When a company is first starting out, it is common for the owner/CEO to make nearly all of the decisions. But as a company grows, this approach becomes completely unworkable. Not only is it just too much for one person to tackle, it’s really not the best use of the CEO’s time. Delegating many of the day-to-day decisions to members of lower, middle and upper management becomes a must.
Why establish formal policies and procedures?
Delegation, of course, involves a certain level of risk. How do you ensure that decisions and approvals are made and given in a manner that is consistent with the goals and values of senior management—and in compliance with all applicable laws and regulations—without requiring senior management to be tied up with routine decisions? You establish policies and procedures.
Policies and procedures ensure consistency. They can mean the difference between order and chaos, and compliance and noncompliance. They can also save a great deal of time for everyone involved. After all, when everyone understands the guidelines, decision-making becomes easier.
Establishing appropriate policies and procedures
Depending on the nature of the business, there are a wide variety of policies and procedures to establish. These include:
Sales & pricing – Determining minimum order size and minimum acceptable profit on an order
Extending credit – Evaluating a potential customer’s credit; issuing credit memos
Purchasing – Creating purchase orders; opening accounts with new vendors; approving invoices for payment
Human resources – Establishing employee pay rates and pay increases; allowing use of company vehicles and credit cards
Managerial approvals – Approving expense reimbursements; authorizing corporate travel; signing checks
Legal – Archiving and retaining everything from emails to contracts to financial records
Marketing – Ensuring branding consistency; establishing who is allowed to publicly represent the company to the media
IT – Creating an escalation system; requiring system documentation; ensuring backups take place
Communicating the policies and procedures
It is vital that the policies be written and available for people to see. This can mean putting things in print, uploading them to a corporate wiki, or using some other type of digital document sharing system. For some policies, such as HR-related policies, you’ll want to give each employee a copy in writing and have them sign documentation stating that they’re aware of and have reviewed the policies.
Need help creating policies and procedures that make sense? Give me a call. As a part-time CFO, I’m here for you!