainly know people who started their own business and did it successfully. Ask them for advice. It s good for their ego and will help prevent you from making mistakes! FINANCE CASH IS KING Finance is the oxygen of business and despite tough times there is funding available for good, well costed plans. We can help you assess your finance options. 34

37 TALENT PEOPLE ARE YOUR MOST IMPORTANT ASSET Yes it s a cliché. But it s true. You may be the product genius. But who will do the selling? Or the marketing? Or the finances? Get the best people on board ASAP. TAX IT S A CERTAINTY Get your tax affairs in order at the start or it will cost you sooner or later. It s also the law. GO GLOBAL DOING BUSINESS ABROAD IS AN OBVIOUS STEP You ll need scale to succeed and lots of Irish companies are expanding overseas to take advantage of great opportunities. As ever, you ll need help so don t be afraid to ask. MAINTAINING ACCOUNTS KEEP RECORDS You have to keep records and accounts for all sorts of reasons. These reasons include the tax authorities. It s also good for your business to track what is happening. GOOD INFORMATION MEASURE IT. MANAGE IT. Your accountant will help you assess what information you need to measure your business performance. Successful businesses do this very well. Be one of them. ADVISORS SURROUND YOURSELF WITH THE BEST The most likely people to fail are the know-alls. Because nobody knows everything, make sure you choose your professional advisors carefully and get good people on to your Board. KPMG A LITTLE ABOUT US We ve been working with high-growth companies for a long time. Now lots of them are an even bigger success so we like to think we can assist. So why not talk to us about how we can help. Our contact details are on the back - we re looking forward to hearing from you! 35