October 2012
Small Business Resources

Assistance from Attorneys, CPAs, and Bankers

By George N. Saliba, Managing Editor

These professionals provide the expertise needed to help small companies succeed in today's competitive business landscape.

While large or even mid-sized businesses may have cubicles staffed with accountants and attorneys, small businesses - particularly very small ones - are often run by leaders who work grueling hours and perform a wide range of duties. For them, there is no “in house” legal counsel or “accountant down the hall.” These “24/7” businesspeople must, instead, solely rely on expert guidance from outside legal counsel, CPAs and bankers. These latter professionals can ensure very small businesses don’t make critical errors, and, on a more positive note, they can push companies to new levels of prosperity.

On the following pages, New Jersey Business first details the basics surrounding how attorneys, CPAs and bankers can help start a small business, while the second half of the article explores several challenges small businesses are facing today.

Law Basics

It’s a mantra that businesses should consult attorneys early and often, because if a company makes errors with legal ramifications, even the finest attorneys are often unable to retroactively undo the damage.

An age-old example of this would be an entrepreneur who starts a small company, but does not incorporate, thus exposing himself or herself to personal liability. But, the importance of creating an LLC (limited liability company) or similar entity is so well known that it need not be detailed here.

Overall, a trained attorney will not only properly form an LLC or corporation, but he or she can also mete out a shareholder’s agreement or operating agreement. This is critical, because when a group of entrepreneurs starts a small company, the general mood is invariably one of excitement, and all parties are initially congenial. There is an “incredible” product or service that will be offered, company logos to be created, and, depending on the company, new employees to be hired.

During this honeymoon period, potential future pitfalls and concerns may be overlooked, and this is perhaps especially true among entrepreneurial personality types, who are optimistic enough to start their own businesses in the first place.

Robert Anderson, a shareholder at the law firm of Lindabury, McCormick, Estabrook & Cooper, P.C., says, “If things become extremely profitable, and there suddenly is a lot of money, when [operating agreements] are unclear, that leads to contention among the parties, regarding who is entitled to what. How are they going to carve up the profits? How are they going to make the business decisions? If they clear that up early on, it can solve a world of problems and save enormous amounts of headaches and money down the road.” The reader should keep in mind that co-owners often may not be so cordial with each other, over time.

A good attorney can prepare clients for these and related matters. The attorney, again, will be the one who can advise a business owner, for example, not to give out “X” percent of the company to a key vendor, because later on, a business owner can “run out of percentages” for other vendors, and will have to dilute his or her own interest.

Separately, attorneys can also advise new businesses on intellectual property (trademarks, patents, trade secrets, etc.). Robert F. Coyne, director at the law firm of Gibbons, P.C., says, “If your business is going to be reliant on IP (intellectual property) as one of its key assets, or income-producing assets, then it is worth spending money [with an attorney] to protect and situate that IP, right up front. Even if it is a trade secret, the growing company has to understand what that means, and that a secret really must be kept secret. If it is going to be a patent, well, then, that’s a very dangerous minefield to try to negotiate without an attorney.”

Seth E. Zuckerman, a member of the law firm of Saiber LLC, adds, “At the outset, the value of intellectual property and intangible property is often not fully appreciated by a business owner, unlike the value of equipment and inventory that is used to generate products. It is sometimes only when the business owner discovers that someone else is using the same business name to sell similar products, or that their idea has been ‘borrowed’ by someone else who is manufacturing nearly identical products that compete with the owner’s, that the business owner fully appreciates the value of intellectual property (when it is too late).”

CPA Basics

Overall, it is highly recommended that business owners work in collaboration with both attorneys and CPAs. While attorneys will, once again, handle the formation documents, operating agreements and membership certificates, accountants will file the necessary federal and state registrations (ID numbers, signing up the new entity on the applicable tax roles – payroll tax, sales tax, etc.) and assist with licensing agreements.

“When clients don’t use the team approach, one will come to us, taking a do-it-yourself approach, and we see the type of entity being incorrectly selected, when the paperwork is filled out,” says Elliot J. DeSanto, partner, at the accounting firm The Mironov Group, LLC. “Other examples would be that we see the inception date, fiscal year-end, and the responsible party being filled out incorrectly.”

Also, regarding a business’ early stages, John Cavallone, principal at the accounting firm of Rothstein Kass, says, “A real consideration needs to be whether or not you should be a cash basis, or an accrual basis, tax-reporting entity. And that evaluation is when the accountant and an attorney can be very valuable, in terms of determining the type of business and the types of revenue, receivables and payables that an entity is likely to have.

“The interesting thing regarding that choice is if you elect to be an accrual basis tax reporting entity, you cannot change to become a cash basis, without going through a whole host of hoops. Very often, the IRS does not approve going from accrual to cash.

“However, if you elect cash, and subsequently, in a later year, the business changes and you decide to go to accrual, that is an automatic change – there is no approval required.”

Banking Basics

In the realm of banking, don’t let online access, remote deposit capture, advanced merchant services and financial institution call centers fool you: So-called “relationship banking” remains a critical tool in the 21st century. The importance of having a banker who understands a business’ needs – to the point where he or she (or a banking team) – can proactively offer tailored solutions, cannot be overstated.

Obtaining loans is part of that banking equation. The business owner’s personal credit scores should be excellent, and he or she should have a well-documented history of paying bills on time.

Edward Malandro, executive vice president in charge of consumer services at Sun National Bank, adds, “[The owners] should be able to explain their business and their demographics – who their customers are going to be. When [the owners] come in, they should also have a very good business plan. Show us how you are going to operate your business and how you are going to make money.

“Again, we want to see what their credit history looks like, and we want to see their last three years of financial statements. We also want to see what they are going to use for collateral. Basically, what we are saying is: ‘Gather your paperwork.’”

Peter A. Cappello, first vice president at Kearny Federal Savings Bank, adds, “[If I were a businessperson], I might want to start with trying to develop some small line of credit, whether I thought it was necessary or not. That would establish me with a lender and put me face-to-face with them.

“As a business owner, I might be thinking, ‘I am enjoying the benefits of my business. I have some excess funds and I want to put $25,000 into a certifi- cate of deposit and have a small line of credit against it.’

“That gives one opportunity to see how the bank reacts, what they do, how they do it, and, again, who the individual is who will be handling it. Then, the next time I return and I need $50,000 or $100,000 - in an unsecured status - I have already developed my relationship. It was already started.”

Thinking Long-Term

In the 21st century world of text messages, e-mails and Internet connectivity, the very small business owner needs to be especially careful when thoroughly creating a business plan, and when thinking through the business’ long-term prospects. The above professionals can assist, but they are secondary to the root principles, vision and products and/or services a business will offer.

When business owners are not only distracted by technology, but are handling family responsibilities, it may be difficult for them to “step back” and have the deep insights necessary for forming a long-lasting business.

One’s professionals need to be sharp overall thinkers, too. John Witkowski, partner at the accounting firm of WeiserMazars LLP, says, “I want to be careful what I say here, but if you are looking for your accountant to just be a ‘bean counter,’ you are doing yourself a disservice. You want to hire an accountant to be an advisor to your business. What ‘value-added’ is he bringing to you, to help you be more profitable and successful? Do you want your accountant to be creative and informative, to fill the void that you might not be able to hire internally? To me, that is where the profession is evolving.”

Of course, the same sentiment is relevant when a small business owner hires an attorney or chooses a banker – or even interacts with vendors.

Challenges Facing Businesses Today

Much has been written about macroeconomic trends facing the United States: Analyses of the GDP, unemployment rates, job growth, and concerns about manufacturing moving overseas are commonplace. Also dominating the news are worries about Europe’s ongoing fiscal woes and the election battle between Mitt Romney and President Barack Obama. In the business world, there may be substantial differences between how a Romney presidency would compare to a continued Obama presidency, and companies are now anxiously waiting to see not only who gets elected, but, of course, learn about any direct or indirect election effects. The uncertainty surrounding the election has businesses everywhere on the edge of their seats – often postponing major business decisions.

The very small business owner may have these concerns, too, but there are more granular details in the equation.

WeiserMazar’s Witkowski, says, for example: “One of the biggest issues facing firms in New Jersey is that workers’ compensation is very difficult to obtain. The writers want to leave New Jersey. That’s an item that you are going to be discussing with your accountant – ‘What do I do if I can’t get workers’ compensation, which is mandatory in New Jersey? How do we do it? What do we do?

“No. 2 is health insurance. Health insurance renewables are coming in, again. And the client says, ‘There is a 15 percent increase in the premiums. So, I am giving my employees a two percent raise. In the meantime, they have to pay a co-pay for their health insurance. Their portion of the co-pay went up more than their wages are going to go up. What do I do? How is that fair to my employees? In the meantime, I have got to continue to be able to afford to run my business.’

“No. 3 is pricing. Everybody has been squeezed in their gross profit margins. Clients are saying, ‘How do I increase my price without giving up market share? What do we do? How do we do it?’

“The tax law is out there, but you can talk all day long about what you think it might be, but until it is formulated [perhaps after the presidential election], you have to deal with the situation that exists today.”

In the banking world, small business customers are often concerned with refinancing in the current rate environment, and are also seeking to become more efficient via the aforementioned technology products.

In the legal realm, very small businesses have concerns across several law specialties: corporate, employment, or, say, intellectual property. Law is so complex that ‘legal concerns facing small businesses’ is beyond the scope of this article. The overall key, however, is to find an attorney with integrity who will take the time to answer your questions and who knows the area of the law with which you need assistance.

Conclusion

Maybe you’re just starting a business – or thinking about doing so - or maybe you are humming along with a business that continues to grow, despite the challenging the economy.

Whatever the case, your attorney, CPA and banker are there for you, and the better the relationships you have with them, the more likely the group of you can solve problems and foster business prosperity.

WeiserMazar’s Witkowski refers to his own profession, but he could just as easily hypothetically be a banker or a lawyer.

He concludes, “You have to understand business, understand what drives it, and how you can help your client who, every time there is a downturn, has to re-engineer his or her business, to come out successfully – ahead of competitors.

“If their business is just mimicking what their competitor is doing, they don’t have a competitive advantage. What can you help them bring to the table, to help them ‘be a better mousetrap,’ when compared their competitors? “And that’s what this is all about. When I say that the accountant has to bring more to the table than just being able to prepare a tax return – which is a necessary evil – that is what I am talking about.

“It is almost a whole different world than when I started, way back when.”

Vincent Schweikert, Vice President & Publisher
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Anthony Birritteri, Editor-in-Chief
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George Saliba, Managing Editor
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