Launching and nurturing a business can be an exciting, if trying experience. Fortunately, entrepreneurs can connect with a host of business service companies that can assist with finances, operations and other activities during this critical time.
Provident Bank is one of them, and works hard to partner with startups and other businesses, according to Bill Ruckert, senior vice president, Specialty Lending, at the financial institution. He offered some basics, noting that before a bank can extend a loan to a startup, “the business should show it’s got some capital in place to support the initial cash burn, especially during the pre-revenue phase. With that accounted for, we may be able to help support the company with a working capital loan.”
Typically, Ruckert added, banks look to three repayment sources when they consider a loan request: “Personal guarantees; collateral like machinery and equipment, accounts receivable, or real estate; and cash flow. The would-be borrower should also be able to present a well thought out business plan with reasonable cash-flow and other projections.”
In the last two months, added Ruckert, “I’ve closed financing for two startup manufacturers — one is in pharmaceuticals and the other is a packaging company. Even though interest rates have been rising, they’re still historically low so I don’t think loan demand will be curtailed in the short term.”
As startup companies gain footing, they typically want to match their changing employee needs to their growth, said Dan Sheridan, president and chief revenue officer of ExtensisHR, which offers PEO (professional employer organization) and HRO (human resource outsourcing) services. “So they often ask us to provide PEO services,” he said, referring to a co-employment relationship with an employer, where the PEO is the administrative employer of record and shares certain employment responsibilities with the client company. Employers can gain economies of scale with a PEO by offering more benefits options, he added, sometimes at lower rates.
Startups in particular “often prefer a PEO model because it’s a bundled solution,” he said. “The primary objective is growth, and the owners and/or investors want to focus on the company’s core competencies, instead of being sidelined with human resources issues.”
Before designing a personalized HR solution, ExtensisHR professionals “engage in a needs analysis to determine the client company’s business goals and objectives, and their timeline,” explained Sheridan. “If it’s called for, we can offer full-service candidate screening and recruiting, including developing job descriptions and advertisements to post on various hiring platforms.”
Startups typically deal with a variety of issues, and one of the basics — whether it’s an initial business for a first-time entrepreneur or just the latest for a serial one — involves the structure of the new business, according to John Cromie, chair of the corporate and business law practice at Connell Foley and a member of the law firm’s Executive Committee.
“They also call upon us to advise on governance documents,” he added. “And that can depend, in part, on how many business owners are involved. If you have multiple partners it’s easier to share the financial burden, but then more people have a say in the decisions.”
The firm’s attorneys may also be asked to help with such issues as reviewing a lease or analyzing a real estate acquisition. “We’re also the gatekeeper for legal issues, including evaluating working capital loans, letters of credit and other matters,” Cromie said. “Family-owned businesses present additional issues, such as how to provide for family members that take a more active or less active role in the business.”
Cyber-related issues are gaining prominence, he noted, particularly as COVID-driven remote work models proliferate. “Platforms have tightened up their security, but it’s still not foolproof — and legal issues may arise if video-enabled meetings are hacked, for example. Also, as technology increasingly becomes embedded in business activity, the line between legal and business advice is getting blurred. We are now expected to be comfortable explaining the business implications as well as the legal implications of a course of action.”
One way to do that is to build a good foundation for a business. Aristotle Mirzaian, for example, is “a big believer in having your house in order.” But the founder and chair of corporate law practice at Curcio Mirzaian Sirot LLC noted that some startup founders skip important paperwork “because they think they know their business partner, so why bother documenting rights and responsibilities; or they don’t fully understand the tax and other implications involved with structuring their organization.”
To begin with, he said, entrepreneurs should have a Shareholders’ Agreement (for a corporation) or Operating Agreement (for an LLC) that addresses voting rights, how shares can be disposed, board structure and other nitty-gritty issues. “If you don’t have that in order, you may have problems later on,” he cautioned. “Who will make decisions about expanding the company, signing leases, or hiring new people? These are all matters that should be addressed and documented in the beginning, in order to help align owners’ expectations. It’s not just a matter of trust. If a conflict does arise, well-written agreements give an arbitrator or court a basis to discuss and resolve the issues.”
Attorneys at Curcio Mirzaian helped one of the law firm’s longest-tenured clients with many of these issues, added Mirzaian. “We first met them when the company was applying for a bank loan,” he said. “We initially drew up an Operating Agreement for the principals and the rest is a textbook success story. I communicate with the management team regularly, and essentially fill the role of their internal general counsel. Regular communication is important because if an issue does arise, addressing it early on usually makes it easier to resolve.”
But even a well-prepared startup can face a unique challenge: How can an organization with no track record let potential clients and others know that it’s a solid company?
A group of New Jersey medical professionals who formed an advocacy organization faced that obstacle, according to Jonathan Jaffe, CEO of Jaffe Communications. “No one had ever heard of the organization, so it’s the same kind of ‘credibility challenge’ that business startups have, because the nascent organization itself doesn’t have established relationships.”
When the care providers contacted Jaffe, “We crafted a comprehensive strategy to establish legitimacy for the group, comprising medical leaders in their respective practices,” he explained. “Our talented crew created a dynamic website logo and ancillary branding materials, and prominently featured the group’s board of directors, which included well-known industry professionals.”
Jaffe’s firm also launched an intense social media campaign, “helped to media train their speakers and worked with a prominent lobbying firm to hone their messaging for interaction with state lawmakers,” he added. “Within three months of contacting us, the organization was seen as viable, respected and vocal, with a solid reputation that normally takes years to establish.”
People want to know they’re dealing “with a credible organization that can deliver on its promises,” Jaffe noted. “But a new entity, by its very nature, does not have a history. We need to create it.”