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By: One To One Financial Management  06-Dec-2011

These are challenging times for many businesses, large and small. Because of that well thought through business strategies and effective implementation of them are important if not vital. The business should want to survive the recession as a starting point and to secondly consolidate its position in the market and grow if it can. In a smaller business how well these goals are achieved can depend on how well the owner wears his different hats.

One of the owner’s roles is to be the manager. This is an operational or management hat. Another hat is to be a Director. This is a Board or governance role. Governance and management are two different and separate focuses.

Governance is about determining the vision for the organisation, defining where the organisation is to go. It is about developing strategy and then monitoring performance and progress. It is about delivering value for shareholders. As part of their role a Board may well develop an annual plan including financial and human resources, operational strategies and performance objectives as well as the longer term goals.

If the owner, having completed that task, possibly with the help of independent directors or facilitators, puts his management hat back on his role changes. Having been made aware of the board’s requirements he must now harness the financial and people resources of the organisation. This includes financial planning, accounting, cash flow management, solvency, investment, financial reporting and communication with financing organisations, team building, public relations, marketing, technology and so on.

In allocating and managing resources the owner is guided by the strategic goals delivered to him by the board. Because specific goals are known resource allocation should be more focused and effective. The requirement to report back progress to the Board maintains a focus on the plan and allows the strategy to be monitored and tweaked if necessary.

In a small business the governance and management functions generally meld together. Often the owner is too busy doing the day to day work to think about the longer term in a structured way or to measure progress. By not allocating separate time to each role, the owner risks not completing the governance role effectively. The focus of the business may therefore not be as sharp as it could be at an operational level.

An organisation that has taken the time to plan where it wants to go and to measure progress against that plan is more likely to be successful. The odds are certainly improved. The challenge for the owner of a small business is to recognise the variety of roles that need to be filled and to allocate sufficient time to each to ensure that the business reaches its potential. To wear all the necessary hats, but not at the same time.

By Stephen McFarlane

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