Over the past several years, I have worked with a number of businesses looking to expand, whether through organic internal growth, franchising, joint ventures, or other avenues. I could spend days and several posts writing on the various options available and how to determine which model is best suited for your particular business (and in time I will provide those posts). But this is not the post for those questions. Rather, this post is aimed at identifying the few critical players all expanding businesses should have on board at some point in the game. Obviously some will be needed sooner than others, but history has taught us that successful business owners are always looking ahead. So here is my (undeniably-opinionated) take on who should be (or eventually be) in your circle of trust.
1. Partners. Most expanding concepts that start off as sole proprietorships eventually morph into brands which require new perspective, additional capital injections, fresh leadership, and acquisition of focused operational skill sets. As these changes occur, one of the most important things to keep in mind is making selective decisions of who gets to join the team. We have all heard that “culture” often drives the train, so be choosy, be unafraid to limit your team to those who “get it” when it comes to your vision, and (above all) be certain you bring in those who are trustworthy. Business divorces are not fun, so do all you can to avoid them from the start.
2. Accounting. Not much can be worse than waking up on tax day to learn that those nice profits your expanding business has generated are going to drive your personal tax bill through the roof (assuming of course that your business is a flow-through tax entity, which most emerging businesses are…though that too is a topic which I will leave for another day). Obviously, if you can bring in a quality CPA under Step #1 above, then by all means do it. But if your business does not have that luxury, then find a reputable firm to assist on an as-needed basis. After all, taxes are one of only two guarantees in life, so manage them well.
3. Legal. Admittedly this is a shameless plug. But I always tell my clients that it is much cheaper to hire me early than to bring me in after there is a problem. Every business is subject to some set of legal regulations, so ask around and find a lawyer who understands those rules and who will serve you well. Having sound legal counsel will allow you to adequately protect your intellectual property, prepare favorable contracts, and develop an expansion plan that complies with the law. Like your accounting advisor, you can approach this a la carte unless and until you need an in-house general counsel. The key, though, is to just do it so as to minimize the risk of unknown legal issues that can drain two of your most precious commodities: time and money.
4. Money. I have your attention now right? Every business needs a capital source. But unless you are listed on a public stock exchange (in which case you are probably past the “emerging” brand stage) or your best friend from college is a decision maker at a major financial institution, you are probably better served by engaging and developing a relationship with a local or regional bank. This is not to say you should shun the big banks (in fact, there are certainly times when national-level banking makes sense). But I subscribe to the notion of relationships and believe healthy business growth begins with those in the community from which your brand emerges. And at the end of the day, you are more likely to gain access to capital from a source which knows and understands your business at its very core.
If you are planning to expand through franchising or a similar growth model, you should also consider developing a network of funding sources for your franchisees. Chief among these, though certainly not an exhaustive list, would be establishing an SBA-approved system that will allow expedited small business loans, and (given the popularity of self-directed retirement rollover plans) building a relationship with a reputable provider of IRS-approved “rollover as business start-ups” arrangements. Again, growth requires capital, and that capital is far easier to obtain when the facilitator knows and understands the brand.
5. Exit. This brings us to the second guarantee in life. Savvy business owners all know the term “exit strategy” so start planning it early, even when you have absolutely no intent to actually leave the business. Of course, this piece of the puzzle will evolve probably more than any other as you move from scratching out an outline, to preliminary tax planning, to more complicated estate planning, and on to full-blown wealth management. If part of your plan includes the sale of your business, then having an existing relationship with a qualified business broker will also be critical. Talking to the professionals early will allow you to plan your evolution and understand what lies ahead so as to identify to right time to make necessary changes.
There are undoubtedly more advisors you can and should add to this list, depending on the type and structure of business you have. But those identified above are, in my opinion, core members of the circle who are critical to all businesses and ventures.
Until next time, I bid you success in your expansion…
David L. Pratt II is a franchise and brand expansion attorney with DL PRATT, PC. Like all posts made on this blog, this posting is solely for informational purposes and is in no way intended to be, or to be interpreted or construed as, legal advice or as creating an attorney-client relationship.