Developing good governance
This Article was posted on 04.02.11 in Managing
Businesses often confuse governance with auditing and compliance. While this is an important part of governance, it is not all you need to consider. Governance encompasses a strategic look at all your business operations so that you can best position your business for growth. It includes evaluating your systems and processes, but also extends to the long-term goals and objectives of your business and what you need to do to achieve them.
Good governance has many benefits for your business. As an entrepreneur, it gives you peace of mind to know systems are in place to ensure that core business values and objectives are upheld. It also helps to ensure that everyone is able to do their jobs with the bigger picture in mind, which will strengthen your business in the longer-term, and that you comply with any legal requirements.
Developing core business values
As the leader, you need to define the core values of your business. Just as you learnt how to behave under the guidance of your parents, so your employees look to you for guidance. The core values of your business should be outlined in your business plan, because it is these core values that determine your business culture. For example, you might place a high value on:
- Honesty and integrity
- Supplying quality goods and services
- Providing exceptional customer service
- Delivering good value for money.
Although core values like honesty and integrity are important, good governance includes more than this. For example, what is your business’s approach to the environment and recycling? Are you doing your bit?
Deciding on your values
It is a good idea to consult with your staff to gain valuable input and get buy-in when you define the core values of your business. Once you have defined the core values that underpin your business, be sure to communicate them clearly to your staff.
If you have a board of directors, they will play an important part in helping you identify the long-term view and strategies for driving your business. If you don’t have a board of directors, then consult your mentor or businesses advisers for input. They’re likely to ask important ‘big picture’ questions that you don’t see because you’re caught up in the day-to-day running of your business.
Values are part of your competitive advantage
Your business values should become part of your competitive advantage. Good values are worthy in themselves, but they nearly always have a business benefit as well.
For example, many businesses and consumers now prefer to do business with companies that have a responsible attitude to the environment. Few of us would wish to have dealings with a business that exploits and pollutes the countryside.
The first step towards developing good governance in your business is to:
- Develop responsible core values and business ethics.
- Communicate them to staff and insist they are a non-negotiable part of your business culture.
- Broadcast them to other stakeholders, including lenders, suppliers and customers.
Good systems add value
The second part of good business governance involves creating and maintaining good business systems. It’s not just about putting a tick against good systems in your checklist. Good business systems have numerous benefits. These include:
- More timely information and more control over your business.
- Increased protection from shocks and crises.
- Your business appears professional, which increases your credibility.
- It frees up your time to work on your business, rather than in it.
- Reduced training time for new or replacement staff.
- Increased market worth of your company and its attractiveness to potential buyers.
Sometimes good systems are also a requirement. Some of your customers and clients (usually large companies, government departments and overseas customers) might demand certain standards, such as a certain level of ISO accreditation, before they will do business with you.
Financial systems
Good financial systems give you timely warning of changes in your business and allow you to take remedial action. Financial systems are the most important systems to set up and are essential for the good management of your business.
A properly set up computerised accounting system takes the hard work out of generating vital financial reports. This will enable you to generate cash flow forecasts or aged debtor analyses at the press of a few buttons. Your accounting adviser will be able to suggest the sort of reports you’ll need to provide information that will improve your ability to manage your business.
Check out Xero (online accounting software) and MYOB for examples of suitable systems for New Zealand businesses.
Administrative systems
Administrative systems are also valuable to the governance of your business. Good businesses capture these in an operations manual, which becomes a valuable part of the business, because clear systems:
- Encourage consistency. For example, customers are consistently asked certain questions in the interest of reliable feedback on how they think your business is meeting their needs.
- Encourage quality work. A series of operating manuals help ensure things are always done the same way.
- Encourage smarter work. In developing systems, staff are forced to think through why and how they do things.
- Make it easier to train new staff and ensure they follow correct procedures and standards.
A clear example of the power of systems are the fast-food franchises, where clear procedures and training enable franchisees and staff to get up and running profitably and effectively very quickly.
Marketing systems
Here are just some of the reasons why marketing systems are important:
- They capture the best of your marketing practices, enabling you to easily be repeat the steps and procedures.
- They force you to go through evaluation procedures.
- They enable you to plan by allocating timelines, budgets and responsibility for each marketing tactic.
- They encourage systematic market research, which is crucial to effective marketing.
Good marketing systems save you time and money. They help clarify lines of responsibility and help you to identify the most successful parts of your marketing strategy. This in turn helps you to repeat what works and make changes to other areas where necessary. Evaluating your marketing initiatives helps to determine whether they are cost-effective in the first place.
Security systems
An essential part of good business governance is to have security systems in place. For example:
- Backup systems and off-site storage for your digital assets.
- Protection for these assets from viruses, hackers and malicious attack (for example, from disgruntled former employees).
- Contingency planning outlining what to do in the case of fire, earthquake or the collapse of your electronic equipment and other machinery.
- Appropriate insurance in place to cover these hazards.
- Holding regular meetings with your staff to identify and address security issues.
Safety systems
Finally, good business governance demands that you give some thought to safety issues. The benefits include:
- Less downtime through injury.
- Reduced stress for you and your managers.
- A safer workplace.
- Happier employees.
- Happier customers and other stakeholders. Everyone prefers to deal with responsible businesses so safety systems promote your credibility.
The government requires you have certain safety procedures in place – for information on what these are go to www…
Compliance issues
A vital part of good governance is meeting all the legal requirements of running a business, like paying your taxes on time. One of the most important benefits of developing effective financial systems is that they allow you to keep ahead of your compliance issues.
For example:
Allowing compliance issues to slip can be potentially damaging to your business. The fines and penalties can be severe and the interest can compound at an alarming rate.
Be prepared for scrutiny
The Inland Revenue Department (IRD) has an ongoing audit program, so sooner or later your business is likely to come under scrutiny. This does not necessarily mean your business is under suspicion; it could simply be your turn to be examined.
In some cases, the audit is a 'desk audit' conducted by the IRD in their offices, so you may never know your records have been examined unless they ask you for clarification on some points.
One of the advantages of good governance is being able to rest easy at night, knowing that your business affairs are under control. However, it will also pay to speak to your accountant about the kind of record keeping procedures you need to have in place to survive an audit. For example:
- Keep the right records, such as payroll records.
- Store all records for the required seven years.
Next steps
- Develop a board of directors or advisory team to help you govern your business affairs more effectively.
- Outline core values that reflect well on your business, build your credibility, and produce a strong business culture that ensures everyone works towards a common goal.
- Communicate these values to all stakeholders.
- Develop good financial, administrative, marketing and security systems that give you better control over your business.
Content provided by The Small Business Company
