Seek an Investor in Your Industry

Question: I own a small cafe and a growing corporate catering firm. I want to expand but have exhausted my capital. I’d like an investor or partner who will contribute funds and expertise. Where do I look?

Answer: Larger caterers and restaurateurs are your best sources for potential partners, said Art Manask, a food service consultant based in Burbank (www.manask.com).

“You cannot just approach strangers with this concept,” he said. “That’s why you should be involved in your industry and know your peers.”

If you don’t know other caterers personally, join the National Assn. of Catering Executives (www.nace.net). Also ask vendors for introductions. “Vendors know which companies pay their bills and have good reputations,” Manask said.

Assuming your outfit is profitable, you might get advice from a small-business consultant or nonprofit such as SCORE (www.score.org) and get funding from friends and family. You’ll need a business plan and pro forma projections, developed with a credible certified public accountant, that demonstrate your company’s financial potential.

“Raising funds in relatively small increments from friends and family and providing a preferential return -- where investors receive their initial investment back before the owner receives net profit -- is a common practice for restaurateurs,” Manask said.

An added incentive for your investors, if they are local, would be to provide them with complimentary meals. For each $5,000 that investors put into the company, say, they get $500 retail dining or catering credit.

“Your out-of-pocket cost would be about one-third the retail dollar amount, and most investors find this a wonderful added perk,” Manask said.

If you’re asking others to invest in your company’s growth, you’re probably going to have to put up a reasonable percentage of the capital yourself, whether through a home equity loan or a small-business loan, for credibility’s sake with your investors.

Background Checks Must Adhere to Laws

Q: My firm plans to hire several new employees. We’ve never done formal background checks, but we’ve been told to start. What should I check and what will it cost?

A: Background checks were once the sole purview of corporate human resources departments. Today, although background checks are mandated legally only for certain jobs, they are often recommended for small companies as well.

“Bad hiring decisions can affect a company’s finances as well as the morale and productivity of staff,” said John Ayala, Los Angeles area president of ADP TotalSource (www.adptotalsource.com), a professional employer organization. It costs about 30% of a worker’s salary to find and hire a replacement, the Labor Department said.

Simple background checks involve verification of Social Security numbers and driver’s license records as well as education and prior employment. For certain positions -- particularly if an employee will handle money -- credit and criminal history checks are warranted.

Do a background check after you make a conditional offer of employment. Although you can do some preliminary checking in-house, it makes sense to assign the task to a reputable screening company.

“There are numerous federal and state laws governing the background check process. Business owners who conduct their own background checks can be held liable if a criminal record is missed or the background check does not comply with the law,” Ayala said.

California law says you must notify candidates and get their written permission for background checks done by outside agencies. Contract with a professional employer organization or employment screening agency for your background checks. The process usually takes seven to 10 days and costs $40 to $150, depending on the search.

The Privacy Rights Clearinghouse has a helpful online fact sheet at www.privacyrights.org/fs/fs16b-smallbus.htm.