Business Positions for Your New Business: More Than Just Fancy Titles
Proper planning for business positions just means allocating some fancy titles like “president” “CEO” (or “king?”) and making sure they make it on to the business cards of founders. Right? Wrong! Business position planning is a hugely important part of both new and growing companies. Mistakes made here can have lasting impacts on the growth of the business or even the ultimate sale value of the business when it comes time to exit. It is ALWAYS well worth your while to think long and hard about both how to plan for business positions and who you will staff these positions with.
Ready for my advice and suggestions on this important task?
Here we go!
By the way, planning for business positions isn’t just important when you start a new business. You’ll be wanting to take the time to plan out these positions when you buy an existing business or have a corporate merger too.
Why Your New Company Needs Business Positions
One of the worst things that a new and growing business can be is disorganized. A disorganized business, one where no-one knows who is responsible for what, usually can barely survive, not to mention thrive. This is a problem I see with many new businesses where the founder or founders are good at their “craft” – be it selling insurance, repairing cars, practicing law, or building widgets – but aren’t very good at the fundamentals of running and growing their business.
Companies without well established business positions will always be disorganized. Without a well thought-out plan detailing who is in charge of what aspects of running the business, survival can be questionable and growth will be out of the question.
On the other hand, if your company has well established business positions, it can function like a well-oiled machine. Think about how efficient a military unit functions where leaders all know exactly what their responsibilities are, who they command, and what authority they have. This not to suggest that you want to run your business like a military operation – often that won’t be a good idea – but it is definitely important to avoid the (semi)-organized chaos that is the reality in many small businesses.
What Business Positions are We Talking About Here?
The actual number of business positions you will want to plan for (and whether you have one person for each) depends both on the type of business you have and the size of your founding team.
At the very least, however, you will want to plan for some leadership in each of the main operational facets of your business:
1. Operations: overseeing all aspects of your company’s products and service, i.e. what your customers or clients pay you for. This includes making sure that the products and services are delivered or provided, hiring and firing employees, working with suppliers, and handling customer service and complaints. If your company isn’t big enough to have someone separately manage marketing, the marketing position would also fall under operations. With a larger company, the person in charge of operations would have the title of Chief Operations Officer (“COO”). If you have a Chief Executive Officer (or Chief Executive Member, as sometimes might be the case in an LLC) then the COO would report to the CEO, otherwise the COO would report directly to the owner(s). Sometimes, with a smaller company, instead of a COO, this position may be filled with the title of General Manager.
2. Finance: overseeing all financial aspects of your company (which often is the achilles heel of a company if the founders are adept at their craft but financially illiterate). This includes keeping tabs on revenues and expenses, debt servicing, cash-flow options (such as short-term loans or cash infusions from owners/investors), and budgeting. This position would also manage tax filings, financial reporting (usually with the help of an outside professional such as a bookkeeper or accountant), and accounts receivable/payable. Usually the person in charge of finance in your company would have the title of Chief Financial Officer. Again, if you have a CEO, then the CFO would report to the CEO and if not, this position would report directly to the company’s owner(s). With smaller companies, it might not be feasible to have a CFO and much of this business position’s functions end up being outsourced to a bookkeeper and/or accountant. Though this arrangement is perfectly acceptable, if this is done, I HIGHLY recommend that the bookkeeper or accountant report directly to you as the owner and that if needed, you get some financial literacy training (one good option here is LinkedIn Learning) so you can effectively incorporate financial reports in to your strategic decision-making. As an owner, you absolutely must be very well versed in the financial health of your company – both to avoid such problems as embezzlement, and to make sure to maximize its growth and value potential.
3. Overall Strategy & Management: developing/executing on plans to grow and maximize profit of the company, and managerial oversight over all aspects of the company. This includes final decisions and direction on strategic opportunities, markets, products and services, branding, and often the selection of other executives on the management team. Since all other members of the management team report to this business position, this business position also makes the final decision on just about everything within the company. The person holding this position would usually have the title of Chief Executive Officer (“CEO”) or Chief Executive Member (“CEM” – common in LLCs). Sometimes smaller companies, such as single-member LLCs might forgo this title and just have the other members of the management team report to the owner. However, for reasons you will see below, this is a less attractive option for building the long-term ultimate sale value of the business.
Other optional business positions include:
1. Chief Marketing Officer (“CMO”): responsible for overseeing all marketing, advertising, and promotional operations. These days, this is a pretty big job and includes managing the business’ website, content marketing, newsletter, email list, social media presence, etc. Interestingly, companies are increasingly critical of the traditional CMO position (some are criticizing it as having no consideration for the company’s finances) and newer companies, especially in the tech field, are moving to other positions such as Chief Communications Officer or Chief Brand Officer.
2. Chief of Business Development: depending on the nature of your business, this might be an important position. This position usually represents the company in professional networking, develops partnerships and joint ventures with other companies, and with larger, well-capitalized companies, may be in charge of seeking out targets to acquire for strategic growth reasons.
Got the right titles figured out for your fledgling business? Great! That’s not where the planning ends though. Not by a long shot.
You should take the time to work with your business lawyer to determine what roles each of the titled business positions will play, where the roles are to be documented, and how you will appoint the right people. After all, well-defined roles and responsibilities are good for everyone: both the people filling the roles and you as the owner; and finding the right people just makes good business sense.
Usually I recommend that the different business positions be defined in your company bylaws (if a corporation) or operating agreement (if an LLC). Then, instead of writing the names of people who will fill these positions into those bylaws or operating agreement (even if they are founders and are envisioned to occupy those positions for a long time) I recommend that the positions be filled by a resolution appointing people by name (for example “be it resolved that Bob Smith is appointed to the position of Chief Financial Officer of Company…”). That way, changes can be made down the road much easier and cheaper than the steps necessary to amend bylaws or an operating agreement (especially if more shareholders or LLC members have been brought on by the time the changes are desired).
As an attorney, I’ve been called in many times to help sort out business disputes between owners that would probably have been avoided in the first place if titles, roles, and people had been established from the get-go. Invariably, these messy disputes end up being time consuming, expensive, and often end up leading to the destruction of the business (as well as friendships). Make sure to get your business positions figured out early and grow your business right.
Proper Planning of Business Positions is Attractive to Buyers
Finally, proper planning of business positions from the very beginning is a VERY smart move to maximize the value of your company when it comes time to sell or otherwise exit.
When a prospective buyer looks at your company, one of the top factors that will affect both the price and the terms (including whether you, as the owner, will be stuck with an earn-out or other post-closing continuing consulting obligation) is how well your company will function without you. The more indispensable you are – the more your company cannot operate without you – the less your company will be worth and the more likely you will be stuck with an earn-out.
Here, having a well established management team that can function well without always getting direction from you speaks volumes about your company’s ability to function without you, and the longer the management team has been in place, the better. This is definitely not a system you can just try to prop up shortly before you try to sell your company. Even if your company starts as a two member LLC, I recommend having established business position titles from the get-go. This will best ensure that as you grow, you will continue to have the right business positions and will continue to foster a culture of running the company through a management team.
Now, earlier in this post, I talked about the risk of having management team members report to you simply in your role as the “owner” of the company. The problem with this approach is that from both an internal culture perspective and an external optics perspective, your company is seen as dependent upon you personally – and you are seen as being indispensable. Instead, I recommend that even if you are the sole owner of your company, you appoint yourself as CEO (or CEM) and develop your management culture around reporting to you in that role. You might even consider bringing in an interim CEO (or fractional CEO) to help you hand-off the reigns for a year or two before you sell to further demonstrate the ability of your company to function independent of you and maximize it’s selling value.
Plan Early, Plan Often
I hope that I’ve given you some valuable information about the importance of early and careful planning when it comes to business positions in your company. Often you will need a business lawyer’s assistance with memorializing this planning and I would be glad to help you with your company’s planning. Remember too, that business position planning definitely isn’t a “set it and forget it” exercise. As your company grows, makes big strategic decisions, and ages, or even when certain positions or people don’t meet standards anymore, it’s prudent to reconsider and make changes.
Do you use business positions in your small business? If not, will you be doing so after reading this article? What has your experience been with business positions and management teams? I want to hear from you! Please comment below or hit me up on LinkedIn.