Many successful SMEs rely heavily on their founders, leaving businesses vulnerable if key decisions suddenly can’t be made. Clear governance and succession planning are crucial to protect both the company and the family.
New Zealand’s SME sector is full of founders who have built remarkable businesses. Companies that began around a kitchen table or in a small workshop have grown into organisations employing dozens of people, supporting suppliers and contributing significantly to local economies.
What often receives less attention, however, is whether the governance around those businesses has evolved at the same pace as their growth.
In my experience working with business owners, that is where a gap often appears.
Over time, many successful companies outgrow the planning that was put in place when they first started. Legal and governance structures created in the early days quietly remain in place while the business becomes larger, more complex and far more valuable.
When that happens, the business can end up more exposed than the owner realises.
The founder dependency problem
One pattern I see regularly in founder-led businesses is how much of the company’s decision-making sits with one person.
That is not necessarily a problem. Founder leadership is often the reason a business succeeds in the first place. The founder knows the customers, understands the risks and drives the strategy.
But that concentration of authority can create vulnerability if the systems around the business assume that the founder will always be available to make decisions.
Many SMEs rely heavily on the founder to approve payments, manage banking relationships, deal with major customers and guide the direction of the business. While that works well day to day, it can create uncertainty if that person suddenly becomes unavailable due to illness, accident or another unforeseen event.
At that point the key question is not simply who is capable of running the business.
It is who has the authority to act.
When authority isn’t as clear as people expect
One of the most common assumptions I hear from business owners is that someone would naturally step in if something happened to them.
Often that person is a spouse, a co-founder or a trusted senior employee. From a practical perspective, that may be exactly what everyone expects to happen.
Legally, however, the situation can be more complicated.
Even close family members do not automatically have the authority to manage someone’s financial affairs or property simply because they are related to the owner. In many situations that authority needs to be formally granted through mechanisms such as an Enduring Power of Attorney. Without it, families may need to apply to the Family Court to appoint someone to manage those responsibilities, which can be both costly and time-consuming.
While those processes are underway, the business itself may be left in a difficult position.
Why this matters earlier than many founders think
Another misconception I encounter is that succession planning is something founders only need to think about when they are approaching retirement.
In reality, the governance risks connected to founder dependency often appear much earlier.
Many business owners in their thirties and forties are already running companies that support employees, suppliers and bank lending. The business may be the primary source of income for the owner’s household and the largest asset the family owns.
If the person who normally makes the key decisions suddenly cannot do so, the effects can move quickly through the organisation.
Payments still need authorisation. Contracts still need to be managed. Staff still need leadership and direction.
Without clear authority structures, even a short period of uncertainty can create pressure for both the business and the family.
Governance that grows with the business
What I often encourage founders to think about is whether the governance around their business has kept pace with its growth.
Documents prepared years earlier may no longer reflect the scale of the company today. Shareholder agreements may deal with death or sale of the business but say little about incapacity. Estate planning may not align with the way the business now operates.
These are not unusual situations. In fact, they are extremely common across the SME sector. The important thing is recognising that governance needs to evolve alongside the business itself.
In my view, reviewing those arrangements while the business is stable is one of the simplest ways founders can strengthen the resilience and value of what they have built.
Unexpected events cannot always be predicted, but the disruption they cause can often be reduced when the authority to act has already been clearly defined.
For many founders, their business represents years of work, risk and personal investment. Ensuring that the governance around it evolves with its success is therefore not simply about legal compliance. It is about protecting the stability of the business for the people who rely on it.
