This guest blog post is provided by the Business Development Bank of Canada (BDC), which offers financing, subordinate financing, venture capital and consulting services to 32,000 small and medium-sized Canadian businesses.

Setting up an advisory board leads to surprisingly large gains, including higher sales and productivity. That's the conclusion of a Business Development Bank of Canada (BDC) study Advisory boards: An untapped resource.

Trusted advice for your business

An advisory board is a group of trusted advisers that meets regularly to help you make better business decisions and develop a long-term vision for your business. Unlike a formal board of directors, it has no decision-making powers and carries no legal liability toward your company.

BDC asked Statistics Canada to analyze a sample of 3,902 BDC clients. It compared businesses with advisory boards with those that don't have boards but are similar in terms of size, industry, age and region.

Sales and productivity gains

The study found:

  • Annual sales were 24% higher on average between 2001 and 2011 at businesses with an advisory board, compared to companies that didn't have an advisory board but had similar characteristics.
  • Sales grew by 66.8% on average in the first three years after a company created an advisory board. This compares with 22.9% sales growth in the three years before the board was formed.
  • Productivity increased by an average of 5.9% in the first three years after a board was formed compared with 3.2% in the previous three-year period.

Few entrepreneurs use advisory boards

As part of the study, BDC also commissioned a survey of Canadian entrepreneurs to find out about their experiences with advisory boards. Here are some of the findings of the survey of more than 1,000 leaders of private companies across Canada.

  • Just 6% of Canadian small and medium-sized businesses have advisory boards.
  • Businesses that have advisory boards tend to be older and larger — most have been in business for 11 to 20 years, with 20 or more employees.

An essential tool

Most entrepreneurs (86%) who have an advisory board said it has had “a big impact” on their company. They said they are more likely to consider growth projects or restructuring their operations.

Eight out of 10 business owners also said they would not hesitate to repeat the experience of setting up and running an advisory board.

One company's experience

One company that has benefitted from an advisory board is Steelworks Design of Peterborough, Ontario, a client of BDC for financing and consulting that designs, engineers and makes custom industrial machinery.

Rhonda Barnet, who manages Steelworks with her husband Donald, says a three-person advisory board helped Steelworks ride out some difficult times during the 2008 recession and position itself for renewed growth.

“I think it's one of the most valuable tools an entrepreneur could use,” Barnet says of advisory boards.

An ambitious vision for the future

“I believe we are now headed to become a $5-million to $10-million company and that's only possible because of the steps we've taken,” she says.

“If we hadn't initiated a board and grown in this way, we probably would have been a $1 million company forever, a mom-and-pop shop.”

BDC's business consultants can guide you through the implementation of an effective advisory board, including identifying your needs, assisting in selecting the right individuals and getting the group underway.