21 January 2021

Successful businesses often operate within a structure where there is clear definition between the day to day operations and the role of governance.

This is very easy to see in the corporate sector as the two roles are distinctly different and held by different groups of people. For SME businesses, it is often more difficult to get clear separation of the two but it is just as important.

It takes focus and organisation to achieve the two different thought processes and decisions required of operations and governance. To begin, identify the difference in roles between the governance and management roles in your organisation.

The role of governance involves setting the What, Where and Why and includes elements such as planning for the future, addressing any business risk and meeting the needs all the various stakeholders while being legally complaint. The role of management is to set the How and involves operational planning that will help the business meet its targets and objectives.

If we look at two common entities – a Trust and a Company in the agricultural sector - both require a governance role in respect to Trustees and Directors.

The role of Directors and Trustees should be to set plans, policies and have a longer-term focus. The role of management is to execute the strategy set by the Directors and Trustees and work to business plans, focusing on day to day operations.

Often in SME businesses, the lines between governance and management become increasingly blurred and it’s easy to get drawn back into management or operations when you should be focusing on governance. Over time, making the distinction between the two should make this easier. The trick is to start.

To help your business achieve distinction between the two, put aside some time to solely focus on the long-term aspects of your business. If you find this difficult to do, you might find it useful to work with an external facilitator to help maintain focus at the correct level.

Another strategy that often works well is to convene a round table a couple of times a year with your external team. This might include your banker, lawyer, farm adviser and accountant, or a combination of advisers you work well with, who can provide valuable insight without being involved in the day to day operations.

The perspectives of your external team can be invaluable to keep the focus on the long-term strategy and to help you look at things ‘from the grandstand’ instead of constantly being pulled away ‘onto the playing field’ by operational matters.

It is important as a business owner to take the time to review and focus on your business. And with the increased responsibility and risk associated with being a Director or Trustee, it has never been more important to ensure these roles are separated from day to day roles and given the time they deserve.

The most important thing to do is to start differentiating the roles in your business and make yourself aware of what tasks sit under each role. If you would like assistance with this or require more information, please contact the Findex Business Advisory team.

Findex NZ Limited, trading as Findex

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January 2021.