Understanding your duties
As a director of your business, you have ethical and legal duties. They set the foundations for a good business and make sure all the actions you take are legal.
Understanding your duties will help you run your business better and follow best practice, like trading sensibly or not making business commitments you can’t meet.
Freeing up time to work on the business
As a business owner and director, it can be challenging to try to do everything yourself, as well as finding time to look at the bigger picture.
To oversee your business well, you need to assign tasks to other people (delegating).
You can delegate day-to-day tasks and some of your director duties – just make sure you delegate to reliable people.
A board of directors can assign some powers to board committees, directors or employees. The board must:
- believe that the person they’ve delegated to will act responsibly
- monitor how that person uses this power.
In a small company, you may not have anyone to delegate tasks to. To free up time, you may need to postpone some tasks or plans, at least while you get your governance set up. This will be worth it in the long run.
Get insured
Insurance is an investment in managing your risks.
Consider insurance for:
- fire and natural disasters
- theft
- stock damage
- employment disputes
- injury or property damage caused by your products or services.
Liability insurance can protect you against damages and costs from legal action. Indemnity insurance can protect you and other directors if you cause damage or make a mistake in judgement that negatively affects your business. Directors and Officers (D&O) insurance is the most common type of indemnity insurance for directors.
No single policy can cover all your business risks, so you may need more than one policy – but it’s possible to be over-insured too.
Insurance can be expensive, so make sure your insurance fits your business risks and delivers good value. Consider speaking to an insurance broker about the types of insurance your business needs.
Document your plans
Having a set of plans helps you and everyone else in the business know what you’re aiming for. Plans make your business more valuable to buyers, investors or lenders. Update any plans you already have regularly.
Here are some of the plans your business might need.
Business plan – prepare for success
Business planning means stepping out of day-to-day tasks to set work goals and decide how you’re going to reach them. It makes you think about the big picture, both inside your company (strengths and weaknesses) and outside it (opportunities and threats).
Your business plan is a platform for you to plan key tasks – for example, how to build the brand, what markets to enter, and which current weaknesses to tackle first.
Your business plan should be a living document that you update when needed – for example, when your business grows or your situation changes.
Business continuity plan – prepare for emergencies
A business continuity plan shows how your business will continue its main tasks after an emergency. This could include natural disasters, equipment failure or a supplier going out of business.
Business continuity planning is part of your duty to act in the best interests of the company.
If you can’t perform an important task due to an emergency, continuity planning helps your business to continue functioning. For example, you might plan how you would work from a different location, or how you would work around key staff or services if they weren’t available.
Writing a business continuity plan means you’ll have documented procedures to help.
Succession plan – secure the future of your business
Succession planning means preparing people you trust to replace you, or other directors, when you leave or retire. This will help your business continue to succeed. Because a small business can change quickly, a succession plan is very important.
If you have no one to take over from you, succession planning means setting out how you’ll sell, close or transfer the business. Prepare carefully for the transition. This might include training and educating the person you want to take over from you.
You need to carefully manage succession if you have a family business, as the directors, CEO and managers are often all part of the family – and the same person may cover more than one of these roles. This can limit your choices and cause emotional tension. You can resolve this by calling on suitable people outside the family to fill some positions.
Set strong internal controls
Internal controls are rules and procedures that ensure:
- your reporting is reliable and on time
- you have the information you need to govern effectively
- the actions you take are legal
- employees aren’t tempted to steal or commit fraud.
You can use two types of controls:
- Preventive controls – these are sensible processes that prevent errors or fraud. For example, separating duties so that more than one person is needed to authorise and record transactions (such as invoices and expenses). You can also physically limit who can access cash or valuable assets.
- Detective controls – these are a safety net for anything you couldn’t prevent. This includes regularly checking your finances and correcting any errors. You can also ask an accountancy firm to carry out an external audit of your controls.
Receive the right information
Choosing what to measure
To track how your business is doing – financially and beyond – consider monitoring the following areas:
- Financial – results, forecasts, year-on-year comparisons, sales performance and insurance coverage.
- Strategic – progress or plan, emerging risks, innovation, competitor performance and industry trends.
- Customers and marketing – brand reputation, customer feedback, customer loyalty, market share and environmental impact.
- Staff – staffing levels, safety, employee satisfaction and retention.
How to measure
Key performance indicators (KPIs) track progress against your goals – like income, spending, or profit – and help show how well your business is doing.
KPIs can be:
- quantitative (measurable by numbers)
- qualitative (not easily measured by numbers).
Examples include:
- financial – income, profit, or margin targets.
- operational – customer numbers or output level.
- people-based – staff qualifications or retention.
- intangible – reputation or product quality.
KPIs help you spot issues early and stay on track to meet your objectives.
How often to measure
Performance reporting is a fine balance: you need enough information to stay updated, but you don’t want to create too much work for yourself or waste staff time on constant reporting.
You’ll need different types of information at different times. You and other directors know best how often you need each type, to get a clear view of how the business is doing.
Identify and manage risks
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Identify the risks
Useful things to consider are past problems or near misses, potential fraud vulnerabilities, and key legal and regulatory risks.
Common risk areas include the following:
- Operational – cyber threats, outdated technology, under re-sourcing, natural disasters.
- Strategic – poor strategy, lack of innovations, shifting policies or markets.
- Financial – cash flow issues, investment struggles, currency shifts, slow payments.
- Health and safety – physical hazards, toxic exposure, overwork, harassment.
- Compliance – unpaid taxes, director duties, environmental or employment breaches.
- Reputation – data leaks, broken promises, low equality, bad publicity.
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Prioritise the risks
Decide which risks are a bigger threat, based on their likelihood and impact.
Consider:
- their financial impacts
- how they could prevent the business achieving its objectives
- how they relate to your legal obligations as a director.
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Control the risks
Decide how you want to control each risk to reduce its likelihood or impact. You can control risks by:
- eliminating them (often difficult)
- replacing them with new, smaller risks
- transferring them to another business or person in a contract
- sharing them and insuring against some or all of the risk.
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Monitor the risks
Regularly discuss the risks that each team or work stream faces with their managers. Ask external auditors to assess more complicated risks. Document your risks in a risk register that describes your control and monitoring for each risk.
As well as monitoring individual risks, monitor how they combine to ensure you’re comfortable with your overall risk profile.
Create a risk management plan
Risks are inevitable, so your business must be able to handle them. Risk management involves identifying risks; deciding which ones are more likely to happen and be more impactful; and creating plans to control them. Use our worksheet to help you plan for managing your risks.
Set up good communication
Your staff need to understand how you carry out your governance activities, so they can give their input.
Make sure the people overseeing the business and those running the business day-to-day regularly discuss how governance is working.
You can do this by:
- explaining the reasons behind major decisions to employees
- asking for feedback
- setting up events for everyone, like weekly stand-ups or regular meetings.
Investors often prefer more formal written reports about the targets you set for the business, your strategies to achieve them, and how your business is performing.
You are responsible for checking that investors agree with your governance.
Track and improve your governance
Your approach to governance may need to change as your business grows or your focus changes. Track the effect of your approach to make sure it's working properly and contributing to the big-picture goal of your business.
Conduct surveys (of employees, investors and other stakeholders) to understand how you’re doing. Look out for any signs that you need to take a more structured approach to governance.
As your business grows or changes, identify any emerging areas that might require specific skills to keep your governance on track. That way you can get timely advice or bring relevant people into your governance work.
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