By Kerryn Newton
It’s a common question asked by Australian SMEs: when is the right time to establish a board?
Putting a board in place can be a good thing, but SMEs need to be smart and cautious about how they approach this milestone in their business. Each case needs to be considered on its own merits. While some small companies might benefit from a board, others might not because of their size, stage or structure. Timing is also critical.
It is obviously a huge decision in the life of many SMEs, so here are some tips to help you decide if a board could help your business and to help you get the board skill set right.
Why put a board in place?
A sound, well chosen board can help a SME deal with two major business issues: growth, and succession planning.
Boards can assist SMEs to manage fast growth (by ensuring appropriate checks and balances) as well as take SMEs to the next level of growth.
Owners have to be dispassionate in order to clearly assess whether the business has outgrown their own capacity to take it to the next level. An honest assessment of your own expertise may bring you to the realisation that you need to boost the business with additional skill sets.
It may be that, as an owner, you are technically very good at what has made your business an initial success, but now need assistance with areas outside your expertise or to complement your skill sets.
This expertise might be in key areas such as capital raising, doing business in new geographic markets, restructuring, and strategic marketing.
It is not just fast growth companies that may benefit from the guidance of a board. Other signs that it may be the right time to put a board in place include the more negative symptoms of stagnated growth, such as missed opportunities and loss of market share.
All businesses should have a succession plan and exit strategies. Succession issues are common in owner-manager businesses. There are three main options in this regard:
- Existing management buy out
- New management buy out
- Sale either privately or through a public listing.
In all three scenarios, the corporatisation and professionalisation of a business, by putting in place a more formal board structure and professional management, can be beneficial.
Benefits of a board for a SME
The right directors can help take an SME to its next level of growth – they can provide direction and leadership, and ensure an appropriate level of control for the business. They can complement management’s industry expertise with their business acumen and experience.
As well as growing the business, directors can be a huge support to the owner, who can benefit from the gain of new skill sets and experience not in the existing management team.
An independent board can also provide an SME with objectivity, removing some of the emotion from decision-making – especially when hard decisions need to be made about the owner’s “baby”.
These fresh insights can provide an opportunity to constructively challenge the “usual way of doing business”.
To raise capital in a tough market, SMEs will need to assure banks and financiers that they have good governance structures in place and that the business is set for growth. The right board can enhance the reputation and standing of your company for clients, financiers and investors.
Another benefit directors can offer SMEs is new networks, especially if your business is expanding into new product or service areas or geographical markets.
Directors Australia assists a wide variety of SMEs including family companies in assessing whether their company could benefit from more formal board structures and, if so, the type and role of that board. View our full list of services.