Governance for an owner-managed company

Governance sounds like something for large companies with boards and committees. In an owner-managed company it is smaller and more practical than that. It is the set of habits that make clear who decided what, on what basis, and with whose money. A company with those habits is easier to run, easier to bring an investor into, and easier for a bank or a counterparty to understand.

None of the habits below needs a board of directors or outside directors. Each one needs only that the owner does it consistently.

Hold a regular review, even when you decide alone

Set a fixed date each month or each quarter when the owner, and anyone who shares in running the company, sits down with the figures and the plan. Look at the results against the budget, the cash position, the main risks and the decisions that are coming.

The review matters most when the owner is the only person deciding. Without it, decisions are made in passing, between other tasks, and never looked at together. With it, the owner has one moment in each cycle to step back from daily work and ask whether the business is going where it was meant to go.

Write decisions down

Keep a short note of each review and of every significant decision taken between reviews. The date, what was decided, by whom and why. A few lines are enough.

These notes are for the owner first. They show, months later, why a lease was signed or a price was changed. They also become evidence. When an investor, a buyer or a bank asks how the company is run, a file of plain decision notes answers the question better than any description.

Keep the company's money apart

In many owner-managed companies, the company's money and the owner's money drift together. Personal costs are paid from the company account. Company costs are paid from personal cards. Money moves between the two without a record of why.

Each of these may be harmless, and together they make the company hard to understand. Keep the company's money in the company's accounts. Record every payment between the company and its owner, with its reason: salary, dividend, loan or repayment of expenses. Settle expenses on a regular cycle against receipts. The accounts then show the business as it really is, which is what anyone looking at it needs to see.

Write down who can commit the company

As a company grows, more people sign things, approve purchases and speak for it. Write down who can do what, and up to what amount. Who can sign contracts, approve payments, hire staff, and deal with the bank and the licensing authority.

A written list of authority protects the owner as much as anyone. It stops a manager from committing the company to something the owner never agreed to. It also gives counterparties confidence that the person they are dealing with is entitled to deal with them.

Keep the company's records current

The company's constitutional documents, its register of shareholders, its licence and its main contracts should reflect the company as it is today. When an owner changes, a manager leaves, an address moves or an activity is added, update the records at the time and not the next time someone asks for them.

Out-of-date records can turn a routine check by a bank or a counterparty into a long exchange of questions. Keeping them current takes a few minutes at the time of each change.

An owner who has none of these habits should not try to adopt them all at once. Start with the regular review and the decision notes. Add the separation of money and the written authorities over the following months. Each habit makes the next one easier, because each one depends on the same discipline of writing things down at the time.

When an investor later joins and takes part in running the company, the habits are already in place. The investor joins a company that knows how it makes decisions, and the conversation can turn to what to do next.

Where we invest, the owner keeps running the business and we work beside them.