Scale-up companies

Preparing to scale up your operation

The demand for your product or service is increasing, but how do you maintain growth and stay ahead of the market? Your revenues are growing, but you need a more significant injection of cash to support your growing business. It’s vital that your business processes are robust and flexible enough to adapt and control the speed of your growth.

Scale-up funding

Meeting requirements and expectations
The business plan
Funding conditions

Meeting requirements and expectations

At the scale-up stage, it is likely that the business has some experience of raising finance through debt or equity funding. No matter how familiar a scale up is with raising funds it is critical that the business is in a position to continually keep up with the expectations and requirements of finance providers.

The business plan

Although a business at the scale up stage is likely to have a more sophisticated business plan compared start up or early stage, it is important that financing considerations are addressed. For instance, what are the funding requirements, how will these be met and how will the business pay back its finance providers?

Funding conditions

Traditionally equity funding was more readily available for the start-up and early stage sector compared to debt funding. At the scale-up stage, debt funding might start to become available to businesses. Before accepting any funding (be that debt or equity), the terms of the funding agreement should be carefully considered. The services of professional advisors should be obtained where necessary.

Expanding overseas

When a scaling company starts to expand overseas, there are many important considerations.

All taxes which could apply in the jurisdiction constitute significant cost to a growing business.

The rules around the level of presence that creates exposure to tax varies from country to country. They may influence a business’s decision when considering whether to establish a branch, a new company or create a joint venture.

The structure you put in place when expanding overseas should allow for efficient repatriation of your profits back to Ireland. It could also allow you to sell the company on a tax free basis in the future.

Groups of companies will want to manage the overall effective tax rate of the group. They will want to ensure that profits are generated in Ireland as much as possible.

As companies expand overseas, their exposure to foreign exchange risk increases. For Irish companies taking part in transactions in non-Euro currencies, many tax issues can arise. The mistreatment of FX transactions can be very costly.

The rules around the level of presence that creates exposure to tax varies from country to country. They may influence a business’s decision when considering whether to establish a branch, a new company or create a joint venture.

Retaining key talent

A key challenge for businesses at the scale up stage is retaining key talent. It can often be difficult for scaling businesses to offer key people the sort of remuneration packages offered by more established businesses.

Although scaling businesses might not currently be in a position to match the remuneration which key talent could get elsewhere, there are certain schemes that can be implemented to incentivise key people in the business. Where properly implemented, such schemes can help with cash flow management as the remuneration package can include equity rather than cash.

These schemes can be a significant and valuable element of an employee’s compensation package. They can promote employee loyalty and help the business achieve its growth objectives. If properly structured, certain schemes can also allow key employees to share in the growth in value of the business at CGT rates (currently 33%) rather than income tax rates (up to 52%/55%).

Tax reliefs are also available for employees working internationally. For instance, the Foreign Earnings Deduction, with over 30 qualifying countries, allows a tax deduction for Irish residents working abroad. The Special Assignee Relief Programme (SARP) provides income tax relief for individuals assigned to work in Ireland from abroad.

Brexit-proofing your scaling business

The potential implications of Brexit for Irish start-ups and scaling companies can't be underestimated. In economic terms, Ireland is the country which potentially has the most to lose from Brexit. The UK is Ireland’s largest trading partner and closest neighbour.

Every Irish business should undertake a “fitness test” of their current business model. Taking time to review current business strategy is time well spent and will pay dividends in future. Organisations should also start building flexibility into their operating models.

There are three things Irish businesses should do to prepare themselves for the possible impact of Brexit:

Define a set of basic assumptions to inform your Brexit planning. Everyone in the organisation needs to understand and use the same set of assumptions in all planning and strategy work.
What are the impacts of the assumptions on your operating model? Assess the financial impact on your business and identify the areas of greatest risk.
Using the risk analysis based on your assumptions, you should be able to develop an action plan to “Brexit-proof” your business as much as possible.