Brad Silicani on finance priorities for startups

Brad Silicani, Anrok’s finance and operations director, spends a lot of time thinking about when it makes sense to address sales tax relative to all other issues that a finance leader must navigate.

It may seem like a difficult question — and there’s no doubt that juggling a company’s financial priorities is a difficult task. But Brad comes down consistently on the side that solving sales tax will provide significant time and financial benefits that far exceed the initial hurdle of putting a tax engine in place. Here are three reasons he urges startups to get a handle on this major aspect of business finance right away.

1. Non-compliance costs time and money. Simply put, non-compliance unnecessarily reduces your profitability and revenue. If you fail to collect sales tax you are legally required to remit, you still owe that tax to the given state. This means that whenever that state catches up with you, you’ll be on the hook to pay the tax that you could have collected from customers, plus any penalties and interest accrued due to your tardiness. Until you pay the outstanding sales tax due, you will need to book this as a liability and it can impact future borrowing or acquisition opportunities. Addressing sales tax now makes a positive impact on your bottom line going forward. You can even quantify the impact by using our estimation framework here.
2. Compliance demonstrates your maturity. You may believe that you can get away with staying out of compliance in various states in perpetuity. But such an attitude reflects short-term thinking that will naturally limit your company’s growth. Staying out of compliance in a given state is tantamount to saying you’ll limit your growth to a level at which you can continually fly under the radar there. A more responsible attitude demonstrates to your larger customers that you are a more mature business that is ready to play in the big leagues. Don’t forget, your larger customers will need to pay use tax if you don’t collect sales tax from them directly, so this is something that they will notice.
3. Audit risk is real. By staying out of compliance, you run the risk of getting caught and being forced to face the consequences. In fact, it’s a near certainty that you’ll get audited eventually, especially if you have employees in numerous states. Software companies should get prepared for this eventuality by getting into compliance on sales tax as soon as possible and by putting in place a system of record for transactions and how tax was handled in each state.
4. Your customers’ trust matters. Another reason to get into compliance with sales tax laws as quickly as possible is that large customers expect to be paying sales tax on their purchases. When a buyer purchases software from a company that should have collected sales tax, but did not, the buyer now owes use tax. Large corporations take their tax obligations seriously and may take issue with the extra work your non-compliance has created for them. If you’re a startup looking to sell upmarket, implementing sales tax now indicates to your customers that you’re a compliant and mature business.

Don’t wait for an in-house tax team

Sales tax compliance is a challenge that impacts revenue and risk for small and large software companies alike. The need is urgent, and finance leaders don't need — and probably can't afford — to wait for an in-house tax accountant or team to get sales tax compliance in place.

Luckily, you don’t have to. Anrok is specifically designed for SaaS businesses and is easy to set up and integrate with your billing and payment systems. Finance leaders at software companies can navigate the intricacies of software taxability out-of-the-box, regardless of prior experience with sales tax.