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Trusting your trusted advisors

By CRP Partner Gene Baldwin, as published in Franchise Times

Most entrepreneurs like to “go it alone”. They like the feeling of being their own boss. By their nature, these people want to make the final decision. They have a vision for their company that drives them to grow and expand their business. This spirit of self-reliance has a profound effect on the thought process of many multi-unit operators. The question for today is how to balance the independent spirit of an entrepreneur with the need to seek and heed the advice of others. Let’s take a look at some trusted advisors and the proper role they can play in improving your business.

Outside legal counsel can be very valuable to you in making sure your corporate governance documents are properly maintained. Also, your attorney is essential when negotiating agreements for the key relationships of your business such as franchise agreements, loan agreements and real estate leases. Your attorney is your advocate in making sure key provisions of the agreement are fair to you. His job, in many ways, is to read the agreements in the context of how various provisions of the agreement will work if things go wrong. Your attorney will never be criticized for taking the most conservative view possible. He can only get in trouble by advising you to ignore some risk, no matter how remote it may seem. In most cases, the attorney may not have the best advice on the business aspects of transaction. Unless you employ an industry-specific attorney who understands the economics of your industry, your judgment about the business aspects of a relationship or transaction will generally be better than that of your attorney. For example, many real estate leases have some onerous terms. You should not allow the concerns of your attorney keep you from opening the most profitable store in the chain.

An independent CPA is normally called upon to prepare tax returns and, if required, provide an independent audit. By their nature, these activities deal with history and many accountants are very comfortable in that arena. Most are not very comfortable when dealing with projections and future events. In many ways, they are like your attorney, who must look at the downside. Some CPAs I have known seem to take great delight in throwing cold water on the plans of their clients. They feel that is their duty to “tell you what you need to know, not what you want to know”. You should rarely have your CPA assist you with the underlying assumptions for projections or business valuations unless he has specific knowledge of your industry. In my view, you should have your CPA review business structures and transactions to minimize tax cost and maximize reported earnings. In most cases, you should not let the opinions of your CPA override your business judgment. I had a recent case with a client in the process of selling his business. In determining whether the purchase offer was fair, the business owner deferred to his CPA, who had an unrealistic view of the value of the business. As a result, the owner passed up a golden opportunity to monetize his investment.

Your spouse can have an important role to play as a trusted advisor to your company. There have been many times when I have invited prospective employees and business associates to dinner with my wife to get her “take” on them. In many cases, she was able to tell more about a person’s character and personality in a two hour dinner than I was able to discern in many hours and even days of meetings and interaction with that person. When I have not heeded her warnings about a person, it has cost me a lot.

An outside Board of Directors can be a very valuable source of independent advice. For many companies, the first thing they need to do is to create an independent Board of Directors or Advisory Directors. You should have at least two independent board members. These people should be seasoned business executives. You should have regular meetings with a formal agenda and include key members of management. It is not necessary for the board to micro-manage your business – that is your job as CEO. When you are contemplating a major transaction, expansion or contraction of your business, you will be very pleased to have the sage advice of outside board members who have become familiar with your company over a number of years.

As a multi-unit business operator, your decision is final. As President Bush would say – you are the decider. Your business judgment should and will prevail. Before you make that final decision, it is prudent to obtain the best advice available from your most trusted advisors.