Looking for an easy and inexpensive way to energize your business, boost sales and plan for the future? Here’s an often-overlooked idea: create an advisory board.
Only a meagre 6% of Canadian entrepreneurs have an advisory board for their business, according to a survey this year by the Business Development Bank of Canada (BDC). However, 86% of entrepreneurs who have an advisory board say it’s had a significant impact on their business.
“Once people understand the benefits, they become big fans,” says Pierre Cléroux, BDC’s Chief Economist. “There are really practical, tangible benefits for the bottom line.” BDC’s research bears that out. The study shows that annual sales at businesses with an advisory board were 24% higher than those at companies without one, and productivity was 18% higher.
Discover how an advisory board can guide your business towards growth.
An advisory board is an informal body of outside experts that an entrepreneur can use as a sounding board or to fill in gaps in expertise and contacts. Unlike a board of directors, advisory boards have no legal responsibility for the company’s governance, but experts say they still bring a lot of value.
Jean-Yves Sarazin knows the benefits first hand. He created an advisory board back in 1990 at his company Groupe Delom, which offers maintenance and manufacturing rotating equipment such as motors, pumps and ventilators. At his advisory board’s very first meeting, Sarazin was referred to a financial institution that allowed his company to save tens of thousands of dollars through lower interest charges on a loan.
“Every entrepreneur should have an advisory board. Each time I’ve seen a company create one, the first meeting produces a return that is enough to cover the compensation for the whole year,” he says. Sarazin has become such a big supporter of the idea that he has agreed to sit on several other companies’ advisory boards as a way of giving back for the help he’s received over the years.
Another benefit: an advisory board obliges entrepreneurs to periodically step back and look at the overall direction of their business. “Just getting ready for my meeting with the advisory board forces me to take stock of the business and consider it from new angles,” Sarazin says.
Having an advisory board also reassures financial institutions, which examine the quality of the company’s team when assessing a loan application, he says. “It shows you’re not alone in making decisions.”
So why don’t more businesses have an advisory board? Some entrepreneurs think it may be too time-consuming to create one or are simply unaware of the benefits, Cléroux explains. But the payoffs, he says, are usually well worth the effort and cost (some companies offer advisors a nominal honorarium, while others don’t compensate them).
“An advisory board is a good tool to force the business owner to think more about the company’s vision, long-term goals and how to achieve them,” Cléroux says. “The benefits are way bigger than the cost to the business.”
How to set up an advisory board
Setting up an advisory board is easier than you might think. “It’s not that hard to find people to sit on an advisory board. Experienced CEOs often agree because they want to help their community,” says BDC’s Pierre Cléroux.
- Ask your accountant, lawyer or business network to refer potential candidates. Some business associations offer a service to help companies find advisory board members.
- Effective advisory board members tend to be veteran business people who offer expertise an entrepreneur may lack. They should be completely independent of the company, rather than your accountant or lawyer—“someone who will give you the true story,” as Cléroux puts it.
- Entrepreneurs should meet their advisory board regularly—for example, on a monthly or quarterly basis. About 60% of advisory board members receive no compensation, while others usually get a modest honorarium. A restaurant meal or retreat can also be a way to thank advisors.