You conduct your performance reviews over a casual lunch or coffee meeting with employees, get expense reports and payroll done on Saturday mornings and record customer information on spreadsheets. You have survived your first few years as a start-up, and business is on the up and up.
The last thing you feel like doing is complicating things by adopting formal business processes – after all, that’s what you and your employees hate about big corporations – restricted agility and unnecessary complexity.
The reality, unfortunately, is that unless you can support growth from a processes point of view, your business will stagnate. There comes a point when your customers will start having higher expectations from you. Your employees will, too.
To survive, you’ll need to have suitable software systems in place, start documenting policies and formalising other aspects of the business to ensure compliance and productivity and reduce the risk of reputational damage.
What you will gain
Done well, formalising the company’s structure and processes gives management better visibility and control of the organisation’s finances, speeds up paperwork, and helps align everyone in the company behind its values and strategy. It can be good for employee morale because people will feel confident about their purpose and responsibilities.
What you stand to lose
Resisting the need to formalise processes could harm customer service, make it hard to comply with various laws and regulations, and restrain the company from reaching its true potential in terms of profitability and revenue. It could also make it difficult to monitor your team’s performance or leave gaps for reputational risk, human error, insider fraud and other risks to creep into your day-to-day operations.
How to tell when the time has come
Here are three signs that it’s time to formalise your business processes:
1. Your headcount is growing rapidly
As your turnover and headcount grow, so do your responsibilities in terms of legal and regulatory compliance. The tipping point usually comes at a turnover of around R5 million and a headcount of more than 50. For example, the Companies Act exempts smaller, owner-managed companies in South Africa from needing an external audit. The act provides a Public Interest scoring system, taking into account how many employees you have, your revenues, your liabilities and your external shareholders.
As your business grows, you may need to meet the tougher demands of an external auditor, which will be far easier if you have a proper business system and formal processes in place. Likewise, it will become subject to requirements such as the Employment Equity Act and Broad-Based Black Economic Empowerment Codes and regulations. Compliance with these will be much easier with formal processes in place.
Quite apart from the compliance angle, a larger headcount and turnover means that managing your business by filing papers in a shoebox or chatting to employees over the tea break will become increasingly impractical. To remain in control, you’ll need to do things in a standardised and consistent manner and ensure that you can monitor financial and operational performance. Formal processes and systems are also essential to HR functions such as performance appraisals, succession planning and career paths.
2. Your business is multifaceted
If you run an intricate, geographically dispersed or heavily regulated business – for example, certain forms of complex manufacturing or financial services – you may need to fast-track formalising your business processes. Your customers and funders will demand it and you’ll need to have the process discipline to deliver accurate reporting, ensure consistent product and service quality, and monitor performance.
3. Your growth is accelerating
Companies cannot afford for their businesses processes, employees and management to fall behind the growth of the company. If growth is accelerating, your company is probably starting to compete with bigger companies that have economies of scale, established systems and robust business processes. That means you may also need to retool your company with formal processes and systems to boost productivity, ensure staff retention and deliver your product or service with a predictable quality level.
It’s about the right solution. If your business has survived to a point where you need more formal systems, you should congratulate yourself. Not all companies manage to survive their first few years; you can consider yourself a business hero because you are helping to grow South Africa’s prosperity. Apart from documenting standards and procedures, one of the keys to ensuring your future sustainability is usually to put systems in place to automate processes.
It is also worth remembering that just as not having the right systems in place can slow you down, so will having a system that is too sophisticated. Often these systems are also expensive and resource intensive, choose your software well, making sure that it fits the maturity of your business
The best system is one that saves time and makes you more agile, with a direct ROI that can be seen as soon as you are live on the product. This is one of the topics that we will be discussing at the Sage Summit as we seek to advise business builders how to reach the next level. The Sage Summit takes place at the Sandton Convention Centre in Johannesburg from 7-9 March 2017.