This post is part of a series in which we are sharing our experience of founding a company in Germany. We hope it might help others working their way through the foundation process. Read the first post in the series for more details.
Do-it-yourself vs. finding someone qualified to help
I’m a fan of the do-it-yourself (DIY) approach to life, that is getting things done without the help of experts or professionals. I like to tinker with mountain bikes or install dimmer switches or build a raised garden in the yard. DIY has some incredible benefits, particularly when it comes to learning and understanding the topic at hand. But there are many occasions when DIY is inappropriate, such as:
- When DIY keeps you from focussing on your top priorities
- When you are out of your depth and likely to make a mistake
- When the consequences of making a mistake are serious
- When DIY is not an option (e.g. for legal reasons)
With that in mind, I’ll share some of the things we learned while choosing our advisors. The ones we used during our foundation process were a tax advisor, a lawyer, and a notary. Of those three advisors, I see one as mandatory, one as highly recommended and one as optional (at least for a company foundation like ours).
> This is a question too difficult for a mathematician.
—Albert Einstein on Taxes
In every country I’ve lived in, the tax system has been very complex. I used the DIY approach to income taxes as an employee for a while but found the experience to be pretty painful and never really knew if I was claiming back everything I could. I use a tax advisor for my personal affairs today and think it’s money very well spent.
Achim recommended speaking to a tax advisor early in the process of founding our company, particularly as we wanted to clarify some specific questions e.g. about the rationale behind creating a holding structure. We’d need an accountant anyway because both of us were clear that book-keeping was not a core competency that we should be spending time on. We spoke to two companies that offered to take us on as clients to provide accounting and tax advisory services:
- A growing family firm, led by two brothers, who had taken over their mother’s business when she retired. They were clearly specialists in the field and they demonstrated a keen interest in working with startups.
- A very large tax advisory group, that grew by buying up smaller firms and providing shared software and infrastructure. They seemed to be leaders in digitizing the field.
In the end, our decision was clear: we chose the family firm. The deciding factor was the significant amount of time the partners of that firm spent speaking to us and helping us work through some of our initial questions before we had even committed to becoming their client.
It is possible to found a company without having an accountant and tax advisor in place. But shortly after foundation, a letter from the tax authority is sure to arrive in the mail and unless you’ve got an accountant on your team, you’ll probably want an advisor to take the accounting work off your hands so you can focus on your product. Involving a tax advisor early can be a big help and could avoid expensive mistakes.
Initially, I thought we could get by without using a lawyer. If I had invested enough time, we probably could have. If I was to found another company alone, I would not use a lawyer. But in our case, speaking to a lawyer was the right decision. The legal documents for foundation define key cornerstones of how the company functions and, more importantly, what happens if something goes wrong. In our case, with two founders with an unequal share in the company, there were a few important things to think about which I will highlight in another post. We chose our lawyer because we had seen his involvement in the startup community and we liked the way he openly shared his knowledge and intellectual property.
Finally, we needed a notary. You can’t found a company in Germany without one. The services a notary provides are pretty straightforward, so we decided to ask our lawyer for a recommendation. The notary ended up being part of a large US-based international law firm, so it felt like a safe bet. In the end, an administrative error by the notary’s staff ended up delaying our foundation for several weeks and costing us additional work, stress, and money. It was an honest mistake, but we felt it wasn’t handled proactively by the notary or his staff. Hence, in this case, we will likely select a different notary next time we need something.
Read the other posts in this series:
- Betting on the success of your business: why we decided to create a holding structure
- UG vs. GmbH: Selecting the business entity
- Choosing our advisors: do-it-yourself vs. finding someone qualified to help
- Planning for the best and the worst case: creating the foundation documents
- Making it official: notary, banks and the commercial register
- The cost of founding: a real-life example of founding a limited company in Germany
Disclaimer: We’re not lawyers or tax advisors, to stay on the safe side consult an expert before doing anything 😉