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Blake Christian
How to help clients build an effective sounding board

CPAs can play a valuable role in helping clients assemble advisory boards.

August 11, 2014
by Blake Christian, CPA

Middle market business owners wear many hats and are typically extremely busy dealing with day-to-day operations. As a result, these entrepreneurs may have blind spots in strategic areas such as industry intelligence, best practices, and technology upgrades.

One cost-effective solution is to tap the minds of other seasoned business experts through an advisory board. Many potential board candidates are likely already within the business or social circles of the company’s owners. But some companies still may require help filling out their boards. This provides CPAs with an excellent opportunity to tap into their extensive business relationships and make introductions of potential advisory board members.

As a trusted adviser, CPAs also can provide guidance to business owners on how to set up and structure these meetings. So how do advisory boards work? Here’s a brief overview of the boards’ function and inner workings.

First of all, it’s important to understand this board is different from the one elected by shareholders and the two should remain independent of each other. While advisory boards generally lack decision-making authority, they can provide business intelligence on a range of topics, including:

  • Identifying future trends in the company’s industry or geographic regions;
  • Understanding current product, financing, and wage trends;
  • Evaluating new niche products and service lines;
  • Assessing current and future competitors;
  • Discovering potential clients and customers;
  • Developing partnerships with other business owners or vendors; and
  • Sourcing interns and permanent employees.

There are other ways to gather similar information. Owners can become active in trade groups and chambers of commerce. They also can hire strategic planning consultants or enroll in higher education programs. But these approaches often take a lot of extra time and money, both of which can be in short supply for entrepreneurs. 

The exact expertise needed by advisory board members varies depending on the industry in question and the age and objectives of ownership and management. Some sample areas of expertise that the business owners will generally be looking for include:

  • Banking, finance, leasing, or accounts receivable;
  • Engineering, manufacturing, or service;
  • Marketing or public relations;
  • Human resources; and
  • Strategic, succession, and exit planning.

Once business owners have decided to establish an advisory board, a CPA can offer varying levels of formation and implementation assistance, depending on each client’s specific needs. This assistance can include:

  • Recommending advisory board members;
  • Working with owners to develop areas for the advisory board to focus on;
  • Preparing agendas and post-meeting action items;
  • Educating the board members about the business operations and financial history of the business;
  • Working with the company CFO or controller to prepare historical financial analyses; and
  • Developing financial projection models to assist in growth analyses.

While each company and advisory board will have its own unique issues, operating styles, and meeting formats, a number of action items are recommended for all boards. In the initial meeting, the action items likely should include:

  1. Discussion of an initial company assessment coordinated by the advisory board chair, who is generally picked by the business owner in advance.
  2. Review of in-depth interviews with owners and senior executives to identify the SWOT (strengths, weaknesses, opportunities, and threats) list.
  3. Review of interviews with top five to 10 customers for input on the quality and value of the company’s products and services.
  4. Presentation of a three-year historical financial analysis with trending and benchmark data and commentary.

Some suggestions for the format of ongoing meetings include the following:

  1. Establishing monthly advisory board meetings for the first three months, then move to every other month or quarterly meetings as new company procedures and systems are implemented.
  2. The suggested meeting format can either be Saturday from 8 a.m. until noon or early evening weekday through a working dinner. Times such as these help to minimize member scheduling conflicts.
  3. Consider establishing advisory board compensation and set a flat stipend per meeting, plus additional hourly compensation for special projects or analysis. In preparing for each meeting, the advisory board chair will work with the owner or executive team members to develop an agenda that will be distributed one week ahead of time. The meeting package should include prior year and current year YTD monthly financial statements and an updated forecast. Owners also should decide whether other executive team members will participate in portions of certain advisory board meetings.
  4. Be mindful of the personalities of the board members and how they will interact. Also consider representatives from all generations—ranging from seasoned veterans to Millennials—to ensure that you get a broad cross-section of input and feedback.
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Blake Christian, CPA, MBT, is a tax partner in the Long Beach, Calif., office of CPA firm HCVT LLP.