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The Reality of Advisory Services

Mar 5th 2019
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“Hey, do you guys do projections? I need to provide some for my board.”

This question could be the start of a typical email from an entrepreneur looking for what the industry refers to as “advisory” services. If you search for these, however, you’ll get a mixed bag of accounting, law and consulting firms and contract CFOs all gunning to be your "trusted advisor." And unfortunately, not all are created equal. Without doing your homework, you could end up with a big bill or some bad advice.

Let’s call it what it is: “Advisory” is just the chargeable form of advice. As an entrepreneur and business owner, you can probably find your advisors through a variety of low-cost or free channels. You may join a business group where you meet on a regular basis with peers in your industry. If you’re in tech, there are many accelerators and government programs that offer free mentorship. You may have a few business owner friends you reach out to often.

That being said, there will probably be a time where either the volume or complexity of the issues extends beyond your network, and you’ll need some professional advice. With so many options available, then, how do you know who to turn to and what defines "good" advice?

Consider this: If entrepreneurship is a skill set, you should strive to get better at it. Advisory services should be no different. A good advisor should force you to think, ask questions and ultimately empower you to make your own decisions. A good advisor has experience in the area you’re seeking advice in, and they aren’t afraid to say "I don’t know" when they don’t.

The reality, however, is that lots don’t do this. They’ll draft a budget for you based on a template and do projections by applying an arbitrary growth rate to expenses. They’ll do a valuation by applying some multiple to your earnings and focus on historical financial information, rather than on the future. 

So how can you ensure you’re getting good advice?

It all starts with taking ownership for what you’re looking for. Instead of asking, “Do you guys do projections?” ask, “How do I create valuable projections for my investors?” 

Instead of asking, “do you guys do budgeting?” ask “what makes a good budget?” Also, ask questions that will help you make good decisions rather than simply looking for an answer, and pay attention to the types of questions your advisor is asking you. Do they have sufficient information about the issue to offer guidance?

Furthermore, consider how long they spent asking questions vs. providing answers and to their background. For instance, if you’re selling your business, have they been through a sale? If you’re raising money, have they been through a raise themselves?

If you have the resources available, look for multiple advisors. If you rely on a contract CFO for financial advice, run it by another mentor.

Adopting a mentality of professional skepticism and learning to question the advice of those around you will ultimately make you a better decision maker. Being exposed to more than one opinion can accelerate that process.

As an entrepreneur or small business owner, you have critical decisions to make each day, and you’re going to need some help. The more you look to your advisors as people who are there to empower you to make those decisions, the more you’ll get out of the relationship and the more you’ll be able to learn from those experiences, which means that soon, you’ll probably be a good advisor for someone too!

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