Creating a Professional Advisory Team for a Small Business

by E. James Burton, Ph.D., CPA, CFE

Many, if not most, small businesses begin life with a similar set of problems: an under capitalized balance sheet; an overly optimistic owner; and an under manned staff. Too many small businesses fail because of these similar characteristics. In this article, we will suggest the use of a professional advisory team as a means of dealing with two of those characteristics - the overly optimistic owner and the under manned staff.

The creative genius who starts the business is likely very skilled in one particular area - sales, marketing or a profession. It is unlikely this person is also skilled in negotiating with labor or vendors, looking at legal obligations, filing reports with government and other equally necessary chores. Small businesses typically do not have all the necessary in-house capabilities to perform some of the more sophisticated research and analysis that may be required for certain business decisions. For that reason, a professional advisory team is important to supplement the knowledge, skills and abilities of the owner(s).

The small businessperson should have at least two questions in mind when thinking about creating such a team: First, how do I supplement the strengths and weaknesses of my in-house team? Second, how do I select and organize a team that I can afford and that will help me grow the business?

Supplementing the Strengths and Weaknesses of the In-house Team

Almost certainly you will need representation from at least two professions immediately - accounting and law. You should have a certified public accountant and an attorney on board even before you formally start the business to be sure that you are properly prepared. Some of the services these two professionals offer may overlap. For example, either can help you file necessary documents with local, state and federal governments for required licenses and tax identification documents. You may also want to supplement your in-house team with a banker, an insurance agent and others.

The CPA's Role as Business Adviser

A certified public accountant is a valuable, perhaps critical part of your advisory team. This person may assist you with acquiring all of the necessary permits, licenses, identification number, and reporting formats. In addition, the CPA will assure that you have your bank accounts properly established, a record keeping system appropriate for your business type and size and a system for filing all necessary reports on a timely basis. Perhaps even more important, the CPA can be an excellent source of advice and a solid sounding board for you about the business.

Most small businesses require more capitalization than the owner can personally bring to the table. That means borrowing. Borrowing often means a bank. And a bank usually means a business plan and some sort of financial estimates, pro forma statements and cash flow analysis. These are items your CPA is imminently qualified to assist you to develop. If you are unsuccessful at the bank, the CPA may also help you find other sources of capital - the Small Business Administration or an "angel" in the community.

Once the business plan, which should be the road map for the operation of the business, and the financial estimates have been developed and adequate capitalization is in place, then the CPA will assist you with determining the appropriate legal form of organization for your business and with getting the proper documents prepared and filed for tax purposes. For example, you will need a business license. You will need a sales and use tax number. You will need a federal employer identification number. The CPA can help you with all of these requirements in starting the business, and more. There may be special permits that are required for your specific type of business. A CPA will have experience with these or will know who to contact to get needed information.

The Attorney's Role as Business Adviser

Probably at the same time you begin a relationship with a CPA you should also begin one with a good business attorney. Note the qualifier "business." Many attorneys specialize: some deal primarily in real estate, others in family matters or litigation. You want to find an attorney who works primarily in commercial matters.

The attorney will also advise you on an appropriate legal form of business organization for your business and assure that all required documents are properly prepared and filed. An attorney may assist with articles of co-partnership, if you choose that form, or may see that any needed public notifications are properly and timely posted. This person may also assist with contracts, patents, copyrights, leases, zoning issues, labor agreements, warranties, lawsuits,and much more.

With both the attorney and the CPA, what you want and what they want to do for you is to prevent unnecessary problems from developing and to improve the probability of your success. For them to do this, you should contact them very early in your decision processes.

The Banker's Role as Business Adviser

Some small businesspersons treat bankers, particularly lenders, almost as adversaries - keeping them in the dark as much as possible. This treatment may be a serious error. Make your banker a part of your team. This person is usually very well connected in the community. Your banker can be an excellent source of business referrals for you. And, your banker wants you to be successful because that is the way the bank gets paid back and grows its banking business.

Try to connect with senior officers of the bank. Keep them informed. Invite them to your business premises. Ask them questions. Do not surprise them with bad news. Keep them on your side.

The Insurance Agent's Role as Business Adviser

You may also want or need an insurance agent. Typically, you may need a general liability policy or a personal umbrella liability policy for protection. You may also need some sort of product liability insurance or casualty, loss of business or credit insurance. Disability insurance and life insurance may fit into your business continuation requirements as well. You may also need advice on pension plans or other benefit plans for employees. A good agent will be able to help you with all of these insurance products.

Remember that insurance agents' "agency" relationship is with the company or companies this person represents. Their job is to sell you a product. So choose carefully and do not become over insured. A really good agent will work very hard to find the right policies for you without overinsuring you.

Other Advisers for the Team

If you do not have a marketing background, you may want to associate with someone who does have this expertise. Securing marketing help, whether full-time or as a consultant, to help determine how to best promote your product or service is important. Help may be available from the Service Core of Retired Executives (SCORE) or other organizations. Advice from such a source is usually inexpensive or even free. Don't hesitate to take advantage of such opportunities. Often you will find a person with rich background and available time. They can be very helpful.

From time to time you may also need other advisers for special problems. For example, you may need advice from customers, vendors, former customers, engineers, etc. Begin to develop a network of people upon whom you can call. And, always be available to return the favor if and when you can.

Selecting, Organizing and Working Together

As you think about selecting the right individuals to work on your team, there are a few criteria you should consider. What is the person's level of experience both generally and more specifically with the type of business in question? Is there a person with secondary expertise that can help in more than one area - such as a CPA/lawyer? Will the person be available when needed? What will this person charge for their services? Will there by any conflicts of interest for this person? Do these people know each other and will they work together?

Rather than having these people serve on a formal "board of directors" with the associated liabilities for them (and possible headaches for you), you may prefer to have them on an informal board of advisers. This option will give you greater independence while retaining their help. It clarifies their involvement. It gives you greater freedom of action and fewer controls. It places them more in the planning than review mode and it may be a cheaper option.

Finally, when considering the team, remember that each person is different. They will have different work styles. There may be "turf" issues between some of them (such as CPA and attorney over tax matters). They may not all be willing to devote the same amount of time to your business. And, they may have considerably different attitudes toward risk.

Conclusion

As you choose your professional advisory team keep in mind that giving good advice is a learned skill. Asking the right questions is a learned skill. Do some background work. Talk to other people who receive services from the people you intend to select for your team. Ask them questions. And, be willing to pay them appropriately for their services.

About the Author

E. James Burton, Ph.D., CPA, CFE, is Dean of the College of Business and a professor of accounting at Middle Tennessee State University. Burton is a member of the Tennessee Society of Certified Public Accountants, the state professional organization for more than 8,000 CPAs in government, education, industry, business and public practice and its Nashville Chapter. TSCPA's Nashville Chapter is one of eight chapters across the state with more than 2,900 members in 20 counties. For more information on small business issues, visit the Tennessee Society of CPAs' Small Business Resource Center on the Web at www.tscpa.com.

*Adapted from "Planning and Operating the Successful Business, Second Edition" by E. James Burton and Steven M. Bragg (John Wiley & Sons, New York, 2000).