Too small for independent advice?

Many small business owners in the optical sector assume that company boards are for the big boys, yet the benefits of independent directors or advisors apply to all businesses, irrespective of size or structure.

Owner-run businesses can be averse to appointing outside directors or advisors, driven by a mix of ‘she’ll be right’ mentality, a desire to keep everything in ‘the family’ or simply putting change in the ‘too hard’ basket, which can stall business and growth potential.

This mindset is likely to be holding back many owner-run businesses. Looking at family businesses run in New Zealand, most do not have a functioning board of directors. Many only have a single director, or one or two directors who only meet formally to sign the annual report. If you’re a business owner, have a look at your board minutes. When did your board last meet to plan strategically?

Even where an owner-operator believes they have the skills required to implement these strategies, an external, non-family and non-executive director or advisor will provide access to a broader base of skills and experience, as well as becoming an ambassador for the business across new networks of influence.

There is concern that major structural weaknesses relating to the governance of private and family-owned businesses exists in New Zealand. Daily operations tend to take over at the expense of important strategic decisions that set the course for the business’ future and protect the margins under which most industries operate. Business owners are commonly guilty of working too hard ‘in the business’ instead of working ‘on the business’. This constant juggling act is a day-to-day occurrence with a multitude of warring priorities that keep you from these important tasks.

But an essential responsibility of any director is to ensure the sustainable future of the business enterprise. It is not feasible for the directors of a family business to do that without taking time out to consider the big picture: the economic environment, the competition, the threats and the opportunities that are unique to their business. An external advisor can often provide the prompt needed to ensure you allocate the necessary time to focus on the ‘big picture’ aspects of your business.

A good external director or advisor will start thinking and planning in a multitude of areas you had not previously considered. Because they are external to the daily operations of the business, they will be particularly useful in the identification of risks to your business and then in assisting to devise appropriate strategies to deal with those risks.

The risks of being a director may be high due to potential personal liability. Where that is the case, it is still worthwhile having an external advisor. That person will be an advisor to the board and still participate in discussions, but will not be a formal director, and they can carefully define the boundary over which they will not cross so that they do not become deemed a director.

External advisors provide support and guidance to business owners and even valuable mentoring to possible successors. The objectivity and professionalism they bring can also enhance family or shareholder harmony.

Most optical business owners have technical skills and qualifications in their particular area, but often lack formal training or strong skills in all aspects of managing and growing their business. Sometimes the missing skill sets are covered by employees, but at a governance level, the right person will bring a further range of skills and experience which may not currently exist in your business.

In the current competitive environment, businesses need to take extra steps to gain market share or improved margin. A person from a different background will bring a fresh perspective as well as objectively challenge the status quo.

How do you find the right person to serve on your board of directors? The local Institute of Directors can assist. Look for someone whose personality, values and culture you respect and believe will be a good fit with you and your business. Speak to your business advisers – accountants and lawyers – they are likely to have people in their network who might be a good fit for your business.

Once you have found the appropriate person, they need to be properly briefed and given sufficient material to properly understand your business, your part of the industry and the market environment. They need to know what the problems and challenges are so that these matters can be addressed rather than ignored and allowed to fester further. 

A good person will add structure and rigor to directors’ meetings and will challenge you. This is likely to be a significant change from the way you have previously operated and should result in a significant improvement to the way the business operates and its performance as a whole.

About the author:

*David Pearson is managing partner of chartered accountants and business advisors BDO Central and has a speciality interest in advisory services to the optometry sector. He has extensive experience assisting both small and medium sized entities with a wide range of advisory services. For more information contact David at david.pearson@bdo.co.nz or visit www.bdo.nz

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