How an Advisory Board can transform your family business
Often when we think of a Board we think of a large corporation, usually publically listed with heavily suited corporate types making large, important decisions and being paid squillions!
And while this is the case in some situations, we firmly believe that family businesses, even relatively small ones, can definitely benefit from a board of some sort and should seriously start to think about it. Here’s how an Advisory Board can transform your family business.
First, some definitions.
Board of Directors
A Board is made up of a board of directors – if you don’t think you have a board at the moment, you do – anyone who is a Director is technically the board and has fiduciary responsibility for the company. In layman’s terms, what that means is if the business goes bust the directors are the ones the creditors come after because they are the ones everyone holds responsible!
A formal board of directors in family business usually involves a couple of external people as well as any family members who are directors. We have several family business clients who run these boards; they are large businesses and have benefited hugely from having a well-set-up board. One example is a family, who with the superb advice of their board, has nearly doubled their size in 36 months. This is a one off, but they would most likely not have succeeded without the input of the Board.
An alternative to the board of directors is an Advisory Board, which comprises the existing director(s) and a number of advisors they bring in to give their input into what the business needs to do. The advisors are not directors and can only give suggestions – they cannot make decisions – that is left to the directors. We have a number of family businesses that have Advisory Boards and they have proved to be excellent and have served the business extremely well. One has been running for more than 20 years and the business now operates in four different countries. The sole Director, Dad, loves it!
Instant Advisory Board
The final version is what we call an Instant Advisory Board and this is something we set up in periods of instability and change – COVID-19 being a classic example. The Instant Advisory Board is a couple of outside advisors working with the family to look at what they need to do with their business for the immediate future. This is not a long-term thing, however in some cases the Instant Board has turned into a long-term Advisory Board because it was so useful.
If you are turning over more than $2m annually, having a board is worth seriously thinking about. We normally suggest an Advisory Board, however for larger family businesses a formal board of directors is appropriate.
So why bother with a board?
Assuming you are setting up an Advisory Board, what you get is access to some of the best brains and experience on a regular basis to advise and suggest direction and strategy for your business. You learn amazing financial discipline skills and you’ll see your business blossom!
An Advisory Board is fantastic at training and mentoring the next generation – especially as the business is inevitably far more complex than when the previous generation took over or started it and the Next Gen get fantastic training and advice on how to run the business.
We often hear from members of family businesses that they’re a bit concerned about looking dumb in front of professionals coming into their advisory board – they don’t think they know much. This of course from people who have been in business for years and built a business worth millions of dollars – far from looking dumb, the Advisors are usually in awe of what the family has achieved.
Instead of feeling silly, founders and Next Gen members find they learn so much and, with the increased discipline, see a coherent strategy developed as well as the business growing from strength to strength. Next Gen learn and are that much better prepared to take over the business, their understanding of what is involved in the business is increased tenfold and their confidence and the confidence of their parents grows.
As mentioned above, if you are a medium sized business, often a Board of Directors is appropriate and this does cost a reasonable amount. However, as a percentage, it is still very small. For smaller businesses, setting up an Advisory Board is not expensive.
What to look out for when setting up an Advisory Board:
Think very carefully about the needs of the business going forward and pick advisors who have deep experience in this area.
Pick advisors who have experience in family business – family business is unique and you need someone on your board who understands the dynamics of a family.
Don’t just pick people who have corporate experience. Usually they do not know how small business really works, chances are they won’t know the issues with a family business and will often recommend things that, while appropriate for a large corporate, do not fit with an agile family business. Years ago we worked with a family business that had a number of corporate directors on their board who just did not get the ‘family’ side of family business and it ended in tears.
Advisory Boards do not have to be expensive, you can bring on extra advisors easily and when you are ready it is equally easy to move them on. However, it is useful to have one or two long-term advisors that know you and your business and can provide continuity.
We are helping a number of family businesses set up Advisory Boards, Boards of Directors and Instant Advisory Boards. If you’re above the $2m mark in turnover, it’s worth thinking about an Advisory Board. If your family business is smaller, an Instant Advisory Board can be very useful. Contact us for more information on what is best for you, who are the best advisors and directors to pick and how to set it up.