Articles

Manage the risk (Part 3 of 3)

December 15th, 2013

This is the last of 3 articles about managing risk in your business, thinking strategically & taking more of a helicopter view of things that are important. If you’re not familiar with governance check out this link .

Practical things that directors should be thinking about reviewing this time of year include:

1. Non-Executive Directors or Advisory Board Members
2. Board Performance
3. Board Strategic Review
4. Insurance Risk
5. CEO Succession Plan
6. Business Continuity Plan
7. Health & Safety
8. Emergency Response Plan
9. Business Plan
10. Budgets & Cashflows
11. Financial Management Reporting
12. Capex / Opex
13. Remuneration
14. AGM

The earlier articles talked about items 1- 10 & now we’ll look at items 11 – 14. Remember good governance is important no matter the size of your business

So let’s look at:

Financial management reporting
Capex / Opex
Remuneration
AGM

Financial management reporting

The days of waiting until the end of the year to see what the financial position of the business was is long gone (thank goodness).   But I’m still amazed how many people don’t take the time to stop & look & understand the numbers.   After all if you’re doing all the hard work you need to be getting a return on that time.

So ask yourself:

Are you reviewing financial management reports on a regular (ideally monthly or at least every two months) basis?
Do you know what the numbers mean?
What dashboard / KPI information are you looking at?
What are the key drivers for your business?
What internal controls do you have in place to prevent fraud?
Do you know if you are current with all your obligations?
Do you know who you owe money to or who owes you money?

As a director you need to ensure that the company is able to meet it’s obligations & is financially sound, so I’d suggest that if you’re not already doing it, it would pay to put a practice in place to review the numbers on a monthly basis.   If there are two or more directors (not a mum & dad scenario) then this is a must.

Capex / Opex

Every business needs to spend money.  

Some questions to ask yourself:

What process do you have in place to decide what you spend & when?  
What are the approval limits you have in place?
Who has the ability to spend your hard earned money?
Do you use cashflows to decide what can be spent & when?

As part of good governance I’d suggest you have a set of Policy Statements in place that addresses the above & other conditions relating to spending on capex / opex.   That way you have something to refer back to if there is ever any doubt or dispute.

Remuneration

How often do you review the remuneration of directors?   Is the remuneration fair, is it at market value & does it represent the value each party brings.

Disputes often arise in this area & I’d suggest that it is reviewed annually (again it would form part of your Policy Statements) & if you are unsure take the advice of an outside organisation that specialises in this area such as Grow Human Resources in Hawkes Bay.

AGM

Every business should have an AGM.   Some might be in the accountant’s office or at the kitchen table for a smaller business, or yours may involve shareholders who may be involved or not involved in the running of the business.  

Regardless an AGM is a good time to:

Communicate the goals of the business
Review its position
Pass any appropriate resolutions

Remember good governance is appropriate regardless how small your business is!

If you’ve made it this far & read the three articles regarding risk well done.   Hopefully they will allow you to stop & think about what you are doing in your business, what you do well & where there may be opportunity for improvement.

In Jim Collins book Good to Great he talks about three things to always think about:

1.   What can you be the best in the world at?
2.   What drives your economic engine?
3.   What are you deeply passionate about?

Keep those three points in mind, put some great governance practices in place, continually promote your business & have an outstanding 2014.

If you think that Plan A Consulting can assist you then please contact us by clicking on this link

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