Governing SME Businesses for Sustainable Growth

Good Governance is Good for Businesses

The extensive body of research shows that well governed companies demonstrate substantially better long-term financial results. They grow faster and more sustainably. Conversely, poor governance practices have consistently shown to be one of the drivers of poor business performance, fraud and catastrophic failures.

IFC provides governance training and advisory services for business founders and owners of Small and Medium Enterprises (SMEs) with high growth potential. The governance training and advisory services are based on IFC’s SME Governance Methodology – the first and the only tool of its kind on the market.

When should SMEs Think about Governance 

Governance is a long journey, and the sooner SMEs start adopting good practices, the more benefits they can reap. In practical terms, governance provides a key set of tools for SMEs to support their competitive survival and growth. The entrepreneurs need to start governing their company based on a certain set of principles; the exact solutions and tools will evolve along with the business as it grows. For example, even simple but properly structured internal controls help in fraud prevention and allow for more accurate financial reporting and planning.

SMEs interested to attract investors also can use better governance as a core value proposition. Various providers of risk capital for SMEs, such as Private Equity and Venture Funds, understand that good governance means better security and return on investment. “CG is a core component of our value creation strategy. We generally target early-stage SMEs, with the goal of increasing the revenue five-fold in two years. About 20 to 30% of that value creation is from improved corporate governance.” Ennis Rimawi, Catalest Private Equity.

What is the IFC Approach

Traditionally, SMEs have been given guidance based on “simplified” versions of corporate governance practices recommended for larger companies. That is rarely practical, as SMEs have unique needs and limitations. Instead, IFC analyzed stages of SME growth from startup to maturity, identified various opportunities and challenges associated with each stage, and then developed governance guidance to address them.

The SME Governance Tools and training materials do not push the entrepreneurs toward common “best practices” but instead teach them to identify governance gaps and practical solutions that are beneficial for their specific company to promote sustainable growth of business.