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The role of the planner in Start-ups: Angles, advisors, devils

advocates.

SUMMARY

Although Brian Headd of the SBA's Office of Advocacy emphasizes that "business closure

cannot be treat with business failures," starting a business is not for the faint of heart. Daniel

Hey, CFP, EA, a self-employed planner in Elverson, Pennsylvania, works with executives

(usually in their late thirties to mid forties) who are leaving the corporate world and going out on

their own.

His clients typically envision starting a company, working hard for five or six years, and then

selling the company for a hefty sum.

Dennis Filangeri, CFP, an independent planner in San Diego, California, describes his clients as

mom-and-pop shops, people starting from scratch in some kind of product sales or in high-tech,

computer software-type businesses. Our main job is not how to get clients started, but to help

them decide whether they should start. The businesses her clients start include data processing in

the health care field, data storage, marketing, restaurants, medical equipment firms and dental

practices.

His start-up clients fall into two groups:

(1) young professionals (late twenties and early thirties) moving from a solo shop to the next

level of business practice and

(2) early retirees (mid- to late fifties) pursuing a lifelong interest or hobby.Clients looking for a large firm seek the advice ofStewart Koesten, CFP, CLU, ChFC,

president of Koesten Hirschmann & Crabtree in Kansas City, Kansas. Koesten has been in the

financial business since 1974 and started his current firm in 1996. He has helped clients start fix-

it shops (small engine repair), small computer companies, fruit orchards, angel and venture

capital firms, and even financial planning businesses. He works with a wide variety of

businesses, mostly starting from scratch, but including a few franchises and existing businesses.

Broader roles include team leader, succession planner, business plan reviewer, devil's advocate,

succession planner, even "Rent-a-CFO." "Most of my clients don't write down their business

plans.

Mary Durie gives clients a general outline of what they should include in their business plan and

reviews it with them.

Dennis Filangeri helps clients revise their business plans, but notes the big difference between

realistic business plans and MBA business plans.

For Bob Eddy, the business plan is secondary to the client's individual financial plan.

Cindy Conger confirms the importance of integrating the business plan and the personal

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financial plan.

"We consider the business plan an integral part of the client's personal financial plan.

He puts a big value on helping clients feel that they can maintain their family lifestyles and keep

the home fires burning while they branch out into their own businesses. He adds value by

helping clients run their business more efficiently from a time perspective and not spend 60 to 90

hours a week on the job. Put the team together that will help the clients implement their business

plan. To use a baseball metaphor, if the entrepreneur is pitching his or her company from the

mound, lenders are in the infield, angels are in the outfield, and venture capital firms are not even

in the ballpark.

According to Koesten, financing follows the stages of business development:

(1) Personal capital or loans based on personal capital in the start-up phase,

(2) Angel investing in the product development stage of the business, and

(3) Venture capital investing for firms with an established product, customers, revenue and

profits that are developing into larger businesses.

Stage two: Investor angels are wealthy individuals or groups of businesspeople who provide

capital to new companies.

Stage three: Venture capital firms generally do not even become interested until a start-up has

made it through the developmental stage. And he is skeptical of angels and venture firms because

they are looking for quick returns and resale potential, not ongoing viable business operations.

"Clients often want to use their business experience to help other people, so we help them

become angel investors." Even though equity financing is tough , Dennis Filangeri laments the

fact that younger entrepreneurs usually do not think big enough to consider equity financing.Final Advice Conger's final advice to planners advising start-ups: "Find a niche that you like

rather than trying to be all things to all people. Koesten's advice: Planners and clients alike

should read Michael Gerber's The E-Myth Revisited: Why Most Small Businesses Don't Work

and What to Do About It.

Adds Petote: "Many people start their own business without realizing the time commitment.

Medici banking cartel, observed that princes (that is, entrepreneurs) should start new enterprises

only after closely studying both the successes and failures of existing enterprises.

In his chapter on "Starting a Business," McAlpine emphasizes the educational value of

failure: "When planning for the future, always take advice from someone who has failed rather

than from someone who has known only success, for someone of intelligence who has failed willhave contemplated that failure and determined the reasons behind it, whereas successful people

often do not really know the truth of their own success, only the myths they have created for

themselves."