Starting and maintaining a business can be an exciting and even challenging experience. Fortunately, entrepreneurs can connect with a host of business service companies that can help 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 provide a loan to a startup, “the company must show that it has capital in place to support the initial cash burn, especially during the pre-income phase.With this taken into account, we may be able to help support the business with a working capital loan.
Typically, Ruckert added, banks look to three sources of repayment when considering a loan application: “Personal guarantees; collateral such as machinery and equipment, accounts receivable or real estate; and cash flow. The potential borrower should also be able to present a well thought out business plan with reasonable cash flow and other projections.
In the past two months, Ruckert added, “I have closed funding for two start-up manufacturers – one is in pharmaceuticals and the other is a packaging company. Even though interest rates have gone up, they are still historically low, so I don’t think demand for loans will be reduced in the short term.
As startups gain a foothold, they typically want to match their changing employee needs with their growth, said Dan Sheridan, president and chief revenue officer of ExtensisHR, which offers PEO (professional organization of employers) and HRO (human resource outsourcing). “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 some of the responsibilities of employment with the client company. Employers can achieve 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 owners and/or investors want to focus on the core competencies of the business, instead of being sidelined by human resource issues.”
Before designing a custom HR solution, ExtensisHR professionals “engage in a needs analysis to determine the client company’s business goals and objectives, as well as their timeline,” Sheridan explained. “If required, we can offer a full candidate screening and recruitment service, including the development of job descriptions and advertisements for posting on various recruitment platforms.”
Startups typically deal with a variety of issues, and one of the basics – whether it’s an initial venture for a first-time entrepreneur or just the last for a serial venture – involves the structure of the new venture, 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 ask us to advise them on governance documents,” he added. “And that may depend, in part, on how many business owners are involved. If you have multiple partners, it’s easier to share the financial burden, but more people have a say in decisions.
The firm’s lawyers may also be called upon to intervene on issues such as the review of a lease or the analysis of a real estate acquisition. “We are also the gatekeeper for legal matters, including the valuation of working capital loans, letters of credit and other matters,” Cromie said. “Family businesses present additional challenges, such as how to support family members who take a more or less active role in the business.”
Cybersecurity issues are growing in prominence, he noted, particularly as COVID-focused remote work models proliferate. “Platforms have beefed up their security, but it’s still not foolproof – and legal issues can arise if video meetings are hacked, for example. In business activity, the line between legal and business advice is blurring.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 this is to build a good foundation for a business. Aristotle Mirzaian, for example, is “a great supporter of order in his house”. But founder and chairman of the corporate law practice at Curcio Mirzaian Sirot LLC noted that some startup founders skip important documents “because they think they know their business partner, so why bother documenting rights and responsibilities? ; or they do not fully understand the tax and other implications involved in structuring their organization.
To start, he said, entrepreneurs should have a shareholders agreement (for a corporation) or an operating agreement (for an LLC) that deals with voting rights, how shares can be divested, the structure of the board of directors and other substantive matters. “If you don’t have this in order, you could have problems later,” he warned. “Who will make decisions about expanding the business, signing leases or hiring new people? These are all issues that need to be addressed and documented early on, to help align owners’ expectations. It’s not just a matter of trust. If a dispute arises, well-drafted agreements give an arbitrator or court a basis to discuss and resolve the issues.
Curcio Mirzaian’s attorneys have helped one of the law firm’s longest serving clients resolve many of these issues, Mirzaian added. “We first met them when the company was applying for a bank loan,” he said. “We first drafted an operating agreement for the directors and the rest is a classic achievement. I communicate regularly with the management team and basically fulfill the role of their internal general counsel. Regular communication is important because if a problem arises, dealing with it early 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 customers and others know it’s a solid company?
A group of New Jersey healthcare professionals who formed an advocacy organization faced this hurdle, 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 start-ups have, because the fledgling organization itself hasn’t built relationships. “
When healthcare providers contacted Jaffe, “We developed a comprehensive strategy to establish legitimacy for the group, including medical leaders in their respective practices,” he explained. “Our talented team created a dynamic website logo and ancillary branding materials, and highlighted the group’s board of directors, which included well-known industry professionals.”
Jaffe’s company also launched an intense social media campaign, “helped train their speakers’ media, and worked with a major lobbying firm to refine their messaging to interact with state legislators,” he added. “Within three months of our contact, the organization was seen as viable, respected and vocal, with a strong 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, has no history. We have to create it.