5 Things to Consider When Selecting Equity Management Software

You simply cannot afford to get equity management wrong. Investors and employees expect precision. You must create accurate tax records. As your company scales, compliance often grows more complex. SEC, FASB, and IFRS regulatory requirements frequently introduce complexities that make equity management especially challenging.

Many companies are tempted to simply go with a broker solution. After all, several of the larger brokerage houses offer inexpensive or even free equity management solutions. But at what cost? “Free” products can turn out to be very expensive, especially if you don’t think ahead about what you’re getting or understand the limitations you may face down the road.

Here are five questions you should ask as you’re researching the best equity management software for your company.

Question 1. Will they be there to support you when you have a problem?

Equity management involves many fixed deadlines, and when you have a problem, you can’t afford to wait for answers. In most cases, you’ll need to speak to a knowledgeable person right away. The challenge is that many brokerage houses outsource their software support to third-party companies with poorly trained staff. Others offshore the process, prioritizing cost-savings over customer satisfaction.

Who do you want on the phone answering your support call? Do you want to speak to a fresh-faced trainee who is only a few weeks into the job? Or would you prefer to work with an expert in equity administration who understands the regulations as well as the software?

Before you make a decision, speak with existing customers and ask about support. When time is critical, it’s important to know you’ll have the support you need.

Question 2. Will you lose the option to switch brokers down the road?

When you opt for an equity management solution from one of the big brokerage houses, you’re committing to a long-term relationship. It’s in the best interest of the broker to lock you into working with them. But the same is not true for you as a customer.

How important is it for you to be able to switch brokers down the road, if you should need to? Even if you have that freedom contractually, you may find that there are high costs involved with choosing a new broker. If you’re forced to transition to new equity management software, what’s required? How easily can you export the data so you can migrate it to the new system? How long will it take to implement your new software, and how much will it cost?

It’s important to view this decision in terms of TCO – total cost of ownership. That means factoring in the cost of implementation, or in this case, the cost of re-implementing new software every time you want to switch to a new broker.

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Question 3. Will it still work well for you as your business scales?

As your company grows through various rounds of funding, through IPO, and potentially even the complex world of public company equity and reporting management, you’ll want software that can grow with you without needing to switch providers midstream.

Smaller companies can often get away with relatively simple equity management software, but as they scale, things can start to get complex very quickly. This creates significant challenges at precisely the wrong time. The company is growing quickly, new employees are coming on board, others may be leaving, and fresh rounds of investment are coming in. These factors introduce complexity at a time when company resources are already stretched to their limits.

Small-scale solutions may not be able to handle higher volumes as you grow. For example, how long will it take to run reports for your growing base of employees? Don’t wait to find out; speak to existing customers who’ve been through this growth phase to understand how well the software handles it.

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Question 4. Does it come with independent professional advisors?

Equity management software is critically important for growing companies, but there are times when you need something more. As your organization grows, managing cap tables becomes more complex and more onerous. You bring new hires on board, you issue options, shares eventually vest, and some of your employees leave the company.

The process of managing equity compensation can quickly become extraordinarily difficult and tedious. The right software will help you to automate and streamline your equity management processes, saving time and increasing accuracy. But if it’s not paired with a knowledgeable team of experts who will be there for you as you grow, then you’re only getting half the picture.

Very few equity management solutions are backed up by professional advisors who understand the intricacies of equity compensation plans and the associated compliance requirements that come with them. As you consider your options, find out about each vendor’s equity administration services. Will they be there to offer you the flexibility of outsourcing some elements of the process, or even to insource those functions at a later date?

Question 5. Will it address your reporting and compliance needs?

Reporting and compliance are essential requirements in equity management. It starts with ASC 718 reporting, which ensures that compensation is properly recorded in your company’s financial statements. Things can quickly get complicated, though, as tax accounting and reporting come into play.

As you shop for equity management software, find out whether it can handle things like deferred tax asset and deferred tax benefit calculations, Additional Paid in Capital Pool amounts, and jurisdictional tax allocations. For late stage private companies and public companies, how well does the software handle ESPP calculations and reporting to cover the complexities of SEC, FASB, and IFRS regulatory requirements? For public companies, it should handle proxy reporting as well.

For rapid-growth companies, choosing the right equity management software is essential. By doing your homework now and carefully vetting the options before you, you’ll save time, money, and headaches down the road. Certent Equity Management from insightsoftware offers you flexibility, with software and equity administration services to meet the needs of any company, from small startups to mid-cap private firms and public companies.

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