Home
>
Small Business
>
The Advisory Board: A Business Owners Most Valuable Resource

The Advisory Board: A Business Owners Most Valuable Resource

As a company grows, the owner's role begins to change. More and more of the owner's time is spent "in the shop or in the field" handling day-to-day operations rather than focusing on high-level planning and strategic issues.

As a result, a company often reaches a plateau and finds it difficult to continue growing. This may be the time for the business owner to consider creating an outside board of advisors.

Owners that do not use a functioning outside board of advisors are missing out on a tremendous opportunity to improve the management and profitability of their company. An outside board can provide business owners with valuable advice from individuals with years of business experience.

An outside board of advisors can also play an important role in the helping a business owner design and implement a long-term strategic business plan.

In addition to serving as a sounding board, a board can help monitor and improve business performance by:

? Networking to bring in new business

? Reviewing financial statements and audits

? Reviewing corporate mission and strategy

? Reviewing and approving budgets

? Monitoring business performance

? Making recommendations regarding major capital expenditures

? Assessing organizational structure and policies

? Approving acquisitions and mergers

? Approving major debt transactions

? Lending credibility to the company as it targets larger accounts

Initially, business owners may be reluctant to involve an outside board in what had always been private business affairs. The owner may fear the interference of outsiders or having strangers involved in the "family business." Even if an outside board is created, the worried owner may not allow the board to function in a meaningful way. The owner may be inclined to select long-time friends, advisors, or subordinate employees to serve on the board. Unfortunately, these folks do not have the independence needed to provide the owner with the objective advice he or she needs to hear. Alternatively, some owners create a board, but never hold regular board meetings. Other business owners feel threatened by their boards and only consult them on trivial matters. When this is the case, the board of advisors can rarely, if ever, provide any value and should be disbanded.

Creating an Outside Board of Advisors

If you are thinking about assembling an outside board, consider the following.

Develop a Statement of Purpose for the Board. The business owner should meet and decide what role(s) the board will play vis-?-vis company management. The end result of this process is a written, comprehensive statement of purpose for the board.

Decide on the size and scope of the Board. Ideally a board of advisors should be small enough to be productive. We recommend that a board be made up of between 3-5 people. If the board is much larger than this it becomes difficult to manage.

Decide on Characteristics of the Ideal Board Members/Advisors. Spend some time deciding what types of individuals you want on your board. Some owners decide that experience in the company's industry, or a similar industry, is a prerequisite. You may also want to include someone older and someone younger to represent the values of more than one generation. Some business owners value having members with different professional backgrounds (i.e., lawyer, business operations, accounting, business sales.) You may also want board members who can help with a specific strategic project (e.g., if you are planning to expand into a new market you may want a board member who has successfully run a business in that market).

Prepare a Member Prospectus. You should prepare a "Prospectus for the Advisory Board," to help screen and recruit board candidates. The "Prospectus" explains the purpose and goals of the board. It also lays out details like the board structure, time demands, fees to board members, and meeting schedules. Finally, it describes the capabilities, qualifications, and characteristics that the company is seeking in board members. The Prospectus need not be long. One or two pages are usually sufficient.

Identify Possible Board Candidates. If you are like most business owners, your first instinct may be to invite close friends and trusted advisors (i.e., your lawyer, CPA, or banker) to serve on the board. You should resist this urge whenever possible. The best board members are usually fellow business owners, entrepreneurs, business peers, and retired CEOs or CFOs. There are a large number of these people eager to serve on advisory boards. Many former business owners and retired executives are willing to serve on advisory boards for a nominal fee, simply to stay involved in the business world. These types of outside advisors have often faced many of the hurdles that lie ahead for your company and can offer you invaluable advice.

Meet with Candidates. You should meet with and interview each board candidate. You should explain your company's needs and ask about the candidate's qualifications to help you meet those needs. Always be certain to check references.

Ensure Support from Owners and Managers. Before you make an offer to someone to become a board member, have the candidate meet all of the shareholders and key managers to make sure that everyone feels comfortable working together. Minority owners and key managers should be able to express their opinions about the candidate ? both positive and negative ? but you should have veto power.

Fees and Costs

Board members deserve to be paid, but an outside advisory board does not need to be expensive. Often for less than the cost of hiring a business consultant, you can have a fully committed and dedicated outside board of advisors. The cost of an outside advisory board is usually broken down into the following components.

The Cost of Setting Up the Board. This can be as little as nothing if you organize and set up the board yourself. On the other hand, if you choose to use a firm that specializes in helping business owners set up advisory boards, they expect to be paid. Their compensation can range anywhere from a flat fee to a fee that is similar to that of an executive recruiter. Under this scenario they are paid a percentage of the total compensation that is paid to the board.

Annual Board Fees. These are the annual fees that are paid to each board member. These fees compensate the board members for the work they do behind the scenes, networking on behalf of the business, reviewing plans and documents, brainstorming, and generally being a resource for the business owner. For middle market companies, these fees range anywhere from zero to as much as $20,000 per year. The average seems to be around $12,000 per year per member.

Meeting Fees. In addition to the annual board fees, it is common to pay a board member for the time invested in attending the actual board meetings. This is intended to compensate the member for his time and expense in attending the meeting. For middle market companies, meeting fees range from zero to around $1,500 per meeting. The average meeting fee is approximately $500.

As a result, assuming the averages presented above, and an outside board of five advisors that meets four times per year would be as follows.

Obviously, this is only a rough indication. In many cases the costs are much lower than this. In a few cases, the costs are higher. Use this as only a starting point.

Consider deferring the specifics on a board member's compensation until after you've selected the member. It is important that members do not join boards simply for the pay. As an owner, you want to see that working on the board is something a board member will find fun and exciting to do. Share your business goals and objectives and see if the person responds enthusiastically. Then discuss the specifics about compensation once you have found someone who is excited about your company and shows an interest in serving on your board.

Author Bio: Rich Jackim, former Wall Street attorney and experienced investment banker has helped over 60 business owners successfully exit their companies and realize their personal goals. He is the author of the recenly published book, "The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners." Available at http://www.exit-planning-institute.org Rich is the president of The Christman Group LLC, a boutique investment bank that specializes in selling privately owned businesses. Visit http://www.exit-planning-institute.org to learn more.

Rich received his BA from Colgate University, his JD from Cornell Law School, and his MBA from the Kellogg Graduate School of Management. He is a sought after speaker and has either published articles or been quoted in Business Week, Chicago Tribune, Chicago Daily Herald, Indianapolis Business Journal and numerous other regional and national publications.

executive chauffeured services Bradford .. Madison to Airport car

In The News:

Getting virus alerts on your iPhone? Tech expert Kurt “CyberGuy" Knutsson helps you learn how to handle fake scam alerts and boost security.

Tech expert Kurt “CyberGuy" Knutsson says opening emails is safe, but risks arise from interacting with links, attachments or HTML content.

Tech expert Kurt “CyberGuy" Knutsson reveals four signs of compromised Social Security numbers and offers five steps to protect yourself.

Tech expert Kurt “CyberGuy" Knutsson discusses how MAB Robotics' Honey Badger 4.0, a versatile robot, now walks underwater with amphibious skills.

An updated Android trojan called FakeCall hijacks bank calls. Tech expert Kurt “CyberGuy" Knutsson says Android phone manufacturers and Google need to step up their game on security.

The Massimo Modular E9 is a sleek, smart and comfy tiny home in 409 square feet. Tech expert Kurt “CyberGuy" Knutsson takes a closer look at what the future of housing might look like.

Every stock trader should consider a virtual private network to safeguard their trading, according to tech guru Kurt "CyberGuy" Knutsson.

Apple recently announced its new lineup of Macs and rolled out Apple Intelligence, its latest artificial intelligence-powered feature for its products.

A Swiss-engineered robot can climb ladders, showing why it's at the cutting edge of autonomous robotic solutions for harsh industrial settings.

Kurt "CyberGuy" Knutsson presents the cities targeted most by robocalls, why this is happening and what you can do about it to protect your privacy.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents

Kurt "CyberGuy" Knutsson shares tips and suggestions for how to get the best use out of the updated Calendar app available with the latest iOS update.

Your Social Security number, your unique identifier used for many purposes, has likely been leaked on the Dark Web; here are some steps you can take to protect yourself.

Researchers have developed a new technology that creates strong, sticky fibers capable of lifting objects and capturing things from a distance.

Smart rings track the same things that smartwatches do, including steps, sleep and a general overview of your overall health, and they tend have more battery life than smartwatches.

Researchers have developed a robotic finger that can perform routine medical exams like those conducted by doctors, helping to address the growing shortage of trained professionals.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Insurance administrative services company Landmark Admin reported that a data breach from a May cyberattack affected over 800,000 people.

Sotheby's will auction the first artwork created by Ai-Da, the world's first robot artist created in 2019 by British gallerist Aidan Meller.

More than 250 million users of the Verizon Messages app will have to switch to another app. Verizon is shutting down Messages in the next month.

Tech expert Kurt “CyberGuy" Knutsson provides a list of 10 celebrities who are the most targeted by deepfake scams, including Tom Hanks.

Tech expert Kurt “CyberGuy" Knutsson discusses how Vast's Haven-1, launching in 2025, transforms space living with human-centric design.

UnitedHealth confirms over 100 million Change Healthcare users had their data stolen. Kurt “CyberGuy" Knutsson reveals what happened and what caused the breach.

Tech expert Kurt “CyberGuy" Knutsson explains how iOS 18 brings new text formatting and animated effects to the Messages app.

Whether you're a social media veteran or novice, Facebook friend request scams are common. Kurt the CyberGuy provides tips to keep your account safe.

The Advisory Board: A Business Owners Most Valuable Resource

Small Business