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-à-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.christmangroup.com 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.

---

Finding the Right People for your Business

Where do you find the right people for a business... Read More

Top 10 Mistakes to Avoid When Joining a Professional Association

I'll be the first to admit that I went a... Read More

WARNING to Home Based and Small Business Who Want to Buy Television Cable Advertising

Most small businesses will not even try to advertise on... Read More

Mobile Detailing Environmental Concern in the Deep South

Macon, GA goes after garage-gas station conversion detail/hand car washes... Read More

Fleet Washing Expansion Considerations

Many times small businesses want to expand their businesses and... Read More

Self-Employment: Managing Your Money: Tips for Living with a Fluctuating Cash Flow (Part One)

The way you manage your money is one of the... Read More

The Skills Gap: It Pays to Use Experts

By outsourcing to skilled professionals you'll be able to grow... Read More

Mobile Car Wash and Cleaning Post Office Jeeps

If you own a mobile truck washing, pressure washing or... Read More

Competition in the Mobile Car Wash Industry

We have all seen the mobile washing units cruising our... Read More

Dispute Resolution; Competing With Other Franchisees

If you are in a franchise and have a territory... Read More

Maintaining Your Carpet Extractor in Your Auto Detail Shop

Auto Detailing: Maintaining A Commercial Carpet ExtractorYou should drain your... Read More

Small Business Owners - They Owe You The Money Why Dont They Pay?

Doesn't it frustrate you when you've given good service, sometimes... Read More

Carwash Franchisor Case Study

There are only a handful of car wash franchises in... Read More

Sex Up Your Business Growth

A top executive called up me late in the night.... Read More

Boat Cleaning Business Case Study: Entrepreneurship 101

How do marine type businesses start? Have you ever thought... Read More

A Business Plan Is Not Worth A Cracker To A Struggling Business - A Plans The Last Thing It Needs

Before you start a business we encourage you to prepare... Read More

Perfecting Your Pitch

Why should you describe your business to others in 5... Read More

Recognizing Employees? Contributions Can Go a Long Way

Every employee would like to earn as high a salary... Read More

Why Do Most Online Small Businesses Fail?

Search Engines account for almost 90% of all web traffic!In... Read More

Should I Franchise or Not?

A reader of one of my online sessions asked should... Read More

Learning and Growing

As you reflect on this year and prepare for next... Read More

Business Pain Defined

Every company has business pain, but the pain does not... Read More

How to Successfully Avoid Becoming One of The 80% of Small Businesses That Will FAIL

It's a commonly quoted statistic: 80% of all small businesses... Read More

3 Ways To Make Certain Your Business Fails

Most small businesses incorporated in 2005 will fail by the... Read More

De-Ionization Decisions in Mobile Car Washing

Many mobile car wash operators would like to add de-ionized... Read More

How to Become Successful in the Field of Financial Consultants

Financial Consultants are one of the fastest growing industries today.... Read More

FTC Report on Franchise Rule Making; What Purpose?

The Federal Trade Commission out of the blue decide in... Read More

How to Start an Office Support Service

Office support services can range from basic data entry to... Read More

The Perfect Mission Statement

One way to determine your companies mission statement is based... Read More

What is Business Process Automation?

Business Process Automation or BPA for short. This was a... Read More

But Weve Always Done It This Way

Sacred cows take a long time to die. We get... Read More

Money Series 1: Who Takes Your Money

Your business is making profits, but where is the cash?... Read More

Promote Yourself More Successfully

One of the great challenges for independent professionals and small... Read More