Board of Directors (for profit)

What is the role of a company’s board directors?  There are many possible, and valid, answers to this question. Guidance, oversight, succession planning, and executive compensation often are mentioned, and rightly so. But at the Private Company Governance Summit 2024, speaker Jon Wells of Midmark Corporation shared a different answer: to be a ‘professional question asker’ There is a quote often attributed (properly or not) to Albert Einstein: “If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.”  It is tempting to jump into solving the problem, especially in our fast-paced world. But you do not want to solve the wrong problem! Asking the right questions can help the board director, his or her fellow directors, and company executives think about the issue, sometimes in a different way. This is not about questions to find fault or trip someone up, but questions to help everyone understand. With this in mind, the team is now better prepared and ready to start thinking about how to answer those questions and solve those problems. Asking the right questions helps all involved consider alternatives and different perspectives, such as those of customers, suppliers, investors, employees, and other stakeholders. “What” questions are a good start to understand the situation or the proposal, but eventually it is time to move on to “why” and “what if”. “Why” did something positive occur – was it a repeatable process, chance, market conditions, or something else? What can we learn to take into the future and build on that success? In the case of a negative situation, was it preventable and how can that be used to reduce the chances of similar occurrences in the future? We get better by taking the time to understand the good and the bad. For a strategy review, budget review, or other proposal, there are a lot of great “why” questions to ask about assumptions used.  As appropriate, think about the “5  Whys” approach developed by Toyota, intended to create an understanding of the root cause(s) of the situation before looking at solutions and lessons to learn. “What if” scenarios are great for bringing risk into the discussion. Risk was a key topic at the Private Company Governance Summit 2024. Board Directors may have various perspectives, experiences, and expertise which enable them to consider different threats, opportunities, and future states. These can help all involved more thoroughly consider and address potential risks to the status quo and proposals. This line of questions can be extended to include ones about what the long-term impacts are of proposals and decisions. I recall a recent dinner with three start-up co-founders who wanted to meet to ask for advice. We had a great discussion and a nice meal, but I am not sure I provided them many suggestions. Instead, I posed a number of questions, which they said were important for them to consider as they continue their efforts. I asked “why” questions such as “why would someone use your product instead of the competition?” and “why would someone pay you for this service?” I think (and hope!) these provided them a path to better address opportunities and risks. Of course, board directors provide value beyond just asking questions. With a better understanding of the issue or proposal, they are now better positioned to also share their knowledge and experience, allowing them to contribute toward answering those questions.

Mergers and acquisitions are successful because the subsequent integration provides value. The Board of Directors of the acquiring firm plays an important role in ensuring that the Executive Team has a good integration plan and implements it effectively. In addition, board members can be a great resource for those executives as they may have experienced what goes right (and what does not) during integrations. To learn more please see this article which I authored that was published in Private Company Director:

CEOs are often bombarded with little voices in their ear asking, “Am I reaching the best markets?”, “Is my management team capable of taking us to the next level?”, “What about my business model?”, “What changes do I need to make?”, and finally, “Do I have enough money?”. There are only so many hours in day for a CEO to keep up with everything. Studies show that 85% of what keeps a CEO up at night is cash flow related. These thoughts often confuse or overwhelm many CEOs. It’s lonely at the top. You don’t have anyone to talk to. It shouldn’t be so hard to run a successful business that is increasing shareholder value. The best CEOs have figured out that the benefit of a board of directors or, for a smaller business, a personal board of advisors, is critical to their success. Read more:

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What is your goal for your business? As fractional CFOs, when we first meet with our clients, this is among the first questions we ask. Your goals will inform much of our work supporting your company – whether we focus on preparing you for a near-future exit or growing and building the value of your business over time. This is what makes our fractional CFOs – many of whom are also CEPAs – a vital (and often missing) piece of the exit planning puzzle. Many business owners enlist exit planning experts as they approach the exit process, bringing in an army of resources to make the most out of what has already been built. A fractional CFO, however, becomes embedded in your business over time and, in the process, comes to serve as a value growth advisor – a financial expert who can help you 

ROBS – or use funds from their existing personal 401(k) or other retirement accounts as capital for buying a business.   In addition to creating cash flow and minimizing the use of debt, ROBS are an attractive source of funds unlocking value from an individual’s retirement savings to fund a business, what are the tax advantages that make considering a ROBS strategy worthwhile?  First, there is the aspect of tax deferral. Financing through ROBS avoids the early withdrawal penalty normally incurred when funds are withdrawn from retirement savings prior to retirement. When you use the capital from your 401(k) to fund a new income taxes or penalties, more money is available to go into the business, thus maximizing your available capital.  In addition to increasing capital efficiency, you avoid loan obligations because ROBS is not a debt product. It’s simply accessing the equity you already have built up in your retirement plan, so there’s no monthly repayments or interest like you would incur with a loan.  Accessing Business Capital Through ROBS  Here are some points to remember about how the flow of money works when using a ROBS strategy:  The new business entity to be funded must specifically be established as a C-Corp.  After a new 401(k) or profit-sharing plan is the business advisory space and how to implement a ROBS strategy. For a consultation on your business plans and objectives, please contact us at 770.740.0797 or email info2@SJGorowitz.com. 

As a small business owner, your instinct might tell you to seize every opportunity that knocks on your door. Let’s face it: saying yes can be a thrilling ride into new ventures. Sometimes, you need to remind yourself of your organizational Sweet Spot.  Does your team have the bandwidth, the people power, and the infrastructure to take it on? Sometimes, saying no is not just the better option; it’s a powerhouse move that aligns your business with your growth goal. Here’s the lowdown on when, how, and why flexing your “no” muscle is your smartest play. The Unmanageable Yes When you’re overcommitted and under-resourced, every additional yes is like adding more weight to an already overstretched team. If saying yes means sacrificing the quality of your work, spreading your resources thin, or burning out your team, then it’s time for a firm, resolute “no.” Remember, quality over quantity isn’t just a great saying – it’s the golden rule for sustainable growth. The Misaligned Opportunity Some opportunities seem golden on the surface, but they won’t help you achieve your business mission, vision, or values. Listen up: Your business is your compass; every decision should steer you to your true north. If it doesn’t fit, say no. It’s not just about avoiding the wrong turn; it’s about staying true to your course and your team’s potential. The Power of Prioritization Here’s a reality check—you can’t do it all. When you say no to less important things, you say yes to more focus, energy, and time for what truly matters. Embrace the art of prioritization because knowing what to decline is as vital as knowing what to pursue. Make your yes count! Cultivating Respect Saying no isn’t just about protecting your time and energy; it’s about setting boundaries. Assertiveness isn’t rude; it’s a sign of respect – for yourself, your team, and your business’s vision. When you respect your limits, others will follow suit. It signals to the world that your time, team, and resources are valuable. Conclusion Saying no is a tough decision. It’s not a negative judgment; it’s a selective choice. Think of the word no as a complete sentence and a powerful tool to guide your business to where it truly belongs. So, the next time you’re faced with a request that doesn’t feel right, plant your feet, take a deep breath, and remember that saying no is not just okay—it’s essential for your business’s health and ongoing success.   Do you need to get in your Owner Sweet Spot?

GAAP traps often occur when a business owner sells a company to a third party. The transaction is commonly memorialized by a Purchase Agreement. That agreement contains certain representations (or “reps”) and warranties. Some of these are common sense and should pose no problem to someone who has operated a good business. The Accounts Receivable represent money that is actually owed to the company. Taxes have been filed on a timely basis. The seller doesn’t know of any pending litigation. The owner has the right and authority to enter into a sale agreement. There is one, however, that is frequently required by attorneys who don’t understand privately held business, and agreed to by owners and their attorneys who don’t understand what they are guaranteeing. They are Generally Accepted Accounting Principles, or GAAP. What is GAAP? To start, the term “Generally Accepted” is misleading. It could easily be interpreted as “what everyone typically does.” Nothing could be further from the truth. GAAP is determined by two organizations, the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC). Per I

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