Are You Considering a Board?

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.”

Wilson Mizner

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 3 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 include:
- Getting a business ready for sale or succession
- Developing a strategy for the business
- Implementing greater accountability in the business
- Mentoring the owners and managers in better business and leadership practices
- Helping owners implement new processes
- Managing key risks
- Negotiating difficult contractual situations
- Addressing conflict or cultural issues within the business
- Identifying and negotiating the purchase of an other firm

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:

- Is there enough complexity in my business for a board to add value to?
- Is a $4k-$6k spend per month affordable?
- Do I think there’s at least another $.5m in potential in my business over the next
year?

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 info@boardassociates.org, 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.