Community Development… Financial Infrastructure – Part Two

Part Two: Business Support

The successful community has a strong financial infrastructure.  In Part One of this series I spoke of Capital Providers.  Now the support providers are analyzed. 

Like capital providers, the business support function is an important feature to offer businesses looking at your community to move to or to set up a new business.  While this may not appear to be a crucial community developmental goal (since many businesses have some expertise to handle many business functions and need to rely on capital providers alone) in almost every case, all business who think they have all they need managerially, is in deep need of experts.  This is a need that has simply failed to appear clearly to management.

Professionals

Most communities have a pretty good level of primary support professionals.  These include professionals supporting accounting, legal, marketing and human resource and organizational development. Many communities though, lack financial professionals in an independent advisory role.  This is caused by a number of reasons – namely financial professionals who are advising businesses are not required to be licensed in most states and are not as well organized as other professions, most notably CPA’s.  Furthermore, many financial professionals choose to work directly in larger corporations, in the investment field, in larger cites or as internal specialists such as CFO or controller.  This contributes to the severe lack of independent financial advisory firms.

Since finance is considered one of the critical keys to success in any business, but especially a start up, growing or troubled business, many businesses either go without this function, try to do-it-themselves or rely on their CPA’s who seemingly have filled this void.  This is a dangerous situation for any business and any community.

The successful community will have a wide range of support professionals in legal, accounting, marketing organizational development and human resources AND financial. 

 Organizations and Institutions

Working capital as well as primary capital and human capital are critical to new businesses and early stage businesses.  And in most cases all three are in short supply.  If operating costs can be reduced while enhancing businesses management decision making (all along maintaining the highest levels of call three capital sources) then any business has a better chance of succeeding and growing.  And the community only gets stronger.

The greatest ability to assist commerce in these areas are: business incubators, mentoring support groups and support from business and educational organizations/institutions.

Incubators provide the business owner with lower cost operations, key support personnel and an entrepreneurial environment.  Many incubators, supported by universities or local non-profit organizations tend to specialize.  Many want the high tech, fast growing, “glamour” businesses.  And while this sector is very much needed, there is a place for the generalist incubator – a place where everyone – high tech or low tech – can develop their dreams.  Frequently what may seem low tech can develop into a growth business because the environment with the lower financial risks allow for greater “dreaming” and innovation.

Mentoring is done far less since it is more difficult to control or fund than the standard incubator model.  The best example of this type of work is SCORE – developed and funded by the SBA.  Many communities have a SCORE chapter and a development group to match.  But private sector mentoring has proven to be equally, if not more successful in creating and sustaining businesses.  This is especially important when using incubators since as the businesses matures, outgrowing the incubator, there is still a critical “managerial coaching” need.  This type of mentoring does not replace SCORE, it simply enhances it.

Finally there is a distinct need for continued general support from local agencies and non-profits.  This includes trade groups, government agencies and most important chambers of commerce.  Frequent seminars and classes by each can enhance the business community but can also be a key source of business information for future planning by each of these organizations.

 The Specialists

The community with the optimal Financial Infrastructure will have specialists needed to assist at those times when a generalist will not do.  Absent of such specialist, the generalist who does not have the needed skills in a respective field, can do more harm to a business than if left alone to chance.

While a list of specialists can be exhaustive, the key areas needed to be successful are:

  •  Financial – equity and capital/business turnaround/valuation/mergers and acquisitions/forecasting/risk/micro business/grant management/loan and financial structuring/international business
  • Legal – patent and trademark/securities/international trade/mergers and acquisition
  • Accounting – specialty industries/taxation/valuations/health care/mergers and acquisitions
  • Organizational – management succession/venture planning/risk management
  • Lending – mergers and acquisitions/turnaround financing/asset based lending/health care/micro business
  • Marketing – website development/social networking

In my experience I have found the greatest deficits are in mergers and acquisitions, loan structuring, lender management and most especially turnaround management.  In turnaround and crisis management, inexperienced consultants, accountants and lawyers can drain a company of its precious liquidity before a plan can even be devised.  Key community assets, including specialists, should be ready if and when a business needs assistance – which is long before the “loan is called” or the law suit is filed.

Insightful and creative specialists in these key areas can mean the difference between a community keeping a business, and its employees and population or losing out to a competitor.  In recent times, the understanding of key risks and measured opportunities in the international area, especially when dealing with foreign investment, will be the difference between success and failure.

 Summary

The successful community or region will focus on all three of these areas as they are not mutually exclusive nor do they replace each other.  The candidate choosing where to place his/her business will look to these key elements, and while not presuming to need each (especially the specialists), will be comforted in knowing they are available.  These are signs of a strong Financial Infrastructure and a truly entrepreneurial community.

6 Comments

Filed under Community Development

6 Responses to Community Development… Financial Infrastructure – Part Two

Leave a Reply