Building a strong foundation for business when it comes to governance, compliance, and risk management isn’t just for Big Business. Taking Care of Business® is for every company regardless of head count, gross revenues, or life stage.
Big Business understands the value of taking care of business, every day. For SMBs, it’s sometimes considered optional. This isn’t because you don’t care. You might be focusing on sales and production efforts directly impacting the bottom line. Or maybe you haven’t identified a risk, pain point or financial reward that you believe is significant enough to change the way you’re doing business.
If you want to grow your business successfully, emulate Big Business in at least three key areas.
Sound Governance
Every entity has a governing body responsible for overseeing its affairs. This governing body is commonly referred to as the “Board.” The individuals making up the Board – directors of a corporation and members/managers of an LLC – have fiduciary duties that require a degree of corporate formality. What does this involve?
- Hold formal Board meetings regularly based on a set meeting calendar and defined agenda topics.
- Record minutes of every Board meeting and maintain a minute book with these minutes and minutes of all shareholder/member meetings. Keep the minute book up-to-date and accessible on a moment’s notice.
- Adopt a delegation of authority policy defining the authority employees have to make binding commitments on behalf of the company.
- Follow an annual 401(k) compliance calendar, benchmark plan costs, review plan performance, and document these activities. Board members serving as trustees of a 401(k) plan have a duty to oversee the plan’s administration and they can’t offload these duties to anyone, including professionals like third-party administrators, record keepers, financial advisors, or 3(38) fiduciaries.
Even if you’re the sole director, manager or owner of your business, corporate formalities are important. If you disregard them, you’re more likely to be personally responsible for the company’s obligations.
Proactive Enterprise Risk Management
An ongoing, structured review and management of the key risks facing a business is referred to as “enterprise risk management” or “ERM.” All organizations should have an ERM program that:
- Identifies the risks impacting the business, assesses the likelihood of their occurrence and the magnitude of potential negative consequences, and evaluates and implements steps to mitigate the risks
- Involves a multi-disciplinary team covering finance, IT, HR, operations, and compliance, including the company’s accountants and lawyers
- Is updated at least annually to address changes in the business, risks and mitigation options
If this seems like too much process, bring your team together in a less formal way. After all, it’s the substance not the form that matters most when strategically evaluating risks and mitigation options.
Effective Compliance Plan
Even if you have only one employee, your company should have a compliance plan to help ensure that it follows applicable laws, standards and business practices. Tailor the plan to the size of the business, the industry, and the nature and geographic scope of operations. A well-designed compliance plan:
- Identifies the key legal requirements that apply to the company in all jurisdictions where it operates
- Covers intangibles like the company’s culture and the way the company strives to work with employees, business partners and the community-at-large
- Includes a written Compliance Program, including policies and procedures, to provide structure and definition
- Provides for periodic education and certification of employees, contractors and vendors
- Defines a process for employees to raise concerns or report violations for careful follow-up
If you’re not sure where to begin, set the tone for your organization by adopting a Code of Business Conduct, Compliance and Ethics and educating your employees on what the Code means for them and the organization as a whole.
A Few Final Thoughts
For your SMB, the thought of taking care of business like Big Business can be overwhelming. Take it one step at a time and prioritize the to-do’s based on the life stage of your business and upcoming transactions. If you make the investment and start “Thinking Bigger”, you’ll build a strong foundation on which your business can grow and prosper for years to come.