Improve your chances of winning VC funding by being tax compliant
Ensuring your company is tax compliant can impress venture capital (VC) firms, improving your chances of winning investment.
Improve your chances of winning VC funding by being tax compliant
Ensuring your company is tax compliant can impress venture capital (VC) firms, improving your chances of winning investment.
For startup businesses, finding an adequate source of funding is one of the most important factors in enabling future success. However, if a startup is not tax compliant, that can significantly impact its chances of receiving investments.
In this guide, we’ll show you how to help ensure your company is tax compliant and explain how this can improve your chances of winning VC funding.
Why tax compliance matters for VC funding
Having a solid compliance strategy in place before approaching a VC firm means that when you do receive funding, you won’t need to funnel a large amount of it into digital tax solutions.
Investing in compliance tools (like a tax calculations platform or e-invoicing software) before compliance becomes a problem can save your company money in the long term.
Preparing for an audit from a VC firm
One of the stages of the VC funding process is the completion of due diligence. The point of due diligence is to make both parties in the funding agreement aware of the risks and benefits involved. As part of this information-sharing process, the VC firm will complete an audit on the startup to verify their finances are in good standing.
A startup should prepare for a due diligence audit the same way it would for an audit from a tax authority, ensuring all business paperwork is in order, from financial statements to past tax returns.
Common compliance mistakes and how to fix them
Not charging tax correctly
Applying the correct tax rate whenever you complete a transaction can be difficult. Companies commonly charge tax incorrectly when they’re unfamiliar with tax regulations for the industry and country they’re operating in.
Understanding liability
Many startups, software-focused or otherwise, struggle with the concept of tax liability, particularly if they’ve recently expanded their business. Operating in a new country (or even a new city) might mean applying a new set of tax rates, a new method of registering for tax, or remitting tax to a new authority.
Collecting tax but not remitting
Even businesses with a firm understanding of their tax liabilities might not know where the money should go after it’s been charged to customers. The process of paying collected taxes is known as remittance, and is commonly overlooked by startups.
Get the guide, and more
Winning venture capital funding can provide all sorts of opportunities to your business.
If you’re ready to speak to a venture capital firm, but have concerns about compliance, get in touch with Avalara today.
