Written by Michael Pearson, Financial Advisory Manager, airCFO
With the countless responsibilities you have as a founder, it can be easy to overlook the importance of communicating with your board of directors. But, the right approach can build your credibility and enhance your relationships with board members. In this article, we discuss a few best practices.
Be Thoughtful and Professional
Large companies schedule their board meetings as much as a year in advance to ensure board members have plenty of time to arrange their schedules. As a startup you may not need to give that much notice, but you should schedule your meetings at regular intervals and as far in advance as possible. Even if you’re calling an ad hoc meeting to discuss new developments, announce the meeting at least a couple of weeks in advance.
Then, make certain that your board materials arrive no less than one week before the meeting. This gives the board time to review and process your information so they can come to the meeting prepared and ready to be productive. Plus, a week of lead time demonstrates that you are organized, professional and respect your board members and their busy schedules.
Create Clear, Strong Board Materials
This involves both what information you present and how you present it. It’s important to use the same core metrics at each board meeting and to present them in an easy-to-consume format.
Essentially, your board members want to know that you understand your financials, understand what the numbers are telling you and that you are making decisions using the appropriate financial tools. Your board materials should demonstrate this competence.
Your metrics will include basic financial information (revenue, cost of goods sold, gross profit, net profit, cash position) for the current period, what you expected your results to be for the current period, and the same metrics for the last comparable period (for some businesses this will be the immediately prior period and for others it will be the same period one year ago).
In addition, you need to include key performance indicators (KPIs) that may not pop out of your financials. For most startups, KPIs will include things like your cash burn rate, customer acquisitions and so forth.
Your board presentation should also include a discussion of how and why the results are as they are, usually called an investor update. The purpose of this information is to enable the board to see the company through your eyes. Here is where you can explain things like what’s in your average recurring revenue and what isn’t, why you calculate selling expenses the way you do, why a certain KPI is very different from what you projected and whether you’re on track to hit key milestones. Be sure to send this with your board materials so board members don’t misinterpret your results. You should also be ready to go through the Investor Update in more detail at the meeting.
Be Candid with Your Board
Unfortunately, the Investor Update and in-person discussion are where many founders stumble. There’s a strong temptation to be overly optimistic or to hide anything negative. But the truth will come out sooner or later, and when problems come as a surprise to the board, you will have a hard time earning back their trust.
Instead, be open and honest, even when your results are falling short of expectations. They know it’s very rare for any company – and especially an early-stage company – to have consistently positive results. There are almost always problems. Prepare in advance to answer the questions your board member will likely have:
- Discuss the key issues that have produced the negative results.
- Explain the steps you have taken or are planning to take to address the problem.
- Include strategies that haven’t worked and why.
- Ask for feedback on your plans and suggestions for alternative approaches.
- Ask for introductions, connections or opportunities that can address the issue.
Remember, the board isn’t running the company, but they may have experience or a specific POV that would be worth considering. After all, your board is investing time, and usually money, in your venture. Let them help you succeed.
If your board meetings aren’t as productive as you’d like or you need help building a strong, mutually respectful relationship with your board, we can give you a hand. Contact us for a 30-minute discovery conversation.