It’s normal for a business owner to think about starting a board, after all, who wouldn’t like to be surrounded by a few smart people to help think through the challenges of running and growing a business.
The question in most people’s mind is “Is my business big enough? Can we afford it?”.
“To profit from good advice requires more wisdom than to give it.”
Is my business big enough
In our experience, a firm with 20 or more staff can benefit from a board. This is because at this size, there is sufficient complexity in the business for a board to add value, and there are sufficient resources in the business to act on the board’s recommendations.
Below this size, a board can add value if the company is in a high growth mode but generally speaking, having 2 or 3 advisors around the table is an over kill and the owners are too busy running the business to keep pace with the advice and actions coming from the board. 1:1 mentoring for the owner is more effective at this stage.
Above this size, a board of advisors (sometimes called an advisory board) is a useful first step for firms with more than 20 staff. The costs are moderate, the board tends to be smaller and the focus is on entrepreneurship, providing expertise in specific areas when the business probably can’t afford to hire full time experts in certain areas.
Can you afford it
Affordability and impact on cashflow is one of the first jobs an owner has to manage and the same goes for the board. It would be an irresponsible board to take on a role if it was going to cause the firm financial pressure.
Board fees vary depending on the industry, the size, complexity and risk and the type board you implement.
For companies considering their first board, we recommend a board of advisors, rather than a statutory board. A board of advisors can provide you with all of the same benefits (if it’s set up correctly), but at a more affordable fee level. For example: a formal board of directors (statuatory board), may at first have 2-3 members and each Director will charge somewhere between $3000 & $5000 per month which equates to $100k-$150k per year for a small board of directors. An advisory board on the other hand for the same number of advisors, may cost $50k-$60k per year.
The next affordability question should be, will you get a return for this spend? Investing in a board is an investment in your business, the same as any other, and should have an expected ROI. At a minimum, we ask “can we realistically add $½ million in value to this business over the next year?”. If the answer is yes, then that’s a 10:1 return and a good use of the owners funds. If not, another form of advice is likely to be better in the short run.
Typically this short term return comes from 5 areas:
Increase in sales, arising from the business strategy we develop together.
Increase in margins
Improved financing of the business
Increase in productivity amongst the team
Better insights into the business which helps the owners run the firm more effectively.
To keep the board accountable to the owners, they should sit down together annually to not only refresh the strategy and business plan for the year, but to also set out the board goals. Board goals are the commitment the board is making to the owner and help to focus their attention and activity on those things that will add value.
It’s important to note that whilst financial results are the primary role of the board, there are a number of additional benefits which can be equally important and which may also be included in your annual board goals.
Other ways a board can add value are:
Importantly, the composition of the board should match the specific goals or challenges you have and also be reviewed annually, potentially refreshing the members as required.
So in conclusion, if you’re considering a board the key questions to ask are:
If the answer to these questions is yes, then the next step is to test this out and you can do this over an informal chat with the Board Associates founder, Matt Dunstan. Having advised owners for over 20 years, Matt has seen a lot of different types of businesses and can quickly tell you if now is the right time for a board or if another type of advice would suit you better.
To schedule a quick call with Matt, just email his PA at email@example.com, including a few details about your business and why you’re considering a board.
If you’re not quite ready for a chat but would like more information on how a board works and other business best practices, you may like to join our community of interest. Each month we discuss the things you should be considering in your business at that point in the year and some of the best practices for doing it right. You can join our community of interest here.