You have been operating your family business now for several years and you have been able to enjoy wonderful success to date. To date this success has been driven by your entrepreneurial spirit and leadership. You now find yourself facing a new stage in the life cycle of a successful family business. I am referring to that period of transition from an entrepreneurial venture to a longer term sustainable and strategically directed business. This period of transition is critical to the continued success of the business, but often it's one that many family businesses never make.

As the business begins to mature and plateaus into a steady state, family business owners struggle to identify the next big idea or strategy. Often owners find themselves too focused on the operational issues of the business rather than looking at the longer term direction, and driving those initiatives needed to get the business there.

Many family managers are superb business operators, marketers, or manufacturers in the present, but they are relatively unversed in planning the future. The business may be operating well but does it run the risk that stagnation may set in? That's where a family business advisory board (FBAB) can play a major role in moving a family business to the next level - by fostering planning to create strategies for future success and introducing sound strategic advice to continually move the business forward.

How can a FBAB enhance your family business?

As you will no doubt appreciate, the success you have enjoyed to date has likely been supported by not only your guidance and leadership, but also that of your management team. The key is how to continue increasing the range of management know-how for the business to support its future success.

Advisory board members are typically selected based on their detailed knowledge of the business, or because of their specific knowledge and experience in the business operations, marketing or financial performance and the industry in which the business operates. When looking for potential advisors to your business focus on finding individuals who are well versed, experienced and able to assist in evaluating business ideas and opportunities.

You should also consider their ability to assist you in developing the future succession and ownership transition program of the business. Their experience, and their skills, should provide a depth and range that greatly extends the current managerial capacity of the business.

Studies have shown that family businesses use their FBAB’s to fulfill multiple mandates. Most commonly, FBAB’s are used to assist in strategy-setting, as a sounding board for ideas, as mentors to extend the owners and other manager's skills and to suggest and assess new business development ideas.

Role of a FBAB

It is important to understand that an FBAB is not acting like a board of directors. An FBAB does not have the legal responsibilities and authority of a board of directors. Rather, they are an informal group of (primarily external) advisors chosen by the business owner to provide guidance and advice.

Often in establishing an advisory board for the first time, the members might consist of a CPA, a lawyer, the owner-manager(s), an industry consultant or specialist, and possibly a family member or non-participating shareholder. As the business continues to evolve, the range of expertise needed may encompass changes to the specific make up of the board. This may include bringing on experienced business leaders who understand your specific business and industry and whom can help guide your business strategies.

Having a FBAB offers a flexible platform to access advice from advisors. Owners may choose to act on this advice as they feel appropriate. Further, as advisors are appointed, they can be laid off or replaced without a consenting vote of any sort being required as in the case of a formal board of directors.

Compensation for advisory board members can be extremely variable in nature ranging from meeting only their actual expenses for the time and work they put in, to a reasonable retainer. It will be important to monitor any compensation arrangement you put in place to make sure it is commensurate with the value the members bring to your business success.

Getting on board with a FBAB for your business

Although there is limited data demonstrating a direct link between advisory board activity and business growth indicators, there is a plenty of anecdotal evidence from surveys and business articles that growth oriented family businesses find FBAB’s a key asset in enhancing their future success. Based on my experience and that of business owners I work with that have a FBAB, the following factors will contribute to ensuring an advisory board does add value to your business.

In selecting the individuals to appoint to the board they should either:

• Have specific skills the business has identified as being necessary to achieve its goals (for instance in operations, marketing, technology), or
• Have experience of a generalist nature (a business consultant or successful entrepreneur) to be able to offer advice or assess the viability of suggestions.

Please be sure to exercise caution for personal characteristics that may come into play. Although it might be tempting to consider a well regarded friend or colleague who knows the industry for a position in your FBAB, do they have sufficient personality to give you a totally independent view that may be in contrast to your own?

Retain control and enhance business performance

As your family business continues to grow and strengthen its position, it may neither need nor want a formal board including outside directors. However there may come a time, that critical period where the family may need more than informal business advice to keep it growing and remain competitive.

Establishing an active, effective outside advisory board that openly offers advice and mentoring can be the single greatest resource for a family business. Creating a FBAB for your business will allow you to retain control over the business and create a platform to continually enhance business performance going forward.

Rick Gendemann, CPA, CA, is a Business Succession Leader with Manning Elliott.

Rick can be reached at  rickg@manningelliott.co