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In recent years, the startup ecosystem has been hit by several high-profile scandals. From Theranos, to WeWork, to FTX, to BharatPe, to GoMechanic, and more, these companies have been lauded for their innovative business models and rapid growth. However, behind the scenes, many of these companies were struggling to maintain their growth. In some cases, it led to unscrupulous behaviour, such as creative accounting practices (in form of manipulating revenue or expenses), or showing non-existent garages in the list of fixed assets owned by the company, or entering into transactions with related parties which, more often than not, are prone to misappropriation, or claiming existence of technology that never existed.
One of the major problems that these companies faced was weak corporate governance. Without strong controls in place, it was easy for executives to engage in questionable practices. This led to a situation where the companies were growing at any cost, regardless of the long-term consequences.
To avoid this situation, it’s important to establish strong corporate governance practices from the outset. This means spending time on aspects like establishing controls, reviews, and monitoring. Doing so will help startups avoid pitfalls that have brought down other companies and ensure that your startup scales successfully.
Basics Of Good Corporate Governance For Startups
The basics of good corporate governance for startups include having the right structure in place and ensuring that the key stakeholders are aware of their roles and responsibilities.
This means appointing a board of directors that comprises of experienced industry professionals, who have a good understanding of the business, the industry it operates in and the markets it caters. It also means having appropriate checks and balances in place to ensure that the decisions being made are always in the best interest of the company.
Another important element is having a sound financial system in place, with a financial controller and accounting processes that are transparent and accurate. This ensures that all the stakeholders are aware of financial performance and that potential investors can get a realistic understanding of the company’s financial performance. Furthermore, this also helps to ensure that all transactions are monitored and have followed the internal controls put in place.
Implementing Corporate Governance In A Startup
The implementation of corporate governance in a startup can be straightforward, with the right planning and preparation in place. It starts with the selection of a board of directors that is made up of experienced industry professionals and who understands the implications of their decisions. Once the board is in place, it is important to establish a financial system and ensure that the right checks and balances are in place. This includes reviews, monitoring and audit processes. Furthermore, it is also important to implement policies and procedures that ensure all stakeholders are aware of their roles and responsibilities and that decisions are always made in the best interest of the company. This means having regular meetings with the board and the executive team, making sure that any decisions have appropriate oversight and ensuring that financial performance is transparent.
Given the recent instances of fraud and misappropriation, corporate governance is one such aspect that any business entity should focus on with full throttle. This can be done in numerous ways including having robust internal controls in place, having independent board of directors in a real sense and not for namesake, clearly setting out policies and processes, etc.
Corporate governance can certainly be a powerful tool for startups, if implemented in the right spirit. By taking the time to establish controls, processes, reviews, and monitoring, one can ensure that a startup scale successfully. This will help to ensure the long-term success of any business and also make sure that it remains a trusted entity for all stakeholders. Having a strong corporate governance will also help a startup in raising funds with a better bargaining power which usually lies with big investors.