The technology industry is a fast-paced, dynamic environment that requires you to continuously focus on your business operations in a highly competitive market saturated with innovation, disruption, data privacy considerations and even ethical issues. What can entrepreneurs in the tech industry do today to survive, thrive and grow in the face of numerous challenges?
Whether you are running a Software-As-A-Service (SAAS) company, starting up in AdTech or setting up a cryptocurrency strategy for your business, here are some tips and best practices for technology entrepreneurs to navigate current trends, opportunities and challenges to stay ahead of the tech game.
1. Take Advantage of Tax Credits
One of the largest expenses typically incurred for early-stage and development-stage companies are costs associated with research and development (R&D) activities. Opportunities may exist when developing new products and ideas to reduce payroll tax liability and cover the cost of supplies and third-party contractors by qualifying for a refundableR&D tax credit. The R&D tax credit is just one example, and your company may benefit from other federal and state tax incentive programs.
2. Going Public? Start Preparing Early
Preparing for an IPO (initial public offering) is an enormous task. Going public requires credible, audited financial statements under PCAOB guidelines to comply with strict SEC regulations. Your accounting team will need ample time to produce these statements. You’ll also want to ensure you have the correct quality controls in place to adhere to the strict accounting and financial reporting rules and regulations of a public company.
3. Keep Current With Accounting Technology
The future of auditing is evolving into a collaborative experience and can bring better value and broad insight to your business. Promoting an innovative internal mindset and ensuring your business advisors share this outlook will help your company adopt innovative technologies more effectively. Side-stepping advancements can cause your business to fall behind in value-add data analysis, business intelligence and data security.
4. Use Data Analytics To Create a Competitive Advantage
Properly capturing and understanding company data can be challenging, especially for early-stage companies, without the right tools. Using data analytics and Artificial Intelligence (AI) can help you capture, store, share and analyze your data to make smarter decisions for your business. Are you harnessing the information in your databases and your core content repositories? If not, these tools will help you spearhead innovation in data analytics:
- Microsoft Power BI – Turns disparate data into real-time visual reports.
- Azure Analytics – Data analytics tools to support enterprise-scale data needs.
- Cloud Computing – Data security and a gateway to developing AI tools.
5. Prioritize Internal Controls With SOC Audit Reports
System and organization controls (SOC) audit reports are a series of comprehensive internal control reports that a licensed CPA firm can only prepare. For example, if a tech company uses third-party vendors to process or store data, a SOC report will provide transparency surrounding the supplier’s IT and business process controls. There are different levels of SOC reports, including a cybersecurity SOC report.
6. Focus On Cybersecurity
All companies are targets for cybercrime, and thorough cybersecurity controls and assessments go beyond a single engagement with your cybersecurity team. You need a plan to ensure your information security solutions and strategy implementation protect your business’s critical assets and operations. And, if the worst does happen, you must have an incident response strategy in place to contain a cyberattack and recover quickly. A crucial first step is for a business to monitor its Cyber Risk Score, which predicts the likelihood of a significant data breach and identifies measures to strengthen systems.
7. Consider Outsourcing Operations To Keep Up With Growth
As a business leader, you need time to focus on your trade secrets, R&D, drive growth and provide unique value propositions within the market. If you find day-to-day operations are taking up too much time and it is proving difficult to scale your in-house finance and accounting function, outsourced accounting systems and services (OASyS) may be an excellent temporary or permanent option. Sub-contracted accounting, finance and CFO services can create greater flexibility, compliance and cost savings in a scaleable manner to support the growth of your business.
8. Watch Out for ASC 606 Revenue Recognition
Public, private and not-for-profit entities that enter into revenue contracts with customers must be ASC 606 compliant. Consequently, most tech companies will see the impact of ASC 606 on their revenue accounting and potentially their financial reporting, processes, systems, internal controls, financial ratios and contract language. These changes may be significant, notably when a business offers implementation or upfront customization services. Accurate revenue recognition is essential as it directly affects the integrity and consistency of a company’s financial reporting.
9. Prioritize ESG Considerations Upfront
It is more important than ever for founders and entrepreneurs to consider Environmental, Social and Governance (ESG) issues from day one to bolster the health and longevity of their business plans. Here are some examples of strategies delivering on the bottom line while making the world a better place.
- By reducing energy consumption, a company can reduce costs and better manage its carbon footprint – a strategy that consumers increasingly demand and is soon to be regulated by the SEC. And using renewable energy sources may lower energy costs while avoiding price spikes associated with fossil fuels.
- The Great Resignation has called for an even greater focus on company culture. A company with an aggressive growth plan needs to implement a robust employee recruitment, retention and training strategy to support its growth and remain attractive to talent. As leaders and entrepreneurs, it is our responsibility to create an equitable path of opportunity for the upcoming generation of tech leaders.
- Initiatives such as financial donations and drives for underprivileged groups, resume workshops and interview training at high schools benefit the local community and create harmonious relationships that generate support and potential investment for a business.
- Identifying and addressing governance risks and opportunities will allow a company to avoid costly governance-related scandals. Key factors to consider when investigating your company’s governance structure include the role and makeup of the board of directors, executive oversight and compensation and overall corporate performance measurement strategies.
10. Don’t Forget About Personal Tax and Estate Planning
Founders and executives of tech companies face unique situations and tax issues, especially when a business is a startup or in a high-growth phase. Making the right choices about how and when to pay senior team members can mitigate personal income taxes and maximize wealth, so long-term personal and financial goals can be met. Qualified Small Business Stock (QSBS), sometimes called founder’s stock, is one-way entrepreneurs are rewarded for their hard work and dedication in getting a company up and running.
Contact Us
For more information on this topic, please contact a member of Withum’s Technology and Emerging Growth Services Team.
