Why growing businesses benefit from corporate governance

Many small-to-medium enterprises (SME’s) consider that corporate governance is only relevant to large public companies. However, numerous studies have proven that companies of all sizes can benefit from implementing good corporate governance especially[…] those that are growing rapidly, raising capital or selling the business.

The majority of companies in Australia are SME’s which often view corporate governance with scepticism. Good governance in this context is not primarily concerned with compliance with formal rules and regulations. Rather it is about establishing a framework of company processes and attitudes that add value to the business, help build its reputation and ensure its long-term continuity and success. If you’re looking to grow your business, established systems and processes will ensure that your growth occurs smoothly and that important decisions are made in minimal time.

A good structure will allow you to ensure that the start-up of your business occurs smoothly, with minimal confusion about responsibilities. As this can have many flow-on benefits to your business, it’s worthwhile considering how to implement a corporate governance structure best suited to your business.

At Maddock’s Accounting & Advisory, we bring our skills and experience from working for public companies to SME’s and can assist these companies with implementing corporate governance best practices. We believe that any aspiring business with ambitions of high growth can benefit from discussing the ways that corporate governance can be utilised to help them achieve their goals.

Contact the Maddock’s Accounting & Advisory team here to find out how we can help.

“Why governance is important to your business:

1. Business Growth: There is a strong link between governance and the bottom line. Good governance practices encourages growth in the following ways:
• Increased business performance: good advice, be it from advisors or a well structured board, contributes to the performance of the business and thereby increases the value of the company by: developing better strategy, advising and mentoring the owner or management, and providing the business with vital contacts or resources.
• Raising Capital: a good track record of governance practices can be critical for attracting investment. Practicing good governance provides confidence to investors, financial institutions and venture capitalists.
• Financial Control: managing your company’s finances, including cash flow and debt management are critical factors for a growing company.
• Accountability: the separation of management from control fosters accountability and is in the best interests of the company.
• Building relationships: a strong track record of fair and transparent governance can also attract and retain good customers, suppliers, employees, etc.
• Competitive Advantage: good governance practices help build sustainable competitive advantage and can give your company an ‘edge’.

2. Performance Management: Building a strong foundation from a ‘people perspective’ and setting up the appropriate mechanisms to monitor and manage performance – particularly senior managers – ensures the owner/director’s strategic intent is effectively translated into practice.

3. Risk Management: Understanding, assessing the risks to your business and building strategies to mitigate those risks is core to good governance. Failure to identify and mitigate risk can have a significant legal and financial impact to your business. For example, a risk may be ‘maintaining the status quo’ when the company needs to evolve, invest and grow to prosper, even in the medium term.

4. Compliance: Your company must comply with the rules and regulations required of a business registered under the Corporations Act (2001). Practicing good governance will ensure you have adequate processes in place to comply with all legal and accounting requirements, and that you have an understanding of your legal and financial obligations as a business owner/director.”

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