Small business owners often find themselves filling the roles of a shareholder, director and manager of their businesses. They have to wear all three these hats but often find it difficult to maintain a balance between the required roles. They’re not able to choose the right hat for the right occasion, creating big challenges for their businesses and increasing the stress they experience.
As their business advisor, you may guide them in filling their roles effectively so that they may build a healthy and profitable business. But how do you empower yourself to offer them effective guidance?
This is the question that will be addressed in the next episode of the IBASA & EPI Webinar Series. You may join this free event as an IBASA member, or if you are not a member, you may also register to experience the value of this Continuous Professional Development event for business advisors.
Join the next IBASA & EPI Webinar
“Wearing Three Hats! How business advisors
can best support clients to be effective in serving
simultaneously as shareholder, director & manager”
Wednesday 24 April 2019 at 11h30 to 12h45
<< CLICK HERE >>
TO BOOK YOUR
As a business advisor working with owner-managers, you are very likely to support many clients where the manager of the business is also a shareholder and a director, or in some instance, they may even be the only manager, the only shareholder and the only director! While these roles may coincide with the terms used for registered companies, the roles also apply to close corporations, sole proprietors or partnerships, even if not defined as fiduciary duties associated with these business formations. To clarify, when we talk of the role of a shareholder, it applies to all forms of ownership; when we talk about the role of a director, it applies to all forms of governance; and when we talk of the role of manager, it applies to the management in any of the possible business formations.
Owner-managers are often unaware that different approaches are needed in filling the three roles of a shareholder, director and manager. They often view the business as a place for them to express themselves and create good income to support their lifestyles and family needs. But not being aware of the demands associated with the three roles may lead to problems and is likely to prevent the business from achieving its potential.
Working as shareholder/director/manager requires a good understanding of each of the roles and how to shift between the roles as it is required:
- A shareholder’s attention should be on the financial return the business delivers as profits and the risks associated with achieving these returns. This role is not much different from when investing in another business and expecting your money to “work for you” as an investment. Many small business owners make the mistake of thinking that the salaries they draw from their businesses is a form of return – it is most definitely not! A return is a dividend paid to shareholders after tax was deducted from the business profits. The role of shareholder requires a focus on returns delivered independent and separate from being paid for working in the business, which in turn will lead to a focus on creating a healthy business that delivers good profits, independent of the salary earned by the owner-manager.
- A director’s responsibility is to govern a sustainable business in a way that delivers the returns that shareholders expect and realises the purpose or mission of the business. Being a “director” is not about having a fancy title. In fact, this title implies a range of strict statutory requirements! Not knowing the legal requirements of serving as a director may lead to liabilities and even jail time. Smaller businesses may not have many directors, but the fiduciary duties of the board of directors (or one-person board) remain the same, independent of the size of the business. However, when the business grows it may best be served by a board of directors where independent directors offer different perspectives and new skill-sets that will benefit the business.
- A manager’s role is to ensure the efficient functioning of the business operations. Many small business owners started their businesses as “technicians” working in the business operations, but soon found that the product of their effort is not the product of the business itself, but rather a smoothly running business. A manager works on the business, not in it! This requires of the owner-manager to step back from the detailed operational duties to have a perspective on the running of the business that allows for good performance of the people and improvement of the business systems so that the strategic objectives set by the directors may be achieved, or exceeded.
“The minute you forget your role as director and lose the bird’s eye view of your business that this role brings, you can quickly lose your grasp on what is really needed to take your business to the next level,” says Tim Holmes, Managing Director of Sirdar South Africa and one of the panellists on the April episode of the IBASA & EPI Webinar Series.
According to Holmes, the roles of a shareholder, director and manager each require a special kind of attention and focus which, he says, is hard to do each well. He explains: “In some cases, I have noted the dramatic positive change in a business when a director steps away and focuses on being a manager only, or even when a shareholder steps away from operational involvement and holds the business accountable in a whole new way.”
- To learn about ways business advisors can support their clients in understanding their different roles, sign up for the April episode of the IBASA & EPI Webinar Series. To book your place, CLICK HERE.