Today’s business owners must wear a lot of hats and juggle a lot of balls, and they increasingly turn to a business advisory to lighten the load. Owners likely have expertise in their field (manufacturing, IT, real estate, etc.), but may lack expertise in developing and executing financial, tax, compensation, risk management and legal strategies.
If that doesn’t sound hard enough, consider what might happen if one of those balls gets dropped. Missing a tax deadline or muffing a financial report could inflict a wound that, even if it is not fatal, may damage reputation as well as financial outcomes.
Fortunately, thanks to business advisory services, a business owner doesn’t have to go it alone. Advisory services are provided with the goal of supporting businesses and compensating for weaknesses in specific areas. A good business advisory firm will not only provide deep technical knowledge and extensive experience, but also the guidance a business owner needs to meet new challenges, maintain compliance with financial reporting requirements and anticipate changes in the regulatory, technological, and marketing environments.
This article will explain the role of business advisory services and the different forms these services can take.
What is a business advisory?
The American Institute of Certified Public Accountants defines advisory services as developing “findings, conclusions and recommendations for client consideration and decision making,” and their focus is on operational needs, such as accounting systems, business processes, and information management.
Firms that provide business advisory services have a broader outlook. Intuit’s QuikBooks blog says, “A business advisor is a strategist who works with your company to help with planning, finances, marketing and even development.” In other words, while a business owner may have an accountant, a lawyer and a banker, the business advisor acts as an extension of the business owner and applies their expertise where and when business needs dictate.
You can also think of it in terms of the difference between a business advisor and a business consultant. While business consultants help clients find the solutions to problems, business advisors will identify viable solutions and help clients choose the best ones.
In other words, according to Marie-Pier Rochon writing for BizFluent, “Consultants are problem solvers while advisors are problem definers.”
That focus on fresh ideas in executing business strategies can play a vital role in developing the competitive advantage for small business owners.
What are examples of advisory services?
With adequate advisory services supporting a business at every step, running a successful business can become a fruitful and exciting journey rather than a grind. Advisory firms vary widely in their ability to offer distinct categories of services (for example business processes vs. business strategies), so it’s important to choose one that is the best fit for your business.
Here are just a few examples.
There are endless complications to unravel and decisions to make in running a business these days. Should an entrepreneur acquire a competitor, or sell the business to one? Is the business plan up to the job of growing and sustaining the company? Are those marketing strategies on target? Is there a succession plan? And are employee compensation and retirement arrangements attracting the workforce the business needs to thrive?
These are just some of the questions a business advisor can help a business owner think through and answer. When choosing a business advisory firm, it’s important to make sure that their strengths complement your weaknesses (and vice versa) and that your priorities align.
Risk assessment and management advisory
Risks are inherent in any enterprise. Some hazards can destroy a business, while others can cause damage that is costly and time-consuming to repair. Risk assessment and management advisory services can help a CEO and stakeholders anticipate and prepare for the unexpected – and even use adverse conditions to the company’s advantage.
A risk management advisory should examine the company for areas of risk (which can run the gamut from location to technology to human to security) and then help the stakeholders devise strategies to prevent the risk or minimize the damage – whether that means physical damage to a plant or a cybersecurity breach.
Additionally, a risk management advisory should provide an overall risk management strategy, including which risks should be insured against and which, such as embezzlement or fraud, should be guarded against through other business processes.
As every business owner knows, accounting is more than the recording of credits, debits, assets and liabilities. An enterprise may have an accounting department, but it also needs a financial strategy, and that is where an advisory could be useful.
Services may include:
- Planning, forecasting, and budgeting
- Devising accounting policies and policies
- Developing internal control procedures
- Financial analysis, and consulting
In addition, an accounting or financial advisory can train in-house staff in the creation of financial reports, monthly reporting, cash flow statements and forecasts, and tax statements.
A business advisory firm might also provide litigation services, project management advice, valuation services, reorganization services, and information technology services, such as cybersecurity consulting.
No matter which services a business requires, it is critical for the CEO and business advisor to understand one another’s styles. If the CEO needs straight talk and the advisor provides gentle suggestions, the business will not be getting the most out of the relationship.
5 crucial business advisory questions
When a business begins the search for a business advisory, five questions are critical. The answers provide a blueprint for how the relationship between the company and the advisor is supposed to work.
1. What is their experience?
Anyone can call themselves an advisor, whether or not they’ve been trained. For example, the Institute of Advisors, founded in 2009 to improve the caliber of business advisory services, offers a Business Advisory Certification (BAC). Besides academic credentials, though, a business owner should find out what companies a potential advisor has worked with and what the results were. How long have they been in business? Do they have experience in your industry? The best choice may be someone who has done what the business owner is trying to do, such as manage a round of funding.
2. What do current and former clients say about them?
If this is asked of a business advisory firm, the testimonials should be signed and include contact information. But it can also be helpful to inquire through business networks to obtain referrals.
3. Are they a good fit?
A CEO and company management will likely be spending a lot of time with a business advisor so it’s important to choose one with whom everyone can get along.
If they didn’t seem forthcoming about themselves, exhibit energy or leave everyone with a positive vibe, maybe it’s not a good choice.
4. Do they challenge?
The last thing a business owner needs in an advisor is a “yes man” or “yes woman.” A good advisor will ask probing questions, challenge assumptions and point out blind spots. Look for someone with questions, not answers.
5. Are they available?
A business advisory is being paid to be accessible, to check in on the business regularly and to be interested in any progress. How often are they available to meet, and are they reachable by phone or email in between?
And there is the matter of compensation. A lot of business advisory firms will charge an hourly rate, which is all over the map from a couple of hundred dollars to $1,500 for true rock stars. Depending on what the client needs, a business advisor may use project-based billing, which is exactly what it sounds like: A company needs a particular project managed and a business advisor takes on the task for a fee commensurate with the time involved.
Two other methods of compensation are not as cut and dried but offer a potentially higher upside for the advisor. Payment could be based on tangible results, such as a revenue increase, or intangible value, such as freeing the CEO to pursue more desirable and profitable tasks.
Finally, a company could leverage its equity, offering 0.1 percent to 0.5 percent of the company’s equity. If that equity vests over time, the business advisor has an incentive to stick around.
What are the benefits of working with a business advisor?
Small-business activity slowed during the pandemic, but startups are poised for rapid growth. While starting or running a business isn’t easy, neither is sustaining that business into the longer term, and many fail to make that transition.
Working with a business advisor can increase a company’s chances of making it in the long run. Among the possible benefits:
- Gaining expertise and experience in areas where the business owner and management team are weak
- Fine-tuning the business plan
- Improving financial management and business administration
- Ensuring the smooth operation of financial systems and compliance with financial reporting requirements
- Extending the CEO’s reach, freeing the CEO for more profitable pursuits
- Providing a 10,000-foot view of the company’s structure, strengths, weaknesses, opportunities, and risks
- Challenging conventional thinking and assumptions
- Identifying avenues for growing market share
And, of course, these things all boil down to growth: increased operating income and a healthier profit margin, which is what will keep shareholders and other stakeholders happy. Whether the business is a startup or an established medium- to large-sized enterprise, the right business advisory services can make a difference in the eventual outcome.
The experts at Cope Corrales, a Washington, D.C.-based wealth management firm, give clients independent advice, free of conflicts from proprietary investments, for all areas of their financial lives. Its business advisory services include
- Acquisition and sell-side strategies
- Business consulting
- Employee compensation arrangements
- Retirement plans
Cope Corrales also offers risk management and protection, operating an in-house insurance agency protecting not only businesses but also families.