Why a Board of Directors Is Essential for A Small Company

Small Business Advirosry Board

Mar 08

It’s not unusual for fast-growing companies to have a board of directors, and the board has a substantial impact on the success of most companies. While many people assume that only large companies have a board of directors, a well-curated board may actually have a larger impact on a smaller company.

What Is the Purpose of a Board?

A board of directors consists of business people, investors, and experts on specific sectors of an industry. An organization’s board of directors keeps its executives accountable and focused on the organization’s business plan, and the board has the power to change the management structure if the organization is not performing up to par.

Depending on the members selected and the industry, a board of directors can have a solid price tag. At the very least, because members of the board do not have personal liability protection, the company must cover liability insurance for the board’s directors and officers. Unfortunately, these costs and the effort needed to establish the board are a deterrent to many small companies who do not fully understand the value that a board can bring to their business.

Small businesses commonly believe that only large corporations need a board. On the contrary, all businesses–most especially small businesses—need advisement, support, and accountability. Many entrepreneurs enjoy being their own bosses, but in order to be successful, they must realize the limitations of their experience and resources. An intelligent business owner will listen to advisement that is unflattering in order to grow their company.

Who Should Be On Your Board?

A strong board consists of individuals who have been through the entrepreneurial journey of growing a small business and who understand the operating issues that a small company faces. The most common type of board is a paid board consisting of individuals from outside the organization who congregate to manage the company’s progress.

The owner of the company and the board must share similar values and be united on the company culture. Communication should be frequent and always honest, no matter how uncomfortable it may be. When a company is running smoothly, boards need only have a light hand and stay informed about the organization’s status. However, when a company is having problems, the board is the first to take action. Efficient boards meet often, support the owner on strategic and managerial decisions, and do not exercise their authority when it is not needed.

A good board of directors also provides access to a network of experts and resources that can help the company flourish. This creates a support system that is essential to a business owner during the early stages. Finally, the board contributes to a level of discipline necessary to keep a smaller business organized and focused.

Looking forward

Large corporations do have different needs than most small organizations. However, the overall purpose of a board remains the same for both: to grow the company, maintain the company’s health, and manage the company’s resources effectively. While a larger corporation may primarily need support and maintenance, a board may be the most important ingredient in the success of budding organization.

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