Small to medium-sized businesses urged to think outside of the box

BUSINESS ADVISORY BOARDS, MANDATED FOR LISTED COMPANIES IN GERMANY, ARE SOMETHING TO CONSIDER FOR SMEs

Smaller enterprises are more often than not driven by the energy and ideas of their owners but slowed down by the day-to-day realities of running a business

18 October 2019 | Marcus Reubenstein (Main Image: Dylan Gillis)

It’s something that big business does all the time when they lack the internal resources to solve problems, they look outside of the business.

Consultants are one answer, but they can prove to be expensive, one example is a successful medium-sized Australian company which listed on the ASX in 2018. The owners thought they were doing the right thing hiring three top firms – in stockbroking, legal and an accounting practice – to ensure everything was done correctly.

A small cap fund manager who went over the company’s financials noticed that the ‘corporate advisers’ has slipped in a marketing charge of $200,000 which was primarily burnt up simply producing and printing the prospectus.

To put that into a real world perspective, if a novel was to achieve the ‘holy grail’ of success by making it onto the New York Times Bestseller List, the total printing cost of the number of books needed to sell in order to hit the list would be around $25,000.

Australia’s Small Business and Family Enterprise Ombudsman, Kate Carnell says there’s an alternative to enormous capital outlays on consultants for specific project advice, “Advisory boards are a secret weapon in the growing small business’s arsenal.”

For $200,000 an SME can hire a board of well credentialed independent advisers for two to three years.

It would not come as a surprise that Germany, one of the most organised and successful economies in the world, mandates dual-boards for publicly listed companies. What might be surprising is that it’s a system first instituted by German business in the 19th century. These two boards are responsible for corporate governance and good practice.

Companies in other countries are slowly picking up on the benefits of engaging advisory boards, says, Louise Broekman CEO of the Advisory Board Centre, “Businesses are seeking new ways to access real world, non-biased advice from peers.”

Ms. Broekman’s company has produced a report on enterprises in Australia and Asia which already employ advisory boards, finding that 74% of businesses surveyed used them in order to implement growth strategies, though only 21% engaged an advisory board at the start of the growth process.   

Another report, produced in 2014 by the Business Development Bank of Canada (BDC), the first ever into the use of advisory boards for SMEs in Canada, found that only 6% of companies used advisory boards.

However, the average sales growth across those businesses, was three times the rate it had been before they hired an advisory board. Compared to similar businesses not using advisory boards, companies surveyed posted annual sales 24% higher and average productivity 18% higher than other businesses.

BDC also reported that five percent of Canadian companies with just nine or fewer employees employed advisory boards; and on average were outperforming their peers in sales, revenue and productivity performance.

In economies such as Australia, where there are significant financial challenges for small business coupled with very low single-digit returns should owners invest their capital elsewhere, the potential financial gains of an advisory board identified by this survey are impressive.

Says, Kate Carnell, “While the small business owner is often flat-out with the day-to-day running of the business, advisory boards are able to realise the SME’s potential by working on the business, not in it. They help set a clear plan forward and help the small business owner focus on growth rather than getting distracted while putting out spot fires.”