Country / Language

Hospitality: Preparing for Growth: Why Your Restaurant Business Needs a Board of Directors


8/8/13

Most growth concept restaurant companies consistently need two kinds of capital – financial and intellectual. While managing cash flow and raising capital can be a full-time job, having advisors with experience in building a brand can mean the difference between failure and success.

One of the solutions to building a restaurant brand is in forming a board of directors. The experience, insight and advice a board can provide to a restaurateur can be invaluable – including real estate selection, raising capital, establishing employee retention programs, and more. A board will not only help grow the company, but it can mentor the operators and provide invaluable guidance to help the company achieve its financial and operating goals. 
Furthermore, an effective board will have a deep network of resources it can bring to bear for the company. Drawing on these resources as needs arise can play a significant role – such as the need to raise capital.  And yet another distinct advantage of a board is that it will provide the appearance of strong governance and integrity – attributes that are critical to making a proven concept successful.

Driving Higher Valuation

Why does a board bestow credibility? Because having a board creates a system of governance. When a board is involved, corporate decisions require discussions, votes, and a record of the same. Those decisions are bound to be made more prudently by a group than by an individual alone.

Restaurant organizations are considered more seriously by private equity funds and other investors. “The more transparent and better structured a company is – with the strong governance of a board of directors – the more it drives valuation,” says Gary Levy, CPA, CohnReznick Partner and Hospitality Industry Practice Leader.

Why does a board bestow insight? Because the ideal board combines a variety of business capabilities, each board member brings unique education and experience in a particular area. It is important to recruit individuals who can add value to a board and have experience with issues that a restaurant business may face, such as marketing strategies, real estate insight, or perhaps human resource experience and familiarity resolving staffing challenges.  Recruiting individuals to the board who will respect and listen to the CEO is also crucial, as the CEO is ultimately responsible for protecting the assets of the company and holding the management team accountable.

“Seek intellectual talent and resources that your company is in need of but does not have,” advises Levy. “If your company is lacking in certain core competencies, finding the right executives to help fill that gap can add value. Having board members who have good contacts themselves can also provide you with a vast network of people who can also offer insight.”

Other Factors to Consider

Everyone knows the job hunter’s lament:  you can’t get a job without experience, and you can’t get experience without a job. Expanding a restaurant business has a similar challenge: you can’t grow without investment, but you can’t get investment until you grow, warns Levy. Most companies typically only begin forming a board of directors when they have a few locations. “Investors don’t get excited over a single location. It’s best to have made the move to at least two or more locations before you form a board of directors,” Levy advises.

And just as the board provides a restaurant business with additional structure, structure must be provided to the board. Limit the size of the board to anywhere from four to seven people – having any more than that results in meetings becoming difficult to schedule and difficult to confine to a stream-lined agenda.

Corporate governance meetings are typically scheduled quarterly, however, it is important to have the flexibility to conduct monthly phone calls when necessary. This allows for discussions related to pressing issues and provides the board with an opportunity to react to them. “Quarterly meetings demonstrate that the board is committed to the company’s growth and success,” Levy says, adding that, at the same time, it is a common pitfall of restaurateurs to demand too much of board members’ time. To compensate board members’ for their time and expertise, it is common to compensate them with stock options or an opportunity to invest in the company.

The corporate governance value that a board of directors contributes to a growing organization can put a restaurant business on sound footing, improve its operations and – just as importantly – position it for growth and expansion.

Key Takeaways

While there is no single success path to forming a vital, supportive board of directors, there are commonalities among successful boards:  individuals with value-added skill sets, established corporate governance guidelines and a welcome partnership with management. Having advisors with experience in building a strong board of directors can be enormously effective in ensuring the organization has a strong and resourceful team to guide its mission and provide the resources it needs to reach its growth goals.

Contact:

For more information, please visit CohnReznick’s Hospitality Industry Practice website and contact Gary Levy, CohnReznick Partner and Hospitality Industry Practice Leader, at 646-254-7403.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Search Our People

Search Our People

Look ahead. Gain insight. Imagine more. Is your business ready to break through?

View our new TV commercial..

Industry Outlooks

Industry Outlooks

Gain insight into what is ahead for the Commercial Real Estate, Technology and Middle Market Private Equity industries.

READ MORE

Learn about our upcoming events.

READ MORE

Working With Us

Working With Us

What makes CohnReznick different from others in our profession? And what should our clients come to expect when working with us? The answer is The CohnReznick Advantage. Contact us to learn how we can out the CohnReznick Advantage to work for your business.


People

The value of an organization is determined by the skills and qualities of its leaders. With more than 280 partners serving clients nationwide, CohnReznick is renowned for the diverse experiences, knowledge and backgrounds of its leadership.

Learn More

Services

We align our services in three segments: Accounting and Assurance, Tax, and Advisory. This approach allows us to provide holistic solutions to complex business problems and to seize upon opportunities requiring an integrated approach.

Learn More

Industries

Accounting and tax issues different significantly based on an organization's industry. We provide clients with expertise in nearly two dozen industries – we know the opportunities, the obstacles, the competitive landscape.

Learn more

Insights

CohnReznick professionals are thought leaders in their industries. Clients benefit from relevant and timely economic, legislative and industry insights that can keep them a step ahead of competition.

Learn More

Global Reach

Our involvement in the Nexia International network of firms enables us assist our clients wherever they do business-providing local expertise and connections wherever they needed. Nexia is comprised of 20,000 professionals operating in over 100 countries.

Learn More