Establishing Governance in Small Businesses

Establishing governance (either formal or informal) includes implementing processes, policies, and practices that ensure effective, efficient, and ethical management of the business. It is crucial for any New Zealand small business to establish clear lines of authority, promote transparency, and comply with relevant laws and regulations - this is even more relevant when the business is owner operated, and it is the role of governance, or a board of directors, to ensure that there is oversight of this structure. This article discusses the key elements of small business governance and their significance in achieving business success.

Define Your Governance Structure

The first step in developing a governance strategy is to define your governance structure. This includes identifying the roles and responsibilities of the board of directors, senior management, and other stakeholders. Establishing a clear chain of command, decision-making process, and communication channels is essential to ensure everyone is on the same page.

Establish Your Core Values and Principles

Every organization has core values and principles that guide its decision-making processes. Establishing these values and principles early on is essential to building a strong governance strategy. These core values should align with the organisation's mission and should be integrated into all aspects of the organization's operations.

Establishing Clear Roles and Responsibilities

Clear roles and responsibilities are essential in small business governance. This involves defining the duties of executives (usually owners and directors themselves), managers, and staff members and outlining reporting lines and decision-making processes. Such clarity and accountability minimises confusion, improves communication, and ensures that everyone works towards achieving the same goals.

Developing Policies and Procedures

Small businesses must develop policies and procedures to guide their operations. Such policies should cover financial management, risk management, human resources, and compliance with laws and regulations. Having clear policies and procedures in place ensures consistency, promotes fairness and minimizes the risk of errors and omissions.

Fostering a Culture of Ethics and Integrity

Small businesses need to establish a culture of ethics and integrity to succeed. This involves creating an environment where honesty, transparency, and accountability are valued, and employees are comfortable speaking up in case of any wrongdoing. Establishing a code of ethics or conduct, providing training on ethical behaviour, and holding employees accountable for their actions fosters such a culture.

Monitoring Performance and Risk

Small businesses must regularly monitor their performance and risk exposure. This includes tracking financial metrics such as revenue, profit, and cash flow, identifying potential risks, and taking necessary steps to mitigate them. Monitoring performance and risk enables small businesses to make informed decisions, identify areas of improvement, and respond quickly to changes in the business environment.

Seeking Professional Advice

Small businesses should seek professional advice when necessary. This may involve consulting lawyers, accountants, or other experts to ensure compliance with laws and regulations or address complex legal or financial issues. Seeking professional advice helps small businesses make informed decisions and minimize the risk of costly mistakes.

In conclusion, small business governance is crucial for achieving business success. Small businesses can improve their structure and operations, minimize risk, and increase their chances of success by establishing clear roles and responsibilities, developing policies and procedures, fostering a culture of ethics and integrity, monitoring performance and risk, and seeking professional advice when necessary.