There is a tendency for SME ‘Boards’, or informal support networks for an entrepreneur, NOT to evolve and grow as the business grows.
This is understandable; trusted advisers who have supported a business in the formative years know the business and are, as their name suggests, trusted by the executive (usually the founder).
However the demands of a growing business sometimes need a fresh pair of eyes or additional resource or skills. Typically that often involves bringing in more financial expertise, especially where external investors have to be kept satisfied.
Often a Board or an executive team can place too much reliance on one person knowing the finances and they pay cursory attention to the figures themselves.
I’ve recently insisted that the members of a Board go through a short ‘training session’ on the particular finances of the business involved, because I could sense that they were taking too much comfort from my involvement and THEY have responsibilities too.
I have painful memories of a case where a business set out to grow their business dramatically with the opportunity of a major new contract.
Establishing the cashflow funding needs were out of the comfort zone of the CEO (although he claimed that the issue was that he was too busy) so he employed what was a ‘Top Tier’ Accountancy firm to compile the business plan.
It was a relatively small job, so it was given to a newly qualified accountant who made some significant mistakes in the projections (which were not spotted through sign-off).
The business plan went to a bank who had confidence in the CEO and knew that a top firm had done the numbers. The errors were not picked up (although with hindsight they were obvious) and the requested funding was agreed.
The Board saw an impressively thick plan, with lots of numbers, prepared by a top firm, which had met the approval of the bank as well as the CEO. They approved the plan – after some changes to the narrative (hence the comment about the misplaced comma!) – and everything went ahead.
A year later the business had to be rescued after it ran out of money.
Could this happen to a business that you know?