Decision-making: Three ways to enhance good governance as a sole proprietor

To support the organisational policies, the sole proprietorship ought to put in place systems and processes to govern how the business will be operated.

Photo credit: Shutterstock

Sole proprietorships are a common business association in Kenya. They have several advantages over other forms of business as they are easy to incorporate and decision-making is quick. While the business owner is mostly the sole decision maker, the disadvantage is that he bears the risks alone.

One of the biggest risks he or she faces is the lack of good governance structures that promote transparency and accountability due to the business being owned and managed by the same person. There may also be a lack of proper systems.

Essentially, good governance practices require a separation of ownership and management. They also need a high level of transparency and accountability and this calls for putting in place systems that separate ownership and management. Good governance is crucial for the growth and longevity of a business.

There are a few measures that a sole proprietor can put in place to ensure that good governance is upheld.

First, the business owner can have in place an advisory board. This is a team of external experts who assist the sole proprietor in making sound decisions. The advisory board helps in upholding accountability and transparency. In such an arrangement, the sole proprietor is accountable to the external board. The board also helps in decision-making.

When choosing an advisory board, the sole proprietor ought to ensure that it is multi-skilled so that he or she accesses expert advice in different sectors. It is advisable to recruit board members who have prior board experience. The sole proprietor can fix the remuneration of board members to motivate them.

Secondly, enhancing sound governance practices can be achieved by having in place board and staff committees. These committees have the mandate of handling certain key aspects of the business such as finance, human resources, and business development among others. The benefit of committees is that they help spread the risk in decision-making.

Through board and staff committees, a sole proprietor gets access to expert insights. Like the case with the advisory board, he or she ought to carefully choose committee members to ensure they are experts and can add value to decision-making.

Thirdly, a sole proprietorship can enhance good governance by adopting organisational policies that govern various aspects of the business. Organisational policies are recommended for all types of businesses as they give policy direction on how the business is managed and run.

To support the organisational policies, the sole proprietorship ought to put in place systems and processes to govern how the business will be operated. Systems and processes are important in streamlining business operations and enhancing efficiency.

The systems and processes also ensure the business does not depend on the sole proprietor but can develop its own life.

Having systems and processes will free the sole proprietor from participating in the day-to-day operations of the business and instead focus on growth and wealth creation.

Business continuity and succession planning are other important aspects that the sole proprietor should consider to ensure that the business continues to run and has longevity.

Ms Mputhia is founder of C Mputhia Advocates | [email protected]

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.