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.

scheduled cleaning services Winnetka ..

In The News:

New iPhone replacement scam uses pressure tactics and fake carrier calls to steal devices from buyers. Criminals claim shipping errors and demand urgent returns.

Amazon Ring's new facial recognition feature sparks privacy controversy as Electronic Frontier Foundation critics argue the AI upgrade expands surveillance risks.

New Android banking trojan Sturnus steals credentials, reads encrypted messages and controls devices.

Denmark's 3D-printed student village proves automation builds 36 apartments faster than traditional methods. Skovsporet project shows housing future.

Discover Android's new Sound Notifications feature that alerts you to smoke alarms, doorbells, and baby cries even when wearing headphones.

New SantaStealer malware reportedly threatens holiday shoppers with password theft. This Christmas-themed info-stealer targets browsers and crypto wallets.

The Christmas season brings a surge in Netflix phishing scams targeting shoppers with fake emails. Stacey P received convincing scam but verified account first.

San Francisco Giants invite Jamie Grohsong to throw ceremonial first pitch at Oracle Park after he learned to play baseball with a bionic hand following an injury.

FBI warns cybercriminals are stealing family photos from social media to create fake proof of life images in virtual kidnapping scams targeting victims.

Instagram's new 'Your Algorithm' tool lets you control your Reels feed in real time. The app now gives you power to customize what videos you see.

Major Marquis fintech breach exposes 400,000-plus Americans' data through unpatched SonicWall vulnerability, with Texas hardest hit at 354,000 affected.

Free up iPhone storage fast by clearing large photos and videos from Messages app. Simple steps for iOS users to delete attachments without losing chats.

Scammers are flooding inboxes with fake tracking alerts that mimic real carriers, exploiting the holiday rush to steal logins and personal data.

The Fox News AI Newsletter brings you the latest news on AI technology advancements and the challenges and opportunities AI presents now and for the future.

Texas family reunites with missing 11-year-old cat Grayson after 103 days using Petco Love Lost's AI photo matching technology and community help.

Tired of AI customer service loops? These insider tricks help you escape "frustration AI" and get real human help when you need it most for urgent issues.

Unlock richer audio from your streaming apps with simple tweaks to volume normalization, equalizer settings, and quality preferences for cleaner sound.

Scammers are sending fake Facebook settlement payout emails that mimic legitimate notices from the privacy settlement administrator to deceive users.

Holiday shopping scams surge as fake refund emails target distracted consumers during Black Friday and holiday seasons, costing Americans billions annually.

The AI-powered IRMO M1 exoskeleton features four modes, including turbo, eco, training and rest for hiking, running, cycling and sports with eight-hour battery life.

OpenAI announced upgrades for its ChatGPT Images platform on Tuesday, saying the program can now make more precise edits and produce images more quickly.

Chrome for Android now turns web articles into AI-powered podcast conversations. Get hands-free browsing with Google Gemini's natural audio summaries.

LastPass faces $1.6 million fine from U.K. regulators after 2022 data breach exposed 1.6 million users. Password manager failed proper security controls.

Petco disclosed a data breach exposing customer Social Security numbers, financial account details, and driver's license information due to a software error.

Baseball teams can now analyze complete swing mechanics in normal training environments using Theia's markerless AI system that processes standard high-speed footage.

The Advisory Board: A Business Owners Most Valuable Resource

Small Business