While a small business board of directors is not a legal requirement, getting help from outsiders is never a bad idea. Deciding when to do so, however, depends on your individual business. As a small business grows with its increasing needs and investors, it can benefit from transitioning to a more formal board of directors. Here are the steps you need to consider when making a decision regarding when and how to formalize a board for your business.
1. Define the Role of a Board of Directors
The potential role of your board depends upon your company's needs, but can range from guiding product or service decisions to networking for investors, customers or new employees. If your business is a brand new startup, you may want board members to act more closely as consultants, or even mentors.
Think carefully about the gaps you face moving into the future. If you need help with strategy, you might want retired or experienced business leaders who know your industry to join the board. If access to talent is an issue, you might seek board members with strong networks. If your business is more established, you may look for "assistance related to scaling sales, engineering, logistics and other functions that no longer fit into a garage," VentureBeat notes. If your goal is to ultimately go public, a board can help pave the way, informing you about best practices and signaling your maturity to potential investors.
2. Select the Types of Directors
Once you've assessed your business needs, begin searching for board members. Consider how potential members will work as a team rather than solely bringing on technical experts or those with broad networks. Look beyond the hard skills members may bring to the table, such as industry experience or knowledge, to also seek out soft skills, the interpersonal strengths or team-building acumen that are important for developing a positive board dynamic. Infighters and those who need to dominate proceedings can ruin any board meeting.
The makeup of your board will be key to their effectiveness in advising your small business. Build a team that possesses a range of skills and a diversity of backgrounds in order to give you broad and deep perspectives on the strategic issues you'll need them to focus on. It's a good sign if members constructively challenge you and each other — after all, that's their function.
3. Create Bylaws for the Board
Be clear about the authority of the board and make sure there's no confusion between them and the management team. To provide this clarity, create rules or bylaws that detail the makeup of the board, member selection, frequency of meetings, decision making and, most importantly, on what issues it has authority.
As the New York Times notes, many small businesses set up an informal advisory board to offer non-binding opinions about what's best, but the management team makes final decisions. A small business board of directors can assist with critical issues and be a valuable asset if set up well. You may want to seeks the advice of a legal or acounting professional to see what works for your particular circumstances.
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