Scale up the company – so you go from owner-led to owner-managed
Many owner-managed companies have challenges in achieving set short-term and long-term goals for the business. Many times there is a clear business idea and the potential in the market is judged to be good, but the business does not really pick up as expected.
One way that can help these owners and businesses is to begin the journey from an owner-occupied company to an owner-managed business. Here we tell you how to do it. If you need help with business finance you can get help from professionals.
The reasons why the business does not lift can of course be several. We often see that one of the reasons is a lack of appropriate corporate governance where owners, board and management collaborate and work in a structured manner. Partly with long-term goals and strategies, partly with short-term goals, plans and activities based on the long-term plan. As the business grows, the demands on the owners, the board and the management increase and in owner-managed companies where the owners are involved in most things that happen, the owners are simply not enough for everything.
Owner-managed companies – sole proprietorship, family-owned or partner-owned
The majority of Australian companies are owner-managed, ie the owners are active in the company, such as on the board or in the operational management. In this way, one and the same person can be the owner, board member and CEO. There are three categories of owner-managed companies: 100% privately owned by one person, family-owned by two or more people who are related to each other, and partner-owned by two or more people who are not related.
What characterizes many owner-managed companies is, among other things, the following:
- Ownership is concentrated in one or a few people
- There is a stability in ownership and management
- Often the CEO is also the owner or one of the owners
- As the owners and management are the same people, the decisions are often informal
- Many lack an active board
Corporate bodies’ responsibilities and focus areas
As a company grows, it is wise to think about how the roles should be clarified. If an owner-led company has multiple roles, the roles in an owner-managed company are separate. A person can still have several roles, but it is clear what responsibility and task each role has.
- The owners’ task is to point out a direction where the company is going, which is suitably clarified in an ownership directive. The time horizon for an ownership directive varies, but it is usually changed after 5-25 years or in connection with a major change of ownership. However, it should be reviewed annually and updated as necessary. The owners’ forum is the general meeting.
- The board must decide on the strategy, ie talk about what must be done to achieve the will to own. The strategy is often set at 1-5 years, but needs to be continuously reviewed and updated with regard to changing circumstances in the company or the outside world. The board’s forum is the board meeting.
- The CEO and other management have an important role in deciding how the board’s strategy is to be implemented, which is often clarified in some form of business plan. The business plan is often for one year. The management forum is the management group meeting.
When is it appropriate to start the journey towards a more owner-managed company?
- The owner wants to be phased out of his operational role, for example by bringing in an external CEO
- The owner wants to sell part or all of the company
- The company is facing a major change that entails major challenges such as a changed business model, expansion into new markets and the need for external expertise to succeed.
- The owner wants to work more professionally with the company and more clearly distinguish the roles
How does it happen?
Going from ownership to ownership is not done in a jiffy. It requires a lot of planning, awareness and time. There are different steps on the journey and we think the following three steps are the most important. Some companies choose to carry out one step and others all, no matter what, we think it is important that the steps are carried out in the right order.
Step 1: Ownership directive
An ownership directive is a document that contains the owners’ common ambitions with the company, ie what they want the company to achieve. By formulating an ownership directive where the owners’ common goal picture is stated, the owners create the right conditions for the board’s and management’s strategic and operational work.
Step 2: Active board work
Through active board work that is carried out in the right way, the board can contribute to the company’s success and create value for the owners. To succeed in this, the board needs to be staffed in an appropriate way, they need to understand their role and together create a structured and efficient way of working.
Step 3: External CEO
When the company has a well-composed active board, it is time to think about what the management looks like and perhaps mainly the CEO. The reasons why companies choose to bring in an external CEO can be several and different depending on the company’s conditions and structure, but for example it may be appropriate when the owner wants to be phased out of his operational role and instead focus on his role as owner. Bringing in an external CEO is often a challenge and in order to succeed in this, it is important, for example, that there is a clear role description for the resigning CEO and that powers and competencies are clarified for the new CEO.