How Can I Get Money to Start My Own Business by CrisLapuz


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									How to get help from
outside professionals
Auditors, lawyers, and management            to you as a client, and those who            necessary to gain a level of confidence
consultants can provide cost-effective       don’t handle themselves properly won’t       in your operations in order to vouch for
services and expertise you can’t             last in their profession.                    you. They’ll check your accounting and
yet afford to maintain in-house.                As a practical matter, the more you       control procedures, spot check your in-
                                             take care of their well being, the more      ventory count, look at your cash flow
                                             likely they can afford to give you their     to see if you’re solvent, talk to em-

                                             attention and loyalty. Of course, you        ployees to verify the status of the
    tarting your own high-tech business      can’t make the same demands on               company, and ask you to represent to
                                             them as on your full-time employees,         them that what you told them is truth-
is exciting, but you are always re-
                                             but neither do you have the same             ful. To the degree that they question
source-limited. Outside professionals
                                             commitment and fixed costs. Human            your integrity or sense anything that re-
like auditors, lawyers, and consultants
                                             relationships always get back to the         sembles dishonesty, they’ll apply more
can provide services you need and ex-
                                             principle of reciprocity — give to get       due diligence — at your expense.
pertise you can’t afford to maintain in-
                                             — which is basic to success in any busi-        Good auditors can tell you a lot
house. In this segment of Business En-
                                             ness.                                        about your business because they know
gineering, I describe what these out-
side professionals can do for you,
what constitutes a professional rela-
tionship, and how you can derive the
greatest benefit without running up a
big bill. I also discuss directors, even
though they’re substantively and legally
insiders, because some of the general
comments about outside professionals
also apply to them.
   The first principle is to select people
in whom you have trust and con-
fidence. In all cases, go with the best.
Choose professionals who have helped         Working with your auditor                    how to interpret the numbers. They also
                                             Your accounting firm not only helps          have access to many accounting and
clients with needs similar to yours. Talk
                                             with accounting-related issues but also      operational details you probably don’t
with those clients and make sure they
                                             provides credibility. For example, when      dwell on. Because of their experience
were happy with the results. Then,
                                             you apply for a loan, your banker            and their outsider’s perspective, they
once you’ve selected your outside
                                             takes comfort in knowing that a trust-       can draw useful inferences about what’s
professionals, work with them more or
                                             worthy outsider has verified your            going on, what your options are, and
less as you would with your employees
                                             numbers. The same goes for the IRS           what needs to get done. Together with
(see Laser Focus World, Nov. 1995, p.
                                             and your investors.                          your lawyers, they can help you develop
59). It’s all too easy to treat them as
                                                Your accounting firm faces the ten-       a strategy that’s consistent with your
external, temporary help. But every
                                             sion of serving two masters, you and         goals and with what the system will al-
human being responds to warmth,
                                             the outside world. Your auditors re-         low you to do. Most big accounting
trust, care, and long-term relationships.
                                             solve that conflict by operating totally     firms now also offer consulting services
   Your outside professionals will be
                                             within professional guidelines. For ex-      to help you tie together loose ends.
more strongly motivated if they feel
                                             ample, they will help you avoid over-        They have expertise in information sys-
involved and responsible, and they’ll
                                             paying your taxes, but they will never       tems, materials planning procedures,
be better equipped to help you if they
                                             participate in tax evasion. Their starting   and even manufacturing processes.
understand your business. First You
                                             point is to serve your needs. Knowing           My preference is definitely to go for
have to learn what they do, how they
                                             philosophically how far you want to          one of the Big Six accounting firms. In
work, and what to expect of them.
                                             push the boundary, they can apply the        addition to giving you more credibility,
Then you have to provide them with
                                             rules and regulations to help you            they can introduce you to valuable con-
the big picture as well as the details
                                             achieve what you want to do.                 tacts and help you recruit key person-
about your business. In most cases,
                                                Think of your auditors as representa-     nel. They have a network of accounting
you can trust them with proprietary in-
                                             tives of the government and of out-          and finance professionals from client
formation. They have a legal obligation
                                             side shareholders. They’ll do whatever’s     firms, and they also have a natural flow
of people who leave to get jobs in in-       take on projects that require senior        as they develop an intuitive understand-
dustry after becoming CPAs (certified        executives you don’t have on board.         ing of your business and your people.
public accountants).                         An outsider can also act as an impartial    So let’s consider in some detail the role
   Big accounting firms are not neces-       third party to help you resolve con-        of the board of directors, how to se-
sarily impersonal because you’ll work        flicts. Working with management con-        lect them, and how to work with them.
with individuals assigned to your ac-        sultants is very different from working        The board represents the minority
count. You and your colleagues can           with technical consultants, however.        shareholders and looks after their inter-
foster the bond by establishing rela-        Management consultants are often            ests. The board has two major responsi-
tionships both at the top and at the         more expensive by at least a factor of      bilities: to hire and fire the chief execu-
working level. Most big firms grow           two. And since management problems          tive and to make sure the company is
their business by incubating relation-       and the data required to solve them         solvent. Their approach is generally to
ships with small growing companies.          cannot be well defined, you can’t as-       install a management team they have
They don’t necessarily charge higher         sume management consultants will re-        confidence in, then to make sure the
fees than small firms, even though their     duce your work load. In fact, they’ll       company has a viable strategy and ade-
hourly rates are higher. They charge a       usually create work for you and your        quate resources to execute it. A profes-
small fraction of their normal fee ini-      staff because they need support.            sional board will not meddle in the op-
tially, and they’re usually willing to ne-      You’ll want to select a consultant       erations but will challenge the manage-
gotiate a fixed annual fee. Whomever         with care, making sure that the one         ment and act as mentors. They will re-
you choose, you can keep your fees           you pick has had a successful career        view your operating results personally
low by preparing all your tax schedules      and experience relevant to your needs.      and also rely on independent findings of
in house and, in the long run, by keep-      A good consultant will tell you the pros    your lawyers and auditors. Board ac-
ing your procedures simple and               and cons of your approach and rec-          tions are required for any decisions that
straightforward.                             ommend alternatives, rather than mak-       may have a significant impact on com-
                                             ing problems more complicated. Do           pany assets, such as selling stock or is-
Lawyers                                      your best to define the project and         suing stock options, committing to a
To develop a plan for executing your         find a consultant particularly skilled at   major building lease, and changing exec-
long-term strategy, you need not only        it. Avoid surprises by asking for a cost    utive compensation.
accounting, financial, and tax exper-        estimate before the work begins.               In putting together the board, select
tise, but also legal expertise. Legal                                                    outside people who have confidence in
professionals play an extremely im-          Bankers                                     you and can help you move forward
portant role because they help busi-         Your banker can provide money, serv-        vigorously. Choosing friends who know
ness function smoothly. The legal sys-       ice, and an introduction to other pro-      you well can be helpful, so long as the
tem is logical, and lawyers know the         fessionals, but don’t expect a loan if      working relationship remains profession-
rules.                                       your business can’t justify the risk.       al when it comes to hard decisions. It’s
   Some of the rules are hard and fast;      Bankers are conservative because            wrong to staff your board with the in-
others are subject to interpretation. A      banking is a low-margin, highly regulat-    tention or expectation of protecting
good lawyer knows how far to push            ed business. Even so, business deci-        your interests over those of minority
without getting you into trouble. At         sions are always somewhat subjective.       shareholders. In the beginning, you can
New Focus, we use the best law firm in       Keep your banker informed of good           keep the board small, perhaps two out-
the San Francisco Bay Area; our lawyer       news and bad news so a trusting rela-       siders plus yourself, so decisions can be
was selected as one of the 20 best           tionship can develop over time.             made quickly. Later on, you can add
lawyers in California. Here again, you          You may deal with several banks,         directors to augment the skills of the
are dealing with individuals. Pick a law-    each of which specializes in a particular   board as the business grows or
yer who makes you feel comfortable           service. For example, the bank that         becomes more complex.
and who explains complex issues in           lends money to your business may not           It’s well understood that you should
language you understand.                     be efficient at international transac-      have diversity on the board. People
   My comments in favor of big ac-           tions. For borrowing, you pick a bank-      tend to favor directors with a big repu-
counting firms apply here as well. Big       er more than a bank. Find someone           tation, and that often means executives
firms charge higher hourly rates than        with lending authority who understands      from big companies. Make sure you
small firms. But when the issues are         the problems you face as an entrepre-       pick people, who have some apprecia-
complex, you’ll save money if the            neur, someone who relates to you as         tion for operating a small company and
documents are “already in the word           an individual and is willing to go to bat   who can give you quality time when you
processor,” and that’s more likely to        for you. Develop a relationship with        need it. People without entrepreneurial
happen in big firms. Big firms are also      that person and be prepared to follow       experience often can’t identify with you
more likely to take a longer-term view       him or her to another bank if neces-        or understand the problems all start-up
on fees, knowing significant profits will    sary.                                       companies face.
come from handling major corporate                                                          Because the board positions are so
issues such as going public.                 Board of Directors                          important, reserve them for people
                                             Advice and guidance from your direc-        whom you can’t engage in any other
Management consultants                       tors can have a big impact on your          way. Most directors serve because they
Consultants can provide expertise that       company. Over time, the directors will      want to be helpful and to broaden their
you need only occasionally. They can         become an invaluable sounding board         experience; rarely do they work for the
modest fees or stock options. Most        shown that most such relationships         prophecy, blind faith works well most
directors,   however,      want   D&O     break up in four to five years, usually    of the time. By and large, people be-
(directors and officers) insurance cov-   with bitter feelings. How can that be?     have consistently, in accordance with
erage absolving them of liability for     My own view is that such relationships     their own subjective logic. You can
company debts, especially when the        can also stem from the need to con-        avoid surprises if you learn something
company plans to go public.               trol and feel superior. As one learns      about the experiences of the people
                                          from the mentor, dependence evolves        you choose as your mentors and seek
A personal note                           into independence, and the original        to form a self-consistent picture of why
It’s great to have a mentor to provide    needs can no longer be satisfied.          they are entering this relationship with
ongoing counsel and advice in your          In business, as in life, we are con-     you. “Trust until untrustworthy” is how I
business ventures. This kind of won-      stantly entering into relationships. Be-   work with people, and that works most
derful relationship can stem from true    cause our expectations for a relation-     of the time. To succeed in any venture,
friendship and caring. But studies have   ship often become a self-fulfilling        you’ll need to hone your people skills.

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