What is governance? In an SME it is often something that many owner managers wished they had taken more seriously when things have gone wrong.
It is not something you just discover, governance is a creed, a way of life, a belief but above all it is the glue that keeps a company functioning through whatever events it encounters.
In my independent career I have stepped in to help four owner dominated businesses where the collective noun “lack” could best describe their approach to the normally accepted governance fundamentals of running a modern business,
In each business, management reporting and review in the formal sense was weak to non-existent:
“we are making money so why have a Board meeting”; “our customers want us to deliver more product, why waste time discussing strategy” and, perhaps most alarmingly, “why doesn’t the Bank just get it?”!
Founders are not infallible. The basic laws of economics, supply and demand, do apply however radical their business model. And at the bottom line, positive EBITDA is not just an accounting abstraction. For its customers, suppliers and employees, the business’s ability to generate cash ultimately guarantees all its stakeholders a secure future.
Each month, take the time to have a formal Management meeting. Follow an agenda, take minutes and follow up on the action points.
I like to start management meetings with a review of any safety, customer quality and legal issues that have occurred since the last meeting.
Next review the numbers. Ask whoever is responsible for creating your monthly management accounts to take the management team through the financial report: P&L, balance sheet, cash flow. Look at key KPIs: Gross margin, individual product line contribution and customer performance. Review overhead expenditure and consider if each £ spent could have generated a better bang!
Give time for each functional leader to present their colleagues with an update of the month’s main news. Finance needs to hear about new sales opportunities, Operations may need the support of other functional teams to deliver the company’s goals.
Make sure the sales team understand and are accountable for aged debtor cash collection. Winning an order is often the easy part. Fulfilling it, on time, to cost, to customer quality expectation and being paid for it, is what really counts!
And take time to talk about how you manage, motivate and retain your employees. At the end of the day they are your biggest asset.
Discussion of the issues arising from the presented data is vital. Everyone is often too close to their own functional tree to see the big picture. And an owner manager who avoids or discourages debate will soon rue the dominance characteristics of the alpha male when things are no longer on an upward trajectory.
Ownership is a lonely place. Whether your business employs 5 or 500 employees. Everyone is looking at you to “fill their fridge”.
But by encouraging discussion, openness and debate you will soon find that a problem shared is something that the team works to resolve. And more importantly is something that becomes the glue that binds a Management team together.
Banks look at business with cold eyes. Fundamentally their assessment is about risk and getting back their money. But all lenders look beyond the numbers when making lend decisions. The quality of Management, the robustness and timeliness of the monthly data (MI) and how it is acted on and reviewed is often a critical factor in supporting a lend decision.
So if your business objectives are to grow, change and improve then formalise the governance of your business, hold monthly management meetings and recognise that ownership does not mean that you have to make every decision yourself.
Governance 2 – Managing the business
