- Getting startup advisors on board can be extremely valuable for your startup growth.
- Choose those who are well-connected, wise, and can work for mutual benefit.
- You should also hire or connect with professionals like accountants, lawyers and industry mentors.
When co-founders seek to form a new startup, they don’t often have all the skills and expertise required to build a successful enterprise. Instead, founders leverage the expertise of advisors to boost the experience & know-how of the initial founding team. Engaging an advisor or an advisory board is not a necessity but can provide founders with a wide range of benefits, skills, and unique experience that enhance strategic and operational capabilities.
Given their perspective outside the daily operations of the company, advisors help founders work on the business rather than in it. The advisors are often chosen where the company needs to demonstrate certain expertise to its stakeholders which can include:
- Regulatory expertise
- Marketing & Sales
- Government ties
Advisors can provide startups with an extended range of fundraising options, as well as a professional network that assists in recruiting the very best people for any given role. Many early-stage startups offer advisors equity incentives in return for their assistance — but it’s important to establish a clearly defined, well-structured agreement that governs the relationship between business and advisor.
An advisor’s agreement should define the role of an advisor and the amount of time committed to the business. Some circumstances may necessitate a generic description of advisory requirements but detailing a specific description of the role of an advisor within a business provides legal certainty and minimizes friction between startups and advisors.
Compensation should be clearly defined before engaging an advisor. Advisors are typically provided with an equity stake that ranges between 0.15 and 1%. It’s also important to consider the legal obligations that must be fulfilled when granting equity to an advisor — in most cases, equity grants must be approved by the board of directors and issued via an equity incentive plan, alongside various additional legal requirements.
Startups considering bringing advisors on board should also consider confidentiality and IP assignment, as well as any non-compete and non-solicit restrictions that may be relevant to the term of the advisor’s term with the startup or a specific period thereafter.
How to choose the right startup advisor
Most businesses hiring new staff will subject potential employees to a rigorous screening process in order to ensure that they are the right fit for their company culture and vision. Advisors should be subject to the same process — bringing the wrong advisor into your business can have a far more negative impact than operating with no experience at all.
There are four key criteria that can be used to identify the right advisor for your startup:
- Connections: Advisors aren’t only capable of providing guidance and expertise. The right advisor can open doors for your business and connect you to critical distribution networks & investors that you would otherwise be unable to access.
- Involvement: An advisor should provide more than just a name and a network — experience is largely useless to a new startup without a solid work ethic. It’s important to select an advisor that is willing to perform meaningful work for your startup and be available when times get tough.
- Value exchange: the relationship between and advisor and a startup should be mutually beneficial. Startups might favour engaging advisors on a small equity arrangement rather than those negotiating a salary agreement. Equity fosters a sense of ownership, ensuring that the advisor you choose will be incentivised to help your business succeed in the long term.
- Innovation: The key role of an advisor is to provide your startup with a unique perspective. Get to know your advisor before bringing them on board and assess their capacity for non-linear thought, unique experience, or skill sets that can provide your startup with a competitive edge.
Building your team of professional help and experts
To give your business the best chance for success, its ideal to gather some professionals into your network as well. Asides from helping you fulfil your obligations, they can help safeguard your business from potential threats such as a short cash runway or a legal contract which might not be drafted in your best interests.
1. Hiring an accountant
One of the first for the advisory team is often the accountant. Startup accountants are experts in the commercial arena, can guide you in many areas of business finances and connect you with other talent in their wide network to help scale your business profitably.
Establishing the best business structure from the outset will aid business operations and will impact your taxes. Startup accountants take into account your existing financial situation and ambitions and setup a structure to best represent your interests for commercial operation, asset protection and tax efficiency. They will also help with all the registrations required such as for income tax, GST and ASIC and set in place a plan to meet your requirements here.
If you’re a business, accounts need to be maintained effectively and the figures within should also agree with figures as lodged with the ATO. Startup accountants can help you establish your business on an accounting platform and select the right add-ons (from the hundreds available) to best support a fluid accounting system.
With a well-tuned accounting system, accurate reports can be generated effortlessly so you have a good grasp on how your business is doing financially. Having a good system and procedures built in from the start also ensures that your accountancy costs are kept to a reasonable level. With the bookkeeping procedure sorted, your startup accountant can then put full attention to providing insightful business consultancy and tax advice.
Other aspects your startup accountant can help you with in the early stages include assistance in preparing a business plan as well as developing insightful cashflow forecasts. Some startup accounting firms also put you in touch with relevant government grants to boost cashflow.
Moving forward, you can be kept accountable with your financial goals with regular virtual CFO meetings. If you are contemplating any new major transactions, be it hiring a new team member, restructuring, preparing for a capital raise, giving shares to a business partner, your accountant can walk you through the particulars to ensure you come out on top.
Startup accountants generally do not charge for an initial chat, so connect with an experienced firm and get your financial growth plan in order.
2. Working with a lawyer
The next expert you will want to connect with is a startup lawyer. The key issues you will want to consult with them generally include:
- Protection of your trading name or product: By establishing a trademark or patent over your original name or idea, you can prevent others from profiteering by duplicating your valuable assets.
- Confidentiality agreements: more formerly known as Non-Disclosure Agreements, these are used in a variety of business relationships to protect your unique business idea or system. When partnering with other businesses or hiring contractors or employees, ensure that your distinctive idea does not leave the room when they do.
- Employment contracts: Your formalised agreements with employees need to be drafted carefully, so that your business is not open to injury in the future and there is no scope for misunderstanding.
- Purchasing or leasing of property: Any planning restrictions will need to be considered along with the use of the property for its intended purpose. You should also review whether any hidden liabilities are taken over in the purchase or lease contract.
- Terms & Conditions: How customers engage with your services and your obligations here are best represented in writing, so all parties’ expectations are met.
- Consultancy contracts: The tax implications of hiring an employee versus hiring a consultant are very different and many consultancy contracts can give rise to employee status unintentionally. These often have implications for super, payroll tax and fringe benefit tax. A startup lawyer can advise here and help you prepare the right contract for your situation.
- Distribution, agency and franchise agreements: Should any of the agreement be disputed it is essential that the agreement be bullet-proof in its formation.
Your advice should ideally be sought from a startup lawyer with a few years of expertise covering commercial law and intellectual property. Whilst template agreements are also available from online providers like Lawpath, however, it is important to note that the ‘cookie cutter’ approach could cause many expensive oversights for your situation.
3. Connecting with industry mentors
Connecting with a mentor (or two) within your specific industry is highly recommended. Whether this is in a paid capacity or through someone you know - your ideal mentors within the industry will be able to connect you with the right networks and provide you clear guidance around pitfalls that they experienced first-hand when driving their own businesses.
As a startup seeking investment this might involve seeking out a mentor whom has taken their company successfully to exit or IPO. Other ideal mentors might include entrepreneurs whom are a couple of years ahead of you or more successful in a similar field.
You can also find support by way of participating in Facebook groups (i.e. Sydney Startups), attending pitch events, startup accelerators or various meetup.com groups which are well facilitated and filled with inspiring entrepreneurial minds.
You’ll notice that the hallmark sign of any genuine entrepreneur is generosity. Don’t be afraid to inbox a potential mentor from LinkedIn and invite them out for coffee – you may be surprised by how many of your heroes say “yes”. Many invaluable time-saving pieces of information can be gathered particularly if you ask for genuine constructive feedback on your approach.
4. Find a good insurance broker
When building your business, you also don’t want to expose your livelihood to unnecessary financial risk. An insurance broker can often help you obtain insurance which doesn’t break the bank.
Some of the types of insurance you may require in your journey include:
- Worker’s compensation: This is compulsory if deciding to employ anyone. It covers payments to employees should they become injured at work or become sick due to work.
- Public liability: Covers personal injury and damage to personal property of the public. Not compulsory but if operating a premise where customers can come to visit, then it is advisable.
- Cyber Liability Insurance: This can cover your business against the expense and legal costs associated with data breaches, which may occur after being hacked, from the theft or loss of client information. Expenses include the cost of business interruption, forensic investigation and data recovery, extortion and crisis management costs to salvage your business reputation after a data breach from a cyber attack.
- Professional indemnity: If you provide advice or service in your line of work, it’s important to protect your business against claims of malpractice or professional misconduct.
- Income Protection: Should you be unable to work, this insurance can cover you for the loss of earnings as a result.
- Keyperson life insurance: Can be appropriate when considering employees critical to your business decision making.
An insurance broker is the best expert to advise what insurances you should consider and link you with the best insurance policies to help protect your business.
Bringing onboard the right advisors & professionals is a key part of growing & scaling a successful business. With different perspectives, you gain the benefit of different expertise and experience applied to your situation. Whilst ultimately you have the deciding say in business operations, advisors can certainly help guide your ability to make the right business decisions.
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