The benefit of an independent opinion for smaller firms
“When I want your opinion, I’ll give it to you” (Anon)
Every business, whatever its size, has to consider its management, control, direction and continuation. Smaller businesses face similar issues to larger companies, but are often less equipped to deal with those issues and sometimes struggle to even acknowledge that these issues may exist.
Small business enterprise within the United Kingdom is a constantly growing area and has been referred to as the ‘backbone’ of the UK economy for a number of years. The number of small businesses in the UK is still increasing, with over 99% of private businesses in the UK made up of small and medium sized enterprises at the end of 2017. However, the statistics on small business failure have not changed as favourably, with only half of new start-ups expected to survive after the first four years. For those that do survive, they are often the same size as when they started, with no continuation or succession strategy in place for the business or its employees and the owner receiving a far less lucrative reward after years of hard work than they had hoped.
Many of these smaller companies are owner managed, which by their nature includes family run companies.
As an owner manager you have full control of every aspect of your business including which direction the business should go in; which products or services the business provides; and who to employ, or dismiss. You are responsible for managing finance and accounts; the allocation of available resources; as well as ensuring compliance with laws and regulations. On top of which, you also need to keep abreast of changes in your industry and threats to your business.
In doing all this - you will one day reap the reward when you retire.
Or at least, that is the vision when you start out.
One of the dilemmas faced by small companies, particularly those that are owner managed, is that by being involved in every aspect of the business and its day to day operation there is little time to step back and look at the bigger picture. There is also the question of whether anything would change if there was time to do this. Stagnation and the inability to grow are frustrations many small business owners feel. Whether through lack of resource, finance or time, many small companies struggle to move their business forward. Family run businesses often fare better on the growth front, but this is usually organic as new family members join the business and take on their own area. For many smaller companies, business rarely diversifies from the original product or service on which it was founded or expands beyond its locality.
There is also an inherent fear of what will happen if any aspect of the business was left in someone else’s hands. Surely the best person to run the company is the one who always has and in the way they know? Family run businesses may be more likely to survive the founding owner than non-family run companies, but if the new owner managers have always worked within the business, they will not be bringing any new skills or experience to the company. They may also have little understanding of how the business was run if they simply did as the previous owner manager directed.
The oft repeated quote at the start of this piece is true of many small company owner managers when it comes to expanding their company. There could be a case for appointing additional members onto the board or to bring in help with operational management and there may even be a willingness to share the equity if it brings in finance. However, and this is the stumbling block for many small companies, surely this new director or new shareholder would not only need to share the owner manager’s view and vision for the future of the company, but also agree with how to do this? Otherwise, what might happen?
The answer is that something good might happen. An outside influence can bring a fresh approach and perspective to a company. An ‘outsider’ can also bring skills and experience gained from working in other industries or business fields. An owner manager may understand every detail of their own business, but this does not mean they understand all aspects of running a business. The ability to review existing processes and efficiency and to see the big picture performance of the company, rather than just the minutiae of its day to day operation, will enable the board to plan more effectively and develop future strategy. It also helps them to become more efficient in the service it already provides and both create and implement strategies for the longer term future of the business. An independent director will find it easier to challenge existing strategies and streamline processes not just because of their knowledge and experience, but because they will also not be constrained by nostalgia or familiarity.
A concern for many small businesses planning continuation and growth is that of funding. Investors might be willing to invest in the heritage and story of a business and its owner, but they also want to see strategy, development, implementation and growth. There is no doubt that having an independent board member would be seen favourably by finance lenders and investors.
Small business owners list many issues they face in running their business - from operation to finance and survival to succession. You start out with your vision for the future, but negotiating through these issues often means the vision falls by the wayside and day to day survival takes over from future growth and potential. It may be that someone else’s opinion is needed. Whether that opinion allows you time to step back and see the bigger picture; or allows you to carry on with the detail of operations while someone else reviews your processes and provides you with an independent view on direction and strategy: it can only help – not hinder. Allowing someone else an opinion on the direction of your company, may be just what is needed to achieve your vision of it.
For further information, please contact Emma Bulleyment or call 0345 070 6000.