Governance: The framework for future growth

When we think of governance, it is often large corporations and their boards - rather than SMEs - that spring to mind. However, it’s important for SME business owners to understand that it’s never too early to adopt a governance mindset. Doing so not only leads to greater oversight of the business and ensures compliance with regulatory requirements, but also ensures a focus on strategy and the development of good governance habits in preparation for future growth.

Because the business owner/s tend to wear all the hats in an SME – owner, operator, director, manager - a best practice approach to governance for SMEs involves the ability to wear the right hat, at the right time. Below, we discuss how to implement the right practices in your business.

Steps to implementing ‘best practice’ governance

1.  Take stock: Start by stepping out and looking objectively at the business, asking yourself questions and answering honestly: Do you have a strategy? Do you have the right people, with the right skills? What are you good at, and what could you use help with? What’s working well, what’s not? Importantly, what budget do you have? A comprehensive and objective understanding of your business can be difficult to achieve, so you may consider seeking outside assistance to facilitate this process.

2.  Get your compliance ducks in a row: Before you attempt any non-mandatory governance processes, first make sure you are meeting all your regulatory and compliance obligations. Failure to implement regular reviews can lead to much larger, but entirely avoidable, issues. Payroll compliance and “wage theft” is a common example of this, with recent high-profile cases serving as a warning to all business owners. Be methodical in your approach to compliance, ensuring there are checks and balances in place and stay across changes to regulations – particularly those that may occur regularly (e.g. award rates and clauses).

3.  Identify and involve key stakeholders: For each governance issue or consideration, who are the key people (within or outside the business) who should be involved? This will depend on the structure and size of the business, but involving the right people at the right time is key to ensuring a governance mindset is embedded and adopted beyond simply the business owners.

4.  Learn from other businesses: There’s a lot to learn from businesses who do governance well. While no two businesses, or their owners, are the same, there are traits they have in common that lead to good governance outcomes:

• Know your limitations: Be ready to bring in skillsets that fill gaps in your own capability
• Strive for increased rigor and commercial discipline in your operations
• Be open to outside advice and assistance: This may take the form of an advisory board or independent board member, for example. The benefits to be gained from the experience, networks and broader views of someone external are invaluable
• Be honest with yourself and open to input from others (whether internal or external)
• Don’t underestimate the importance of step 1 – taking stock. One of the biggest mistakes SME owners make is neglecting to stop working ‘at the coalface’ long enough to step back and assess the business. Those who successfully adopt a governance mindset ensure they take the time for this process.

5.  Plan and review regularly: Some governance processes have review or reporting intervals that are determined by the associated compliance requirements, or payment schedules (e.g. annual insurance premiums). Others, such as internal policy or strategy reviews, will be self-determined. The most effective way of ensuring an ongoing revision and compliance process is to establish a governance calendar for your business, mapping out what needs to happen when and eliminating the risk of ‘oops’ moments. Take the opportunity to annually re-set your approach to governance, check your bearings and make sure you are still applying best practice processes.

It’s easy to be absorbed by the day-to-day demands of owning and operating an SME, and to fall into the habit of working so hard in the business that you don’t take the time to put your ‘governance hat’ on. However, it’s important to do so. Not only does it ensure the business is compliant and applying strategy, but sets it up for future growth and scalability.

It’s never too early to adopt a governance mindset in your business. Visit the BDO website or contact our team to learn more about best practice governance and strategies to support your business’ future growth.