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- S 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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