Almost every new agency’s Director wants to bring in external help and advice with the start-up phase, choosing the right bank and getting everything set up, arranging finance, organising accounts – there’s a lot to do at almost the same time and having an expert supporting you is tempting.
These experts or the companies they represent often offer great advice, and the firms might offer start-up capital or services, but often they’ll ask to be a Director or shareholder of your new agency.
Early On, Keep Shareholders Rare
Anyone who’s ever watched an episode of Dragon’s Den knows that giving up shares means giving up a proportion of distributable profits year in and year out – and a proportion of the business’ sale value if you sell it on.
Asking for shares is a vote of confidence – they think you can grow the business, and they expect those shares to work out better for them than a flat payment.
As the agency grows, the value of those shares grows too – so buying them back later is still more profit for the shareholder, and less money for the business.
The Sting in the Tail
We’ve worked with many agencies who’ve been enticed in by different models – getting website support, job board access, database or back office services, etc., in return for a Directorship, a percentage of the company, and/or an agreed tie in of 3-6 years.
We’ve even seen legal agreements proposed that stipulate the shareholder can enforce a monthly management charge or place salary restrictions on you, the agency director.
Another Way
We recommend that, if you do feel the need for external investment, shop around – try to keep your shares to yourself and if you must give them out, make sure you have a robust shareholders’ agreement detailing the rights those shares confer and when and how they can be purchased back.
With that said, the priority of a new agency should be making placements as soon as possible. If you have a strong contact network and enough capital to last 3-6 months, you’re positioned pretty well to succeed without having to give up valuable shares.
For more information on how to get started without giving up your shares, TBOS are happy to help.
