Proactive Ideas for Brands and Key Insights for Growth

Insights from BeautyMatter’s Webinar “Numbers, Taxes, Action! Proactive Accounting & Tax Strategies

As beauty and consumer packaged goods (CPG) brands scale, they face a unique set of challenges—from securing the right funding to navigating complex tax regulations and structuring deals. These hurdles, if not addressed strategically, can stand in the way of long-term success. To empower brands with actionable insights, BeautyMatter recently hosted the webinar “Numbers, Taxes, Action! Proactive Accounting & Tax Strategies” in partnership with Anchin Accountants and Advisors (Anchin) and Rosenthal & Rosenthal.

Led by Anchin beauty and CPG industry specialists Carolyn Naporlee-Cipolla and Rachel Langenthal, the discussion shed light on practical strategies to help brands build a strong financial foundation, unlock tax-saving opportunities, and adapt to an ever-changing industry landscape. With a focus on strategic planning and expert guidance, the webinar offered a roadmap to help brands confidently tackle these challenges and position themselves for sustainable growth.

Key Highlights of the Discussion

Preparing for Fundraising:

Fundraising is often a critical step for growing brands, and thorough preparation is key. Financial statements must be well-prepared and presented according to a recognized accounting framework, such as cash basis, tax basis, or generally accepted accounting principles (GAAP). Investors rely on these financial statements to gauge the health of a business, making accurate inventory costing, revenue recognition, and receivables paramount.

Founders should be well-versed in their business’s metrics, including inventory levels, cash flow and overall financial performance. Investors often lose confidence when founders cannot answer questions about these elements thoroughly. Additionally, brands should stay current on all federal and state filings, as missing or late filings can derail deals. Thorough presentation of financials and projections are also essential to building investor trust and avoiding pitfalls during due diligence.

Understanding Stock vs. Asset Sales:

When structuring deals, brands should carefully weigh the differences between stock and asset sales.

• Stock deals: Sellers often prefer stock deals due to the lower capital gains tax rates applied to the income. In this type of transaction, it’s important to note that the buyer must assume all liabilities of the company.
• Asset sales: Buyers may favor asset sales as they can select specific company assets and benefit from a step-up in basis, which reduces future tax liabilities. However, income from asset sales can be taxed at ordinary rates, depending on the nature of the assets sold. In this type of transaction, the buyer assumes only the liabilities that are agreed upon.

Carefully evaluating the pros and cons of stock versus asset sales—and working with experienced legal and accounting professionals—ensures that deal structures align with the brand’s financial objectives while balancing the needs of both parties.

Taking Advantage of Qualified Small Business Stock:

For founders and investors, the Qualified Small Business Stock (QSBS) tax incentive is a compelling benefit of selecting a C-Corp structure. This federal incentive allows for the exclusion of a portion of capital gains realized from the sale of QSBS. The exclusion amount is significant—the greater of $10,000,000 or 10 times the stock’s adjusted basis—making it a highly attractive opportunity for those planning an eventual exit.

To qualify as QSBS, four criteria must be met:

1. The stock must be originally issued by a domestic C-Corporation.
2. The corporation’s gross assets cannot exceed $50 million before and immediately after the issuance of the stock.
3. The stock must be held for more than five years.
4. The exclusion applies only to non-corporate taxpayers.

By proactively structuring their business to meet QSBS eligibility requirements, founders and investors can unlock significant tax savings. Understanding these criteria and planning ahead can make a meaningful difference when it comes time to sell.

Maximizing the Benefits of the 83(b) Election:

For founders receiving restricted stock, an 83(b) election provides significant tax-saving opportunities. By filing this election within 30 days of the stock’s issuance, founders can opt to pay taxes on the fair market value at the time of granting instead of vesting. This allows any future increase in value to be taxed as capital gains rather than as ordinary income, resulting in considerable savings.

This election is particularly beneficial for founders expecting significant growth in their company’s value, making it a critical consideration during equity compensation planning.

Avoiding Common Due Diligence Pitfalls:

The due diligence process can uncover financial missteps that may jeopardize deals if not proactively addressed. Common issues include:

• Incorrect inventory costing: This can diminish investor confidence and impact financial projections.
• Misclassified expenses: These can lead to adjustments in earnings before interest, taxes, depreciation, and amortization (EBITDA), further complicating the process.

Maintaining accurate, compliant, and properly categorized financial records is essential to avoiding these pitfalls. Careful preparation can prevent unnecessary obstacles and streamline the due diligence, paving the way to a successful transaction.

Managing Tax Nexus for Remote Employees:

The rise of remote work has created new tax compliance challenges for brands. Remote employees often establish a nexus in their respective states, triggering income tax filing requirements. Payroll filings often provide states with this information, even when the payroll amounts are minimal.

Brands should proactively assess their nexus exposure and file appropriately to avoid penalties. Working with a state and local tax professional to help stay on top of these obligations is essential in today’s increasingly remote workforce environment.

Collaborating with Lenders:

Working with lenders requires a careful review of loan agreements to ensure the terms and covenants are realistic and align with the brand’s cash flow needs. Lenders often rely on accountants to review draft agreements and provide feedback on critical terms. This collaboration ensures that agreements are both fair and practical. A strong team of advisors can help brands navigate these agreements efficiently and protect their financial interests.

The insights shared during this webinar highlight the importance of preparation and strategic planning for emerging brands. From fundraising to deal structuring and tax compliance, success hinges on accurate financial reporting, proactive tax strategies, and collaboration with knowledgeable advisors. By focusing on these key areas, brands can build a strong foundation for growth, seize new opportunities, and chart their path to long-term success with confidence.

For more information on how to position your brand for future growth and continued success, please reach out to Carolyn Naporlee-Cipolla, Rachel Langenthal, or your Anchin relationship partner. To view the webinar in its entirety, click here.