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BDC issues first–ever Canadian study on the impact of advisory boards

20/03/2014

Despite the benefits—too few entrepreneurs have one

Highlights

  • Very few—6%—Canadian small and medium-sized businesses use an advisory board.
  • In fact, 57% of respondents without an advisory board felt that implementing one required too much work, time and effort.
  • Companies with an advisory board do better financially and get invaluable advice.
  • Companies that created an advisory board saw their sales grow almost three times faster in the following three years than in the previous three years.

Montreal, March 20, 2014—A new study from the Business Development Bank of Canada (BDC) finds that advisory boards have a significant impact on a business’s financial performance, yet only 6% of Canadian small and medium-sized enterprises (SMEs) use one.

In fact, almost 86% of entrepreneurs who do have an advisory board say it has had an important impact on their business success.

“The benefits of having good-quality, independent advice from well-respected, experienced individuals is clear, and we now have research to support it,” says Jean-René Halde, BDC’s President and Chief Executive Officer. “We have to encourage more entrepreneurs to use an advisory board so that we can grow the numbers that have one.”

The study also found:

  • Sales grew 67% on average in the three years after companies created an advisory board—almost triple the 23% rate of the previous three years.
  • Productivity rose 6% in the three years after—double the 3% rate in the previous three years.
  • From 2001-2011, average annual sales of businesses with an advisory board were 24% higher than those of a control group of other businesses, while productivity was 18% higher.

“An advisory board can be a sounding board to help busy entrepreneurs strategize about their business, broaden their vision and enhance their bottom line,” he added. “Unfortunately, there is a perception among those who don’t have an advisory board that implementing one required too much work, time and effort.” “We must stamp out this notion that they are not worth the effort, because all worthwhile initiatives do.”

When forming an advisory board, entrepreneurs typically seek expertise in accounting and finance, sales and marketing, and human resources, the study found.

The most commonly cited impacts from advisory boards were on company vision, innovation, risk management and profitability.

Most advisory board members give their advice free of charge and meet once a month or quarter with a company’s leadership.

The study uses empirical analysis to compare the performance of Canadian firms with and without advisory boards. A survey of over 1,000 SMEs in Canada and an analysis of companies’ fiscal data using Statistics Canada figures was also conducted.

For the purposes of the report, advisory boards are defined as “a group of independent people who advise the management team of a company on specific problems and who meet on a regular basis. Unlike a board of directors, the members of an advisory board do not have the authority to vote on business matters nor do they have any legal responsibility towards the company. The company has no obligation to implement the advisory board’s recommendations.”

For detailed study findings consult BDC’s “Analysis and research” section.

About BDC

Canada’s business development bank, BDC puts entrepreneurs first. With almost 2,000 employees and more than 100 business centres across the country, BDC offers financing, subordinate financing, venture capital, securitization and consulting services to more than 28,000 small and medium-sized companies. Their success is vital to Canada’s economic prosperity.

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