WHEN TO HIRE A CONSULTANT?
GETTING STARTED/MAKING CONTACT
When is the best time to hire a Consultant? That question looms over just about anyone in business today, beginning with the pre-startup, note I said pre-startup, because that is when the structure of the company and the feasibility to fund it must be considered to ensure a smooth transition into the many issues needing resolution to successfully move the startup forward.
There are many issues to consider, among which is the legal structure, maybe a Delaware Corporation, a limited Liability Corp, S-Corp, C-Corp and even incorporating in your own state? Officers, Board of Directors, Board of Advisors (preferred), authorized and issued Stock, Incorporator’s equity position and what percentage of the company the incorporator is willing to exchange for raising money in the many forms available, with which to do so; such as, straight equity for cash, debt to equity conversion options, loans and even in-kind exchanges and/or sweat equity et al.
It is better to formulate all the inner-structure of the company in the beginning than undo the mistakes usually made early by the entrepreneur before he or she hires a consultant; but wait, most of the above is the work of an attorney and necessary; however, the role of the consultant at this early stage is to put the structure of the startup in perspective, usually including a professionally written business plan that will serve as a roadmap for the startup at which point the consultant will most probably recommend an attorney or law firm, with whom they have a rapport or professional relationship to execute the legal documents as referenced above, including various investment documents for any forthcoming fund raising, which the consultant will quarterback, using his/her network of potential investors and contacts.
FYI: It is very important that the consultant and the attorney understand each other’s role and work together as a team for their mutual client, since any disagreement in legal structure and/or fund-raising campaign must be amicably resolved to effectively move forward within the total compliance of the law applicable to the fund-raising effort; such as, SEC regulations & restrictions regarding qualified investors et al.
Then, because of the fact we are dealing with a startup, we probably have an invention or an idea that needs to be patented, enter the need for an attorney to file for patent protection. This is an early stage must for the typical startup before they even begin to raise funds so as not to give-away their idea and lose their market edge.
The above, not only takes some seed money, usually raised from family and friends, for the initial payment to a consultant and attorney, but also, takes time (usually three months) before the incorporator sees the first dollar raised for operations.
Your startup is now a successful company, perhaps with three to five years of financial history under it’s belt and needs growth capital to expand thus, they may want to rehire their original consultant and law firm, which would be preferred, or seek new guidance, as they may have outgrown the advice of their original advisors, either way, they may be considering a merger or acquisition to jump-start the growth rather than wait-out internal growth, which would take much longer to achieve, which opens-up a new set of issues beginning with finding a consultant with M & A connections, followed by a competent law firm equipped to handling M & A’s.
The consulting firm will navigate the client through the business side of an acquisition; such as, market and financial feasibility, including valuations and may even require the services of an accounting firm, at some point; it is also important to know that the consulting firm has a broker component for any closing between M & A candidates, in addition their law firm.
Of course, our growth company has options, other than an M & A; such as conventional bank and/or individual financing, synergy partnerships, bridge lending, just to name a few and should rely on their consultant for contacts and implementation.
Typically, this group has a positive history of success that temporally has resulted into a cash crunch due to unfavorable market conditions, poor management decisions, cessation of bank credit, over-inventory or just too much debt and no extra borrowing capacity.
This situation may be a candidate for selling, though painful even liquidation, as companies that fall into this category are literally, but not always, “birds of prey” open to hard money lenders with high interest rates or private individuals that want more than just an arm but a leg or more-you get the idea, not pretty; however, thee are plenty of instances where these companies make it through and become successful once again. It just depends on the structure and how good the consultant and law firm are in structuring the right interim financing.
BUY SIDE INVESTOR OR SELL SIDE SELLER
Both groups would be best advised to interview and hire a good Consultant/Broker, who has the network and the moxie to link the connections to get the job done. The consultant should also have the experience to evaluate and recommend the right buy or sell side structure, since it is not just finding an entity to buy on behalf of the buyer client or the sell on behalf of selling client but to find the right match for both, which is not an easy task and requires a proven consultant/broker to accomplish the mission.
MITCHELLETTE AND ASSOCIATES, LLC
2927 DEAN PKWY, STE 300
MINNEAPOLIS, MN 55416