Top Three Ways to Afford the Best Executive Talent
When you are Barely Making Payroll
Good executive talent is easy to find,
—IF you can pay for it.
If you have the money, you can payroll a great CEO, CFO, General Counsel or even the best employees. If you don’t have the money, you are often stuck in quite the Catch-22. You can’t pay for the talent that you need to grow and generate revenue in the first place. For example, if you had a great CFO, you could probably present your company well enough to your bank to get a revolving credit line. He would prepare professional-looking financials and a presentation based on your assets and real estate, and there would be money in the bank by the end of next week. The irony! You can’t afford to pay him in the first place because you need him to first prepare what your bank needs to see in order lend you the money to fund his first paycheck. The good news is you have at least three options:
1. Independent Contractor Agreement
When you really need executive help and cannot afford it, find an executive willing to work as an independent contractor. This usually helps avoid the pitfalls and costs of bringing on a full-time employee, and an agreement can be made on exactly how much you are going to spend on this executive contractor and what you will get in return. For instance, in the case of needing a CFO to help you apply for a revolving line, agree to a scope of work in which he will prepare financials and presentation and then present it to the bank. You can even work out payment terms. For instance, put in this CFO’s agreement, a “pay when funded clause,” meaning when you get funded, he gets paid. If there is pushback, then try to agree to payment terms. Maybe it is going to cost you $10,000 for him to do this work. Get him to agree to “pay when funded, or $1,000 per month until paid in full…”
2. Equity or Stock
Let’s continue with the CFO helping you acquire a revolving line of credit hypothetical. Assume you are now negotiating an Independent Contractor Agreement with him, and all of the above suggestions have failed to get him to sign. A traditional next step is to offer this needed CFO equity or stock in your corporation. Typical arrangements include a stock vesting schedule in which upon the provision of a certain amount of service or the passing of a certain amount of time his options convert into stock or equity. One option is to agree that his stock vests upon his contractor fees going past due for a certain amount of time. Perhaps unpaid fees convert into stock.
3. Revenue Sharing
Perhaps you aren’t a corporation so you can’t offer stock, or the CFO you are trying to hire to first get you a revolving line still won’t budge on the above negotiation suggestions, you have the option of offering revenue sharing. If he really wants to be your partner, find out. Is he really willing to prove his worth? If so, why wouldn’t he agree to a revenue sharing schedule? In other words, add to the Independent Contractor agreement payment terms plus stock options, a revenue sharing incentive. What if you were to double sales in the next year by having him serving as CFO? What would it be worth to both of you? Perhaps you both can agree 10% or even 20% is the right number?
In conclusion, if you are a growing business with a great product or service, there are many ways to afford the top talent you need without adding to your payroll burden. Independent Contractor Agreements, especially when accompanied by equity or stock or revenue sharing are one of the ways you can find not only the best executive talent but also a partner.