Even having a work partner that fills one or more roles will not replace an advisory board. If you or your partners fill these roles, it’s not going to harm anything, but all of the roles on an advisory board being able to be filled by the management of a small business is unlikely. Even if you happened to be lucky and you could fill all those roles with your management alone, it’s a better situation when you have people outside of management to bounce your ideas off of.
There are many opportunities today to have an advisory board, and have it cost you very little, or even nothing at all. Developing a relationship with the following professionals and having them become a part of your advisory board is strongly advised:
1. A CPA – You’ll want a CPA to prepare your tax returns and possibly to perform a compilation, review or an audit. Usually if you hire a CPA to do these things they will be part of your advisory board. Usually they will be on the advisory board for nothing if you give them the aforementioned tax preparation business and you develop a good relationship with them. CPA’s can also refer you to funding sources and other support services including referring to you more business.
2. A Lawyer – You should develop a relationship with a good business attorney. It must be a business attorney. One of the perils of business is that it exposes you to legal situations. Certainly do not use attorneys if you do not have to and there are other opportunities to get more cost effective legal advice like Prepaid Legal Services and others, but you want to get an attorney on your advisory board. Therefore it is a good idea to develop a relationship with an attorney who you can trust and will bill you in a professional manner. I have seen some attorneys bill me $75 for sending a fax! It can get that crazy. However by developing the right relationship with the right attorney you can have a trusted and valuable advisory board member who you can call when the need arises for legal assistance. Lawyers can also be a source of support services, funding sources and may refer more business.
3. An Insurance Agent – There are several situations in business that call for specialty insurance and special protection. A professional insurance agent will be able to identify perils and risks that need to be insured.
4. A Part time CFO – By using a Part Time Chief Financial Officer you have the opportunity to get a number of financial services on an as needed basis. In addition you have a valuable advisory board member. Here are some of the CFO services a part time CFO can perform:
• Solving cash flow problems
• Determining cash needs
• Designing a plan to work with existing cash and other resources
• Structuring an exit plan
• Determining Business Value
• Optimize operations
• Drive results and drive the bottom line
• Contribute to business development
• Shape financial strategy
• Understand, identify and assess the risks of business ownership.
• Prepare the Financial portion of your business plan.
5. A technical or operations professional (which one depends on your industry) – You add this person to your advisory board for their operational or technical expertise as it’s related to your product or service. Once again, you might have someone in management who could fill this role, but it’s always better to get perspective from someone outside of management if it’s at all possible.
I would be leery of certain professionals on your advisory board charging fees. Do everything in your power to build the right relationships and if you can, promise to give business to these professionals somewhere down the line.
Advisory boards are critical to being a healthy, happy business owner. I have one associate who says he never worries about any problems in his business—he doesn’t have to. And he doesn’t have to because he gives all his problems to his advisory board and lets them figure it all out. For the amount of worries they can take off your shoulders, it’s certainly worth the time and effort to put together a good advisory board.
Payroll, rent, advertising and insurance are the four major expenses for most businesses. An Interim CFO can work to control payroll costs one way by using forecasting tools like CashTell. You can optimize both the headcount and the labor hours for different levels of sales by using a forecasting tool to control payroll costs.
When forecasting, both the business owner and their part time CFO should assess many different business scenario possibilities. “Different sales volumes” is one of those scenarios. One must look at what happens to the model when different ranges of sales volumes are entered when forecasting. A forecasting model worth its salt should be capable of determining the optimum amount of labor hours for each level of sales and the optimum headcount. Because this information lets the business owner and CFO know in advance as sales increase or decline, the forecasting model is a great tool for deciding how to schedule workers, maximizing efficiency and managing payroll costs.
The word “labor hours” often brings to mind manufacturing exclusively, but in reality managing payroll costs through labor hours can be done in all types of businesses. To schedule their employees, store managers in the retail business when I was working in it were given a set amount of labor hours each week. With out exclusive permission granted by logical reasoning, these managers were not allowed to exceed those allocated labor hours. Those labor hours were determined by my forecasting tools. If at the start of a work week the sales were deviating from my original forecast, I would then issue or withdraw more labor hours as needed. The store managers complained about the small allocation of hours they received, however, interestingly the limits put on the labor hours got the job got done more efficiently than it ever had been, without sacrificing service.
A client recently emailed me to complain about two things:
- One-He’s losing touch with his customers because of his decision to delegate.
- Two-He’s disorganized lately—things are crazy, disjointed—and he misses the days when he was more organized.
These are commonplace issues to address with an Interim CFO.
With regard to losing touch with your customer base, my advice is as follows:
You go up or down in business—and that’s it. There really is no middle ground here. If a business does not try to grow, they will eventually go down, so as a business owner you must always be striving to grow. The price of always growing is indeed always feeling that you are losing touch with your customers. There is, however, a very simple solution called communication. It might be harder work, but to truly better your company, communicating with the customer base is necessary. You should regularly attempt to call “delegated customers” directly for their valuable feedback on how things are going and how your company can do better. You can bet your life that your employees won’t be the ones to tell you if there is anything wrong with their service, so you won’t find out anything’s wrong without your customers’ feedback until it’s too late. Telling your employees that you will be calling these customers in advance will give them extra incentive to perform well, and knowing that they’re going to receive feedback instead of having it sprung on them will make them more receptive to both the positive and negative feedback of these customers, and in the end strengthen your employees’ performance.
With regard to feeling disorganized and crazy, and preferring a business that feels organized, my advice is as follows:
Frankly, you need to change your mind set just a bit. You want your business to grow, because there’s no such thing as neutral ground in business, and if you don’t grow, eventually you will start to go down. A bit of chaos is par for the course when your business is changing and growing. I used to be in the retail business, and when things started to get a little crazy, though of course it was a bit jarring, I knew that was in fact a good sign because it meant my business was growing as I’d wanted it to. There will be no joy in organization if it’s only feeling organized because your business is stagnant. It’s more likely that you’ll become more stressed and less focused than ever if you become complacent only to avoid feeling disjointed. The true test of how organized you are in reality when chaotic times of change hit, is how prepared you are to deal with those times. The winning formula for running a successful business is preparing oneself to avoid the crazy, disorganized and disjointed so that you can move on to new things that cause new craziness.
It’s not only about working with numbers, metrics and forecasts for a Part Time CFO, it’s also about understanding business ownership and in turn understanding the inner workings of business.
Prepare for an angel or angel group by having the following ready:
• A 3 to 4 page (but no more than that) Executive Summary.
• A 10 to 20 page Pitch Deck power point presentation.
• Expect a lot of questions and be prepared to answer them.
• These guys are investing in you, so put them at ease with 6 to 12 character references!
• Names of potential and current customers.
• A Business Forecasting Tool and a Financial Model.
• How are you going to spend their money?
• The real economic levers in the business are?
• How do things look over the next 4 quarters?
• What are the hypotheses you are going to try testing?
If you have a Part Time CFO or an Interim CFO, they can help you figure out/put together the final 5 points.
Angels want to be secure in the knowledge that you fully thought through the project you are proposing financially. A financial model that addresses all possible contingencies and “what if” scenarios will help you prove this to them. Your financial model needs to show the angels when you will need cash and how much cash you will need. It also needs to show the angels the following:
• That you’re on top of the employee plan and the headcount.
• That you have a functioning Purchase and/or production plan.
• The costs related to your marketing and advertising plan are manageable.
• You know exactly where their investment is being spent and can show them/explain it to them very clearly.
• You are very comfortable with and highly knowledgeable of the metrics that will measure the businesses performance.
Every business/investment opportunity that angels look at, they realize will have a set of hypotheses presented by the entrepreneur because there are no certainties. Before presenting them to an angel or angel group, the entrepreneur should carefully consider each hypothesis and prepare them to the best of their ability. Ask yourself what economic levers will drive your solution to the market, and what economic levers dictate that your solution to the problem at hand is the right answer, and you can tell the angel what hypothesis or solution to a problem you are trying to test.
A solid list of angel investors can be found on the Angel Capital Association website.