Running a successful business requires making important decisions and seeking guidance from experienced individuals. One way to tap into valuable knowledge and expertise is by forming an advisory board. In this guide, we’ll explore what an advisory board is, how it differs from a board of directors, why you might have one, and how to set it up. Whether you’re a small business owner or an aspiring entrepreneur, understanding the role of an advisory board can benefit your business.
What is an advisory board?
An advisory board is a group of external individuals with specific expertise who provide advice, guidance, and strategic input to a business. Unlike a board of directors, an advisory board doesn’t have the authority to make binding decisions for the company. Instead, the board serves as a resource for the business owner or management team, offering valuable insights and recommendations to your business.
Reasons to Have an Advisory Board
There are many reasons you might decide to create an advisory board. Here are just a few ways an advisory board can add value to your business:
- Expertise and experience: An advisory board brings together individuals with diverse backgrounds and expertise, offering valuable insights and guidance on specific topics relevant to your business.
- Feedback and perspective: Advisory board members provide an outside perspective from those of your managers, helping you identify blind spots, explore new opportunities, and make informed decisions.
- Equity preservation: Unlike raising capital or seeking investors, forming an advisory board allows you to tap into expertise without giving up equity or ownership in your business.
- Flexibility: An advisory board provides more flexibility compared to a board of directors. You can choose the size, composition, and meeting frequency that suits your business needs.
Depending on your board and your industry, there may be other advantages, too.
Cons of Having an Advisory Board
There are, of course, some potential drawbacks to having an advisory board. For starters, there’s cost. Establishing and maintaining an advisory board may involve some expenses, such as compensation for board members, meeting arrangements, and administrative tasks.
There’s also less accountability within an advisory board. Unlike a corporation’s board of directors, an advisory board doesn’t have the same level of legal accountability. They don’t have fiduciary duties to your business, and there aren’t state requirements to uphold for an advisory board.
How to Set up an Advisory Board
Looking to set up an advisory board? The exact steps will vary from one business to another, but here’s a general roadmap:
- Determine your purpose: Clarify the objectives and goals for your advisory board. Identify the areas where you need guidance and expertise.
- Set the size and composition of the board: Decide on the ideal number of advisory board members based on your business needs. Look for individuals with relevant experience and expertise.
- Choose your meeting frequency: Establish a meeting schedule that allows for regular discussions and updates. This can be monthly, quarterly, or as needed. You might set up meetings in person or through video conferencing.
- Set up compensation: Consider the compensation structure for your advisory board members. This can include a combination of fees, equity incentives, or other forms of recognition.
This process is a lot less regulated than appointing a board of directors. If you need to make some tweaks to these steps to suit your business needs, go for it.
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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Should a small business have an advisory board?
Having an advisory board can be highly beneficial for a small business. It allows you to tap into the expertise and guidance of experienced individuals who can provide valuable insights, feedback, and strategic advice. An advisory board can help you make informed decisions, identify new opportunities, and navigate challenges, ultimately contributing to the growth and success of your business.
How do I create an advisory board for my small business?
To create an advisory board for your small business, start by defining the purpose and objectives of the board. Then you’ll need to pick board members who have the right backgrounds, networks, and industry knowledge.
After that, you can set up a meeting schedule and compensation package for your advisory board. You should regularly evaluate the effectiveness of your board, too.