Coronavirus and a Startup’s bottom-line
We all have heard that the landscape of our global workforce will look very differently in the next decade with a shift towards more remotely connected teams. While the concept of remote work is nothing new and we have seen companies proving the efficiencies of flexible-based teams for years, no one has really assessed what it would look like in the context of global crisis or pandemic.
While web-conferencing and collaboration applications surge in popularity and businesses experience the accessibility and productivity of remote-based tools at scale for the first time, there is also a dimmer side to a state of emergency that has an effect on both businesses and individuals’ bottom-line that we are already witnessing first hand: cancelled events, projects, initiatives and worse, lay-offs. With the current state of uncertainty, it’s important to recognize the effects Coronavirus may have on the future of work, both good and bad.
COVID-19 may very well change the way we hire our teams for the long-run. This could actually mean companies hire more remote people, so understanding what they are working on (not in a big brother way) is an additional side benefit for the business. It’s also a great opportunity for employees to execute on their deliverables with less distraction and burnout. Gallup research shows remote work actually requires less remote control for business and everyone can measure outcomes more objectively rather than the classical, “if they’re at their desk and I can see them they must be working” mentality. With remote work, if you set clear expectations and objectives are met, results speak for themselves. Plus with sophisticated conferencing imaging, remote workers can bring The Office home at any time!
For the businesses directly impacted by the state of pandemic, tough decisions need to be made and it’s understandable that managing expenses are considered crucial to help weather the storm of uncertainty, especially when revenue starts to slow. Companies may very well (if not already) be throwing their financial forecasts out the window and looking inward as to how they are going to succeed, or stay afloat, in the quarters to come. There are many ways to do this, and while it might seem impossible to come out ahead without drastically cutting expenses (and the lives associated with the expenses), financially savvy companies are leveraging a suite of tried and true strategies to increase bottom-line in an effort to maintain headcount, morale, and profitability.
Outside of savings by way of slashing overhead, recognizing that savings is the biggest and arguably most important strategy for a business lies in the fundamental principle that a dollar saved is a dollar earned.
Yes we’ve heard this from our parents and grandparents before, but let’s really break it down. When a company saves one dollar, it goes straight to the bottom line. That dollar you save has much more impact than increasing your revenue or ordinary cost-cutting measures; it’s helping your net income.
So what is the fastest way to increase net income and boost profitability without changing a thing?
Enter The Research & Development (R&D) Tax Credit: The #1 Government Funded Program for Startups
This permanent fixture of the IRS tax code (passed under the PATH Act of 2015) is available to any company that is developing, designing, or improving upon its products, processes, formulas, software and technology. It became popular starting in 2016 when a key enhancement was made to the incentive- Startup companies may now use R&D tax credits to offset their employer FICA payroll taxes (6.2% of payroll) regardless of profitability.
For example: a startup with $1,000,000 in engineering wages owes $62,000 in payroll taxes. By leveraging $80,000 in R&D tax credits, you could eliminate payroll taxes completely and boost profitability by 4%!
Surprisingly, it is estimated that over 90% of eligible Startups are missing out on dollars they’re entitled to, to the tune of BILLIONS of dollars a year. While most VCs will say their portfolio investments have a beat on it, like most things accounting and tax, this is also an assumption. Startup-friendly payroll company Gusto reported in 2018 that $32.5 million was processed through their platform, yet this only represented ~1000 of the 45,000 companies eligible. Fast forward to 2020, the IRS expects to distribute $148 Billion over the next 6 years, or $24B annually. That’s a lot of runway available for immediate use for growing companies!
That’s why we built TaxTaker. We help Startups access the capital they are eligible for that is both time and budget-friendly. Our team of experienced R&D accountants, engineers, and business ops professionals have invested in developing our own technology to automate a majority of the process for claiming R&D Tax Credits, which allows us to provide a fairly priced offering that equips Startups and their accountants with the confidence of a complete R&D Tax Credit study. We do all the legwork to ensure our clients claims are maximized and documented to meet all legislative requirements, and in turn our clients benefit from cash back for their activities and expenses every year…our average Startup client saves $41,000 annually!
Ultimately, it’s more important than ever that the health of people and the health of our financials are humming. So stay happy, healthy, and cash-positive Startups. Take the money that’s yours. You’ve got this!
Ari Palmer is the Co-Founder and CEO of TaxTaker, a technology company that automates R&D Tax Credits for Startups and their Accountants.
