Why a Proper Board is Essential, Even for Small Businesses

l3Many business owners believe that boards are for larger companies only, and small companies cannot afford the time or the costs of a proper board.

This is very wrong!

Although large companies need to have properly-constituted boards in terms of the Companies Act, even the smallest gains considerable benefit from a proper board – benefits that provide a massive return on any modest costs that might be incurred.

This is even more true as the company starts to scale – moving from a small entrepreneurial owner-run business to one now needing a proper management team.

Business owners should ask themselves the following questions, especially if they have more than 20 people in the business:

1. What percentage of the important decisions in the business do I make by myself?

a. 75 – 100%

b. 25 – 74%

c. Less than 25%

2. Which are my main sources of information on the state of my business?

a. Monitoring bank balance and sales revenue

b. Monthly accounts – income statement and balance sheet

c. Monthly accounts together with reports covering both quantitative and qualitative issues.

3. How many management layers do I have below the executive team?

a. 0

b. 1

c. 2, or more

4. How frequently do I have a board meeting?

a. 2, or less, times a year

b. 3 or 4 times a year

c. 6 – 12 times a year

If you’ve answered mainly ‘c’s, you probably already have a functional board which is great.

If you’ve answered mainly ‘b’s, you might have a board but it doesn’t appear to be properly functional, while answers that are mainly ‘a’s show the urgent need for you to put together a professional board.

So, how is it that a board adds such value to a business?

Risk reduction – an experienced board reduces risk in the business through implementing proper processes and controls for strategy, oversight and planning. These not only enable risks to be identified timeously but actions to be in place to counter, or at least reduce the effect, of them. This also considerably reduces the financial risk for the typical owner-managed business.

Performance – businesses with strong, active boards grow faster, more sustainably, and are more profitable than the average. Staff turnover is generally reduced, and performance management improved. Costs are lower, too – not just operationally but through improved access to capital.

Experience – it’s widely acknowledged that there’s a significant skills shortage. Appointing experienced executives (often retired) as non-executive / independent directors to your board can provide significant business experience to your organisation at very modest cost, as they’re not working with you full-time. It provides a great learning experience for the whole team, too.

Management accountability – this is often a difficult area in a growing business, especially one where the management team started the business together. As the business grows, there is a need for proper controls and accountability – areas where an experienced board can assist and remove some of the emotion that often accompanies such change.

Of course, all these areas are interlinked and all depend on a board of committed, experienced executives, well-versed in directorship, and a CEO willing and able to work with a board that takes its duties seriously.

Bear in mind that in terms of section 66 of The Companies Act, the business and affairs of a company must be managed by, or under the direction of, its board, so the duties can be summarised as follows:

• • Setting and steering strategic direction
  • Approving policy and planning
  • Overseeing and monitoring
  • Ensuring accountability

If you’d like to find out more about how boards can add significant value to a business and what your board should look like, book a free 30-minute call with me here – I’d be happy to talk with you.

#BusinessFitness #Board #CEO #Entrepreneur #Governance #Growth #NED #Profitability #Risk #SmallBusiness #Strategy #Success #Valuations

Some of my other posts related to boards can be found here:

• 1 Critical 5-Word Question for All Businesses
• Know Your Company Role(s)
• How Independent NEDs Can Catapult Growth in a Small Business
• Why Even Small Companies Need Regular Board Meetings
• Is Your Strategy Fit for Purpose?
• Board Meetings not Bored Meetings!
• Proper Preparation for Productive Boards
• Boards Accelerate Success & Increase Value for Small Companies, Too
• Directors – Are You Risking Your Assets?
• NEDs – a Cost-Effective Way to Add Significant Value to Your Business
• Post-Pandemic Business Upturn – Give Your Board Real Muscle