A great number of business owners oftentimes strive to capture total control over all the management functions and over every little thing that may in any way affect day-to-day operations and their business in general. This kind of decision making process is especially common for small enterprises, but with that even relatively big company owners still fall for this kind of approach.
And it may be fair enough for small-size company owners to combine several management positions in one, but this kind of attitude can not facilitate much of a growth and adequate development opportunities. With time, as the company reaches a certain point when all the operations and processes are well-sustained, the main objective for the business owner is then to set a sufficient and effective management system, where all the functions and processes are clearly prescribed for each individual within each department. This would provide a great deal of relief for the founders, while animating further business growth and development, which is especially relevant for developing SMEs.
Any business logic is construed as either development or death. It is very uncommon for a small business to manage to keep its size small throughout the whole business lifecycle. Generally, any business owner would strive to expand its business, to bring it to another level, which eventually requires bringing together a team of professional managers, and switching from honorable understanding to written policies and corporate conduct code.
There is a number of ways to build a decent corporate management system within a company. Based on our customers’ experience, we have identified a scope of practices that seem to be the most effective:
Introducing a position of the Executive Officer, which would take control over all the daily operations, and would manage the intercommunication between staff members and different business units, stay in touch with major suppliers and contractors, and control issues related to monitoring budget, HR and overall document flow. Executive managers would perform the overall day-to-day management, while the founders can focus on strategic objectives and business development. This way business management is performed by the team of top managers, rather than by the business owner only, which makes the business better structured and dynamic. Team management method is traditionally considered one of the most effective ways of business conduct, which is also reflected in «The seven habits of highly effective people» by Stephen R. Covey – it is much easier to sweep the board in partnership rather than alone.
Structuring the routine business processes. For instance, set credit limits for various groups of debtors or break the outgoing payments down by priority categories. Say, all the payments under RUB 500 000 are approved by CFO, anything between RUB 500 000 and RUB 1 000 000 is in competence of CEO, and everything above RUB 1 000 000 is up to the owner. This would facilitate the decision making process, relieving the accountant from the burden of approving each invoice with CEO, and making contractor and supplier affairs better structured.
Introducing the system of managerial accounting. The system will reflect the actual company cash flow. Any business owner in one way or another performs this kind of accounting. Excel program or paper note book is enough to keep the books when the business is small. But with reaching a certain extent of business size, it is worth introducing an automated reporting system and a position of CFO.
Internal control enforcement. The bigger the company is, the greater the losses may be, specifically caused by failure to follow both internal and external regulations. A company may have impressive financial indicators, but failure to fulfill a seemingly negligible order by state authority may end up with significant penalties, financial troubles and reputational losses.
At some point company managers realize the importance of adherence to different legislative provisions. In order to keep this area under control, special compliance system is designed, which represents a scope of internal provisions (including corporate conduct code, anticorruption code, etc.), and a position of Controller to make sure all the provisions and regulations are thoroughly followed.
Besides, corporate management systems save owners the trouble of being constantly involved in company operations, enabling them to enjoy their vacation or to better focus on recovering when sick.
One of SDM-Bank customers spends half a year sailing his yacht out in the sea. This is mainly possible because of the corporate management system he integrated in his company, whereas he only controls “key milestones” of the business. Ten years ago this company was a small-size enterprise, and now it is now one of the industry biggest companies.
Active compliance system gives a great deal of credit to company image before investors, many of which are strongly concerned with how loyal companies are regulations-wise. Oftentimes SMEs are perceived as organizations with the lack of intelligent reporting, where managers connive at violation of some regulations, and books are kept «on the napkin». Corporate management system can help to create a clear structure of all the crucial functions and job descriptions, and to have all the operations work well and comply with all the regulations.
Companies with implemented corporate management system also get better scored by banks, since these companies have higher transparency and relevant information availability. This makes them way less risk exposed compared to the companies living in «corporate chaos», and thus, better creditworthy.