Exit Like a Boss | Step 12 - Corporate Governance

Welcome to another insightful episode of Exit Like a Boss! Today, we're tackling a topic that's often misunderstood and overlooked, especially by small to medium-sized business owners: Corporate Governance.

Now, we understand that if you're running a very small business, some aspects of corporate governance for larger enterprises might seem excessive. However, there's a crucial element of structure and discipline that corporate governance brings, which you need in your business, even at a smaller scale.

Imagine your corporate governance in a family-owned business. It might look like those nightly dinners where you discuss daily happenings, from troublesome staff members to problematic customers and outstanding accounts. It's a form of governance, but it's not as effective as it should be. It might even make dinner quite mundane!

So, what's essential is to understand how to apply corporate governance, even at the smaller end of the business spectrum. And as your business grows, you need to level up your approach.

Many small businesses start with an advisory board. These advisors, such as accountants, business coaches, mentors, or industry experts, conduct monthly meetings. In larger businesses, this evolves into board meetings, something corporations like Westpac and BHP have monthly. But the core concept remains the same: taking a step back to scrutinize your business in detail.

To start, you'll need reports and information. This could include Profit and Loss statements, comparing monthly performance to your budget, balance sheets, lists of receivables and payables, HR reports, general manager reports, marketing, and sales reports. These reports provide a snapshot of your business's performance.

The process introduces discipline to your staff, as they know reports must be detailed and correct. Moreover, they are required to think about what's in the report and what recommendations they can make based on the data. It's not just about presenting raw information; it's about providing insights and solutions.

Corporate governance should focus on strategic decisions, not the day-to-day operations. It's about understanding how your business is performing, identifying weak spots, and developing a strategy for success.

As your business grows, it's time to think about who you want involved in your corporate governance program. If you recognize your weaknesses, you can assemble a team that complements your skills. This might involve adding a marketing expert or an industry insider to the board.

As your business scales up, you can expand your corporate governance structure. A well-structured board can include independent directors who challenge and guide you, an employee or executive from your business, and non-executive directors with specific expertise.

This structure offers discipline to your team and helps you, as an owner or manager, to make strategic decisions that enhance your business's value. It's about challenging the team to focus on what matters most.

A strong corporate governance framework also reduces risk. It introduces a decision rights manual, which clarifies who has the authority to make certain decisions based on their level within the organization. This not only empowers your team but also protects your business from costly mistakes.

Remember, mistakes that cost $500 are okay. But mistakes that cost $50,000 or more can be devastating. Corporate governance ensures that the right decisions are made at the right levels, preventing expensive errors.

So, embrace corporate governance to infuse structure, discipline, and strategic thinking into your business. It will make your business inherently less risky and more valuable, ultimately helping you exit like a boss!
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