Here's why, when it comes to valuing Australian startups, the government needs to nail it

Image: Fishburners.

The issue around how a startup’s valuation will be handled under the Australian federal government’s proposed Employee Share Scheme could make it either inaccessible to fledgling companies or potentially create a gravy train for advisors and accountants valuing the companies.

The Australian Tax Office is currently consulting with industry about the draft legislation and while many startups have said the changes to date have been positive what they want is a simple system so they can get on with building their companies.

S R Sheth & Co accountant Amit Shah, who deals with startups up to a valuation of about $10 million, said: “The valuation thing is complicated. I don’t know how they’ll value it or what value you can give to a startup that has lots of promise but no real certainty.”

Accountant to startups Amit Shah.

“Startups want it to be really easy and it doesn’t look like it’s going to be,” he said.

Many startups use options to attract and retain talent during their early stages and under the current system a bunch of workarounds had to be developed so startup employees weren’t forced to pay tax upfront on the shares.

“I do a lot of work for startups. They’re all broke, they’re trying to get a bunch of guys work for them for virtually nothing, as a glorified intern,” Shah said.

“If they have to engage a whole bunch of third parties – lawyer, valuer, accountant – its’s going to put it out of reach for the little guys who haven’t been funded yet or haven’t been funded enough.”

While recognising making the system complicated would deliver a bunch of extra work for him, he said for the businesses he serves it wouldn’t be the right move.

“Accountants have this thing where you always vote for the opposition at the election because they’ll change the laws and create a bunch of new work for us,” he said, adding: “It would be amazing for me – it’s true… [but] from the business level it’s cr*p.”

Shah runs accounting workshops for startups to help them incorporate, establish forecasts and assumption models to pitch to investors. He said startups at the seed level would probably be ok with the changes because “they’ve already potentially been funded or had some commercial success to afford to have the right people around them to advise them.”

But making the process simple is the most important thing, he said.

“Most of these guys don’t want to concern themselves with the details of how this works,” Shah said.

NOW READ: Some accountants will be salivating over an unsettled issue in Australia’s draft laws for shares in startups

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