02/01/2020
HIRING A CONSULTANT
Published on January 17, 2020
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Ronald MitchelletteStatus is online
Ronald Mitchellette
Founder President at Mitchellette and Associates, LLC
37 articles
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.
My book ENTREPRENEURIAL DECISION MAKING, now available from my website (www.mitchelletteandassociates.com) in digital format may be a good place to start your entrepreneurial journey. We cover everything from discussing the decision with your spouse, including the RISKS and REWARDS to the trials and tribulations in-between.
We also cover the many issues to consider; such as, the legal structure, maybe a Delaware Corporation, a limited Liability Corp, S-Corp, C-Corp or 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.
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 campaigns must be amicably resolved to effectively move forward within the total compliance of the law applicable to the fund-raising effort; such as, SEC compliance and regulations and restrictions.
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 marketing edge.
The above, not only takes some seed money, usually raised from family and friends, for the initial payment to a consultant and/or an attorney, but also, takes time.
GROWTH COMPANY
Your startup is now a successful company, perhaps with three to five years of financial history under its belt and needs growth capital to expand thus, they may want to rehire or retain 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, synergy partnership potential and at some point choosing an accounting 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.
TROUBLED COMPANIES
There are many reasons why a good company with a successful track record falls on bad times; some the fault of poor management that tests the theory that "We all eventually reach our level of incompetency (The Peter Principal)," in other words outgrow our own ability, which is rarely acknowledged by the usually narcissistic entrepreneur. A good example of this destructive element is a good running-back being rerouted to a quarterback but has no passing skills which is his level of incompetency, or a good all-encompassing entrepreneur, who may have brought his company from 0 to millions of dollars but is not prepared to go to the next level of growth without hiring compensating talent.
So what usually happens in cases cited above is the company starts a downward spiral and needs emergency first-aid to survive, either in the form of finding an acquisition (M & A), more working capital (debt or equity) or a synergy partner suitor, hiring to their weakness or selling. The problem is not unlike waiting too long to see a doctor for your illness only to be told, it is too late, which is why the sooner the founder recognizes the problem the better chance a cure. time to call in an expert consultant to identify the problem and cure it before it is too late.
FYI: you would be surprised as to how many startup founders are in denial of their company's problems and/or their own incompetency and will either resist advice or even fire the consultant, who as a professional adviser, reminds the founder of his shortcomings.
Needless to say that by now the company may not be able to attract partners, lenders or other resources and could end-up in the courts with a chapter 11 bankruptcy or worse. Too late for a doctor, for sure, but yet still having a need for a consultant to explore other liquidation remedies; such as, hiring a professional auction house, checking with Asset Based Lenders or a debt assumption purchase and other minimum impact remedies.
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, there 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.
There is no way I can cover all the alternatives or options here in this TEASER or explain all the reasons a professional accomplished consultant should not be hired from the beginning to the end, whatever the latter means to each specific situation., so maybe my book may be a starter course for the wise and cautious.
Ronald Mitchellette
Mitchellette and Associates, LLC
