Advisory Councils Can Boost Potential of Business Success

Shrewd business owners know they can’t go it alone if they want to succeed, especially in today’s economic climate. Many entrepreneurs and small business leaders already gather information from a variety of sources, such as their trusted accountant, attorney, financial advisor, insurance agent and marketing specialist, to make crucial business decisions. Why not broaden the concept of tapping into outside expertise by establishing an advisory council to increase your business advantage? An advisory council is a smart management tool to generate innovative ideas, strategize on important decisions and help your business plan for stronger times ahead.

An advisory council differs from a board of directors in that members do not have the authority to implement corporate decisions. Also, business owners don’t have the fiduciary responsibilities they normally would with an elected voting board. Because advisory councils are less formal, they are relatively easy and inexpensive to establish, and the business owner controls the type and amount of information released.

Any company with annual revenue greater than $500,000 should consider building an advisory council. At that revenue milestone, your business is likely established and growing at a pace where high-level, outside expertise can benefit your company’s strategic planning process. When choosing council members, consider recruiting advisors who have a genuine interest in supporting your efforts and want to see your business develop and thrive. Think not only in terms of colleagues tied to your business, but reach outside your industry and pull in critical thinkers with respected opinions. Good choices might be industry professionals in your field who are not competitors, management experts in an area where you lack strong expertise (e.g., accounting, legal, etc.), and strategic alliances who can connect your business to the next level of profitability. Ultimately, your advisory council should be enthusiastic about meeting and believe its input can positively impact the future of the business.

Although an advisory council does not have all of the legal conditions of a formal board of directors, owners still have a responsibility to ensure this informality will work for them and not against them. Council members should sign confidentiality agreements to safeguard any sensitive material being discussed. In turn, owners should compensate them, even though members are typically honored just to be asked to serve. Depending on your company’s size and annual earnings, a good benchmark is $500 to $750 per meeting. At the very least, members should be reimbursed for travel or other out-of-pocket expenses, and the company should pay for costs associated with hosting the meetings. To guarantee the most value, consider quarterly or bi-annual meetings. Finally, providing members with the necessary materials in advance, organizing a meeting agenda, and asking thoughtful questions will ensure that you maximize your collective talent.

Setting up an advisory council can be one of the best moves your business makes. It enables you to easily and inexpensively gather respected and knowledgeable contacts and utilize their opinions on a variety of corporate issues to make your business prosper.

Michael Ringler, CPA, is the founder and president of Ringler & Co., PC, a Mount Clemens, Michigan-based Certified Public Accounting firm offering accounting, tax, and business advisory services to entrepreneurs and their families.