Decision rights when an investor helps run the business

When an investor only provides capital, the question of who decides is simple. The owner runs the business and the investor watches from a distance, with a few rights written into the shareholders' agreement. When the investor also takes part in running the business, the question becomes daily and practical. Two people with a stake and a role can easily reach for the same decision, or each assume the other has it.

The answer is a short written schedule of decision rights, agreed before the investment and kept up to date afterwards. It does not need to be long. It needs to be clear enough that anyone in the business could read it and know who to ask.

Sort decisions into three groups

Most decisions in an owner-managed business fall into three groups.

The first group is the owner's alone. Day-to-day trading, pricing within agreed limits, hiring below a senior level, the running of the team. These are the decisions that make the owner the person in charge, and they should stay that way.

The second group needs both sides. Changes to the agreed budget beyond a set margin. New borrowing. Large contracts or long leases. Appointing or removing senior people. Selling a part of the business or starting a new line of it. These decisions change what both parties signed up to, so both parties make them.

The third group belongs to the investor, because the investor has agreed to carry that part of the work. If the investor has taken on the reporting, the budget process or a particular project, the decisions inside that work are theirs to make, within limits the owner has accepted.

Writing the groups down is most of the value. The act of sorting decisions forces a conversation about the ones that both sides had quietly assumed were theirs.

Set thresholds in the business's own terms

A schedule that says "material contracts need joint approval" will be argued over the first time a contract arrives. Use thresholds that match how the business actually operates. A contract value. A length of commitment. A number of staff. A change to a named customer relationship.

Choose thresholds high enough that the owner is not asking permission every week, and low enough that the decisions that could change the business's direction come to both sides. If the thresholds feel wrong after a few months, change them in writing.

Agree what happens when the two sides disagree

Two people who share decisions will sometimes disagree. Plan for it while relations are good.

A simple sequence works for most businesses. First, each side writes down its view and its reasons, which often settles the matter. Second, the question goes to a dedicated meeting with the relevant figures in front of both parties. Third, the rare question that is still open goes down a route agreed in advance. That might be an independent person whose view both sides have agreed to consider, or a default that applies until the question is resolved, such as keeping the existing budget.

The sequence exists so that a disagreement about one decision does not hold up the rest of the business while it is settled.

Keep a record of decisions

Keep a plain decision log. The date, the decision, who made it, and under which part of the schedule. Joint decisions are recorded with the reasons and with any conditions attached.

Six months later, the log shows why a lease was signed or a price was set, so nobody has to reconstruct it from memory. It also shows a bank, an auditor or a future partner that the business is governed the way its documents say it is.

Review the schedule as the business changes

A business with a new site, a new line or a larger team needs different thresholds from the one that existed on the day of the investment. Look at the schedule at each regular review and ask whether it still describes how decisions are really made. If practice and paper have drifted apart, fix one or the other. Do not leave the gap open, because a gap is where misunderstandings between an owner and an investor start.

We agree the terms in writing before we invest.