Startup corporate governance is not at the very top of every company’s priority list, and it’s understandable why: Developing the product, establishing a new brand, hiring employees, gaining traction in the marketplace often take precedence over establishing the innerworkings of the company—even though doing so can lead to improved efficiencies and minimize the risk of errors or wrongdoing amid a busy and lean staff.
Emerging companies with a long-term view, however, are better positioning themselves for a bright future, one of integrity, if they consider startup governance models and start building up their startup governance structure.
What Is a Startup Governance Structure?
When talking about startup corporate governance, some people may be focused on building up the startup governance structure—deciding on the makeup of the corporate board, what their priorities will be, and selecting potential board members to appoint.
There’s another way to think about startup governance, when it comes to one of the areas that corporate board members are particularly interested in—financial integrity, or having financial statements that are complete and accurate. Without the ability to produce complete and accurate financial statements, a company can be set up for problems ahead, including a messy audit process when the time comes, a lack of awareness of its risks, and a lengthier process for getting the company IPO ready, for example. Worst case, it could be setting itself up for a lower valuation with unreliable financial information, as well as the risk of fraud.
A Main Point of Tightening Up Startup Governance
When running on all cylinders, focused on getting a product to market or developing a potentially life-saving device, startups in technology and the life sciences and other industries may have a narrow outlook. The everyday focus is on gaining traction, in the marketplace or in terms of R&D. But eventually, if progress moves in the right direction, the time comes to reveal to others what is happening within the company. Investors value transparency—it’s how they form their opinions and analysis on a company, yet transparency is only as valid as the integrity behind your numbers. Are your financial reports valid and timely? Can they be trusted?
The Importance of Corporate Governance for Startups & Best Practices
Spending time on corporate governance early on in a company’s growth journey is an investment in its future. When your company is ready to seek funding and if it has any plans to go public, credibility is going to matter.
Many companies find that outsourcing the design of or testing of internal controls is a highly efficient (in terms of both cost efficiencies and effectiveness) way to build integrity into their financial reporting systems.
Financial integrity experts who have worked with hundreds of companies like yours will meet your company where it is at this point—and will not try to push processes or systems that are more appropriate for a larger company.
RoseRyan consultants get to know the companies they work with so that they can tailor their guidance and work to the company’s size, culture and complexity, all while taking into account the company’s goals. They can work closely with the team to develop controls that are appropriate for the company, and help the company not only set up their startup governance structure but show the team how the can properly conduct reviews and make adjustments as the company grows, employees are added on, new systems are adopted, and so on. Operating with financial integrity and preparing for SOX compliance requires some adjustments along the way as the company gets bigger and more complex.
Ready to review or develop your startup’s corporate governance structure? Reach out to RoseRyan’s experts today—we help companies at every stage of growth.