At a time in commodity cycles where many farming-based businesses are facing challenges, it is the businesses with good governance models that are riding a steady ship. The reality is governance provides a structured approach to implementing appropriate processes, decision-making and ensuring accountability at all levels throughout the business. Governance is focused on strategic decision-making not management decision-making. The lines of discussion need to clearly distinguish between the two.
In a family-based business this might include having a regular meeting to ensure everyone is aware of performance and key decisions that need to be made. It is important these meetings are business-based and family matters are discussed at another time. Similarly, on family occasions it is important not to bring business into conversations. This can be a challenge but is an important rule to try to work by to maintain a harmonious family relationship.
As with any successful business or sports team you need to understand your core values, why you are doing what you do, and what your longer-term goals and objectives are. Understanding these elements provides for the formation of a roadmap and a measure for decisionmaking.
Writing these down and referring to them starts to create some objectivity and purpose in what you do.
Introducing an independent party, such as a family professional, can be an important conduit in a family business to ask the often hard questions that need addressing.
The presence of an independent party can also ensure the meetings are operated to an appropriate level of decorum and individuals within don’t revert to how they might speak to each other as siblings outside of this environment.
Identifying what are appropriate processes to implement is crucial, but will vary depending on the needs of the business. Initially this might be in the form of undertaking a budget and reporting against this on a monthly or bi-monthly basis. The merits of undertaking a budget are firstly to identify if the operations of the business are likely to provide for a suitable financial surplus, then the monitoring of financial performance against what you forecast, which in my view is imperative to ensure your actions align to business success.
Bringing all these elements together and clearly defining the role and the expectations of individuals in a family business then starts to create some accountability for people’s actions. Once you have a suitable level of accountability you should see some positive behaviour outcomes and a real sense of ‘not wanting to let the team down’ spirit rise to the surface. This is crucial in creating a culture of excellence and pride.
This might all sound like fluffy stuff to some people, but in the businesses we have been involved with over the years the successful ones are often those that have been able to implement this well.
It is important to note that good governance doesn’t become instant, it is a process and a journey that takes time. You’ll make a few adjustments to the process of what you do along the way and you’ll find what is effective for your business.
The real benefits of sound business governance are often more predominant in a downturn. This is often the case as the business is likely to have had a clear strategy that has given provision for downturns in commodity cycles, providing for clear line of sight on the likely cashflow implications. In addition they will have a clear path and understanding of likely actions that need to be undertaken to ensure their balance sheet remains robust.
There will be a strong market awareness and stress levels won’t be as heightened as others that are unprepared because of a real awareness of every element in their business. In fact many of these businesses are able to capitalise on a market downturn to continue wealth creation if that is what is desired.
If you have never truly challenged the path of your business and how you’re getting there through the implementation of some sound governance, have a chat to a business or professional that has.
There are several valuable industry courses available to help people build an appropriate model for their business.
- Rod Hansen is a senior consultant at BDO in Christchurch.
