Reports this week from the legal judgment on the failure of South Canterbury Finance (SCF) show how a big company that arose out of a small family business failed in part because the systems and processes in place didn’t work for a large financial company.
Brian Gaynor writing in the New Zealand Herald calls it “Hard lesson in how not to run a company”
Apparently SCF didn’t even have a good accounting system – and it was one of New Zealand’s largest finance companies, managing millions of other people’s dollars.
“SCF accounting systems were a mix of computerised and antiquated handwritten cashbooks, journals and typed ledger cards. The company had three separate ledger systems…”
Overall governance was poor and in the hands as very small group of directors. The company was seemingly run as if it was still the original small family business. The report goes on to say:
“The problem with corporate governance, loan authorisations, disclosure of related party transactions and credit management were intertwined. The related party and credit management concerns were symptoms of the corporate governance malaise.”
Brian Gaynor suggests “SCF was a hopelessly run organisation”
To me it is a classic example of a large company that did not have good systems and processes in place when it was a small business. This is a mistake made by many small businesses. Small businesses are often called the backbone of a national economy. With a growth path these small businesses, understandably, tend to grow into large businesses, like SCF. It is therefore critical to make sure there are good systems and processes in place.
There is a lesson here for all small businesses. Make sure you put in place good systems and processes for all aspects of your business, especially the critical business support including finance and accounting; human resources; IT; records and files.
It’s best to start when your business is new. As part of your initial business planning, identify the systems and processes you will need and document what you do or plan to do. You can always add to or change the systems and processses as they become clearer, as you find out what works well and as the business grows. Its called scalability.
This will make it much easier to manage the business successfully. You and your team will be much more productive if everyone knows what to do and how.
Then when you come to sell your business, the documented systems and processes will go a long way to getting the good price you want.
No-one wants their business to fail because of poor systems and processes. Yet so many take this risk. Don’t let your bsuiness be like SCF.
Get started now. Download our eBook “Keeping good records for small businesses” to set up your filing system.