Advisory Board

Too big to do it all; yet too small to know it all?

Advisory Boards can provide businesses with the benefits of a ‘Board of Directors’ without the expensive salaries or loss of owner control.

According to an article in BRW magazine (May 13, p58) on which the following comments are based, ‘Most private small businesses do not have formal company Boards (which include independent directors who are registered with ASIC) but advisers say there is an increasing trend among small private companies towards setting up Advisory Boards.’

BRW cites the example of one business owner, Justin, who ‘… was frustrated. He wanted to take his business, which had reached a plateau at about $5 million in annual revenue, to the next level. “I needed strategic advice and wanted to bounce ideas off people who had the experience that I lacked,” said Justin. What he needed was a company Board. “But it is very complicated and expensive to set up a formal Board, especially with all the legal requirements with ASIC,” Justin said.’

‘Instead, in 2001 Justin set up an Advisory Board after seeing that they worked well in other private businesses. He focussed on appointing two different people, one for their industry expertise, and the other for strategy skills. Although they are not Directors, he pays them $20,000 a year for 2-3 hours a month, but says he can also call them 24 hours a day. Sometimes Justin meets the Advisers separately, but more often they meet together – and usually with the management team. “I get all the benefits of a Board of Directors without the drawbacks,” says Justin.’

So what are the drawbacks of a formal Board of Directors; and how is an Advisory Board a better option?

According to the BRW research, ‘An Adviser generally costs far less than a Director. The recruitment fee alone for a non-executive director can be $15,000 and the cost of paying a non-executive director can be between $30,000 - $50,000 a year, including insurance. The principal risk is financial. It’s very hard to set up an experienced formal Board because Directors are exposed, personally.’

‘It’s hard for small to medium sized businesses to get the right advice. Conventionally they end up at their accountants and lawyers, who usually lack industry knowledge, access to networks and strategic vision.’ (NB. These are the words of the article, not Edensilk, though they are consistent with feedback from our own clients.)

According to Kosmas Smyrnios, the director of research at RMIT’s school of marketing … Modern-day management needs much more information to make important business decisions, and the skills to run a fast-expanding business that can compete in an increasingly global context. “Much of this advice and strategy needs to come from a Board,” he says.

According again to the BRW article, Advisory Boards are a ‘… growing trend. You may need marketing or human resources advice, and instead of saying “I will pay you X amount of dollars to sit on my Board”, you say “I will pay you as an Adviser”.’

Justin says his Advisory Board has ‘opened doors and helped him understand the goings-on of his company’s industry. “They are also very supportive in helping us not make mistakes, and one trains me in management.” The Advisory Board provides recruiting suggestions, and helps develop the company infrastructure and strategy. His Board advised him on how to buy out his partner, restructure the company, increase revenue (to $6.5 million) and substantially increase profitability.’

Bruce Burton, the president of the Young Entrepreneurs’ Organisation, says the Advisory Board is the next step up from using an accountant for advice. “It’s an informal group of people who give you credibility and access to networks and markets.”

According to a spokesman from ASIC ... ‘Advisory Boards do not breach corporate law. There is only trouble when Advisers begin to make decisions as if they were Directors, rather than just make recommendations.’

Ralph Evans, the head of the Australian Institute of Directors, concurs that ‘an Advisory Board has to be better than not having a Board at all. “It can be a great support,” says Evans.

Burton believes that ‘…when most companies have revenue of $5-10 million they need to appoint a formal Board of Directors. However, “There is a real reluctance among Australia’s small and medium sized businesses to appoint formal Boards. This is due to their sense of rugged individualism and fear of losing control,” he says.’

Edensilk respects the prerogative of business owners to retain control, and supports this with a unique Advisory Board service.

While a business owner could spend months searching for members of their own Board of Advisers; Edensilk offers a complete Advisory team with a coordinated Advisory service.

In particular, our own team of consultants offer expertise and resources in all the key areas of Strategy, Marketing, Sales, Recruitment, HR, Management, ICT, Accounting and Legal; with combined experience drawn from nearly every industry sector. You need only choose the composition of your Advisory Board and you're immediately 'in business'.

Edensilk is effectively your one-stop-shop for a ready-made Advisory Board. And not only advice, but the people, skills and contacts to help you put that advice into action and achieve quantifiable results.

Contact us today on 08 9271 7661 to find out how you can have your own Advisory Board in place within a week; guiding and helping you to grow and manage the revenue and profitability of your business in the months and years ahead.

Print