The 4 Partners Early-Stage Startups Need
I often write about the best strategies for startup fundraising or how to manage startup financing and optimize for growth. Equally important, is an area many startup founders don’t always prioritize: choosing the right service providers and understanding the value they can bring, especially to early-stage startups.
The startup ecosystem is not just made up of entrepreneurs and investors; it also includes lawyers, bankers, HR and payroll providers as well as financial services providers. These service providers do more than provide a service; they are partners and important players within your startup ecosystem, providing guidance, connections, and support. Teaming with the right service providers can have a huge impact on a startup’s ability to succeed. Here are the 4 that need to be part of your network:
Legal support comes in handy at many junctures in a startup’s life. Here are three of the most common:
- When you’re incorporating — Business structure is an important decision with financial, investment, and tax implications. Hire professionals to handle the details of company formation paperwork when you first start up.
- To make sure your IP is protected — As I’ve written before, failing to develop an IP strategy, including a plan for protecting your IP as well as avoiding unwitting infringements of someone else’s, is a huge mistake. And relying on NDAs is not the answer. Whether it’s something as extensive as filing patents, more simple trademark registrations, and or putting appropriate documentation in place, don’t ignore this and don’t rely on boilerplate online templates.
- Navigating the ins and out of employment law — Complying with employment law can be a minefield, tripping up not just startups but also much larger companies. Make sure you have a lawyer to help draft your contracts and guide you’re communicating policies and procedures.
- When you’re planning to raise outside funding — Don’t try to negotiate an investor term sheet on your own or muddle through due diligence without good legal advice. The risks of missing something in the fine print and signing on to unfavorable, even potentially damaging, terms are just too great.
It’s worth it to spend a little more at the outset to find a lawyer who is familiar with the startup fundraising process and who has extensive experience with high growth companies.
Choose a bank with experience working with early-stage startups and that has expertise in your industry of focus. And get to know your banker. Besides access to cash management and other essential services, building a banking relationship early will pay off in two other ways:
- When you’re looking for investor introductions — Whether it’s connecting you to potential funding sources or with strategic partners, a bank that’s a known quantity in the startup ecosystem will play a key role in widening your circle of contacts.
- When you’re seeking financing — Though often overlooked, debt financing can be a good option for startups. Cultivating a banking relationship way before you’re at the point where you’re looking for funding will pay off later by expanding your options to include loans, A/R lines of credit, and venture debt.
Accounting and Finance Support
In the early days, you’re not ready for the expense and your business and finances don’t yet have the complexity to justify hiring a startup CFO. But you do need financial guidance. Whether you choose to outsource just your bookkeeping and tax support, hire a part-time contractor to work on-site, or get by with a simple system and bring in professionals for project-based work, at a minimum, you’ll need basic financial help. The right accounting partner will:
- Handle your day-to-day accounting and manage regulatory compliance — Finding an expert to carry out these essential tasks ensures they’re done correctly and frees you up to focus on growing your business.
- Ensure you’ve got a handle on your financial position — By helping you create and track financial projections, accurately forecast your cash position and monitor your operating budget.
- Be a good source of referrals and introductions — Financial services firms can be really helpful in connecting you with investors and potential team members.
As a startup business, your biggest expense is likely to be for payroll. I always recommend that early-stage startup founders outsource non-critical functions and take on part-time contractors for as long as possible. Once you’re at the point where you’re bringing on full-time staff though, make sure that you partner with an HR provider to help set up and manage your HR infrastructure. Not only does hiring expend a lot of resources in terms of time and effort, it’s full of potential pitfalls. HR providers can help you:
- Recruit employees — Whether it’s coming up with a hiring strategy, sourcing talent, getting educated on the market dynamics so that you can structure competitive compensation packages, it can pay to enlist professionals to help you hire wisely.
- Understand your employment options — Unless you know the many ways you could fall afoul of employment law (one of the most common is misclassifying employees as independent contractors), you’ll need to bring in experts to help you steer clear of costly errors.
- Draft appropriate policies and procedures — A good HR partner will keep you up to date with the myriad of compliance documentation you need to protect your company.
- Handle payroll and benefits — Staying in compliance with applicable state and federal laws on payroll taxes, employee benefits, and workers’ compensation is a full-time job. It’s just not worth the time and risk of mistakes to handle this on your own.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of outsourced accounting, finance, tax, valuation, and corporate governance services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.
Liked this post? Join our mailing list to get our posts on startups sent directly to your inbox.