technology and life sciences
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Technology and Life Sciences case study

Case Study

R&D Tax Planning

The Situation
A local technology company has recently raised venture capital and is beginning the process of hiring scientists to conduct various research and development activities. Further, the company is talking to a local university about performing aspects of research and development on its behalf. The company is looking to KPM to help maximize R&D tax benefits available on the federal and state levels, and to better understand the effects of using others to perform research on its behalf.

KPM Business Idea at Work
The KPM team reviews the anticipated research activities of the company to get a thorough understanding of its distinct nuances and anticipated R&D costs. KPM then advises the client on the differences between R&D costs (which are deductible) and start-up costs (which are not), providing recommendations on how to document activities and process to maximize benefits. KPM also instructs the client as to the contract requirements for its university partner to ensure certain payments are eligible for the R&D tax credit.

 

 

 

 


Equity Compensation

The Situation
A rapidly emerging software company needs to expand its talent and is looking to incentivize its employees through equity compensation, yet at the same time reward founders. The client looks to KPM to understand the appropriate equity plans, and the tax and financial reporting effects of each.

KPM Business Idea at Work
Understanding the goals of the founders, and taking into account equity compensation for both existing and future talent, KPM recommends a combination of options and restricted stock plans, providing ISOs to certain employees, non-qualified options to directors, and restricted stock to the founders. KPM provides the client with advice on the tax effects to the employees, directors and founders, including the 83(b) elections. KPM educates the management as to the appropriate structure of the plan, taking into account the valuation of the stock to ensure proper deferred compensation arrangements under 409A.

 

 

 

 


Life Sciences Credit

The Situation
A recently enacted state law provides various tax benefits to qualified life science companies. An established bio tech company reaches out to KPM to understand the incentive programs and their applicability to their business.

KPM Business Idea at Work
KPM summarizes all the incentive benefits available under the program, and provides a real-life estimate as to the applicability of the benefits to each aspect of the company’s business. KPM walks the client through the details of the application to become a qualified life sciences company, providing appropriate responses to questions and insights into the evaluation intent of each question.

 

 


Sale of Business

The Situation
An established software as a service (SaaS) business anticipates exiting through a sale to a larger competitor and is looking to hire an investment banker to aid in the process. The client looks to KPM to help interview the investment banker, make recommendations and understand future transaction value to the founders.

KPM Business Idea at Work
KPM makes referrals based on its wealth of contacts and aids the management in the interview process. To help ensure that management makes the most prudent choice, KPM develops a matrix of key evaluation criteria with which to grade the investment bankers. KPM educates the founders on the anticipated valuation range and the net financial benefits to them. As part of this process, KPM provides the client with distinct valuation methodologies employed by buyers so that founders can talk intelligently with potential buyers.

 

 

 


Outsourced CFO

The Situation
A start up Internet business looks to KPM to provide key financial advice, ongoing accounting monitoring, and monthly recurring outsourced CFO services.

KPM Business Idea at Work
KPM conducts monthly meetings with the CEO, providing key advice on all aspects of business operations, including; ROI analysis on marketing investments, advice on equity compensation, financial reporting review, reviewing equipment leasing vs. buy options, negotiating debt closings and various other financial and operational issues. The client is able to get the sound expert advice they need to expand rapidly without tying up significant resources in accounting and finance personnel.

 

 

 


Raising Capital

The Situation
An angel-backed technology company is looking to raise venture financing, and is seeking sound accounting and finance advice as they take the next steps in this process.

KPM Business Idea at Work
KPM educates the client as to the potential funding structures and the pitfalls of certain legal provisions, including standard preferences of preferred stock, convertible debt arrangements and certain legal ratchets and earn outs. KPM then helps the client prepare financial projections to accompany the business plan, ensuring that projections are supported by sound, defensible assumptions. KPM also aids the client in negotiating valuation ranges for the term sheet. Lastly, KPM reviews the detail of the final agreements for business, accounting and tax issues.

 

 

 


Audit and Audit Preparation

The Situation
A serial entrepreneur has two emerging growth companies — one has raised substantial private capital, requiring initial audit since inception, and the other is in the process of going public. The entrepreneur looks to KPM to audit the company backed by private equity, and to help the company going public prepare for the Big Four audit necessary for the public placement.

KPM Business Idea at Work
KPM conducts the audit since inception working with limited documentation available, preparing the appropriate roll up financial necessary for the investors. Additionally, KPM prepares the second company for registration and for the Big Four audit, assisting company management in writing and compiling the financial information necessary for SEC filings.

 

 

 

 


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