Background

Governance plays a direct role in whether a small- or medium scale business survives beyond its founder, uses resources efficiently, attracts finance and responds successfully to changes in the market. In Ghana, this issue is particularly important because the business sector is dominated by small enterprises and a large proportion operate informally. The 2024 Integrated Business Establishment Survey covers businesses operating from fixed premises, open spaces and mobile locations, showing the breadth and diversity of Ghana’s enterprise sector. (Stats Ghana)

The World Bank’s 2023 Enterprise Survey for Ghana interviewed 713 formal firms between February 2023 and February 2024. Of these, 52.5% were small firms employing 5 to 19 workers, 37.7% were medium sized firms employing 20 to 99 workers, and only 9.8% were large businesses. (Enterprise Surveys) This distribution makes governance especially relevant because governance problems in small businesses are often different from those found in large corporations. Small firms may not need elaborate boards or large compliance departments, but they still need clear responsibility, financial controls, reliable information and rules for major decisions.

Governance in an SME should therefore not be understood narrowly as having a board of directors. In practical terms, it concerns who controls money, who makes decisions, how those decisions are checked, how employees are supervised, how conflicts are resolved, how the business complies with regulations, how risks are managed and what happens when the owner is absent.

The central argument is that governance contributes to SME sustainability when it reduces excessive dependence on individuals and replaces informal habits with systems that are appropriate to the size of the business. However, governance can also become costly and bureaucratic if structures designed for large corporations are imposed mechanically on very small firms. The issue is therefore not simply whether SMEs have governance structures, but whether those structures solve the actual problems affecting their survival and growth.

FIFTEEN (15) KEY ROLES OF GOVERNANCE IN SME SUSTAINABILITY;

1.             Governance Reduces Excessive Dependence On The Owner

One of the most common practical governance problems in Ghanaian SMEs is the concentration of ownership, management and control in one person.

The founder may approve purchases, negotiate with suppliers, receive payments, control the bank account, recruit employees and decide salaries. In many cases, even experienced employees cannot make routine decisions without consulting the owner.

This arrangement can work during the early stages of a business because decisions are quick and the owner understands almost every part of the operation. The problem emerges when the enterprise begins to grow.

Consider a small furniture manufacturer employing 15 workers. If only the owner can purchase timber, approve customer credit, sign cheques and negotiate major orders, production can slow whenever the owner travels or becomes unavailable. The problem is not necessarily a shortage of employees. It is a governance problem caused by excessive concentration of authority.

A sustainable business needs limited but meaningful delegation. The owner can retain control over major investments while allowing a production supervisor to approve routine material requests within a defined amount.

For example: Purchases below GH¢2,000 may be approved by an operations manager. Purchases between GH¢2,000 and GH¢10,000 may require the owner and manager. Purchases above GH¢10,000 may require documented quotations and additional review.

Such controls provide both speed and accountability.

The critical point is that delegation should not mean loss of control. Good governance creates controlled delegation. Without delegation, the business cannot scale. Without controls, delegation may expose the firm to fraud or poor decisions.

2.         Financial Governance Is Closely Connected To Survival

One of the clearest ways governance affects sustainability is through the management of money.

In many owner-managed businesses, the distinction between the owner's money and the firm's money is weak. Revenue from customers may be used directly for household expenses, school fees, funerals, rent or other personal commitments before business costs are settled.

This creates an important practical problem. The business may report high sales but gradually lose the working capital required to replace stock.

For example, assume a retailer begins the month with stock worth GH¢80,000 and generates sales of GH¢120,000. The owner may interpret the GH¢120,000 as money available to spend. But if replacing the stock costs GH¢75,000 and operating expenses amount to GH¢25,000, only GH¢20,000 remains before taxes, debt obligations and owner compensation.

If the owner removes GH¢40,000 for personal expenses, the business has effectively consumed part of its working capital.

This is a governance failure because there is no clear rule regulating the owner's access to company funds. Good financial governance would require the owner to receive a predetermined salary or drawing while retained earnings remain within the business.

The problem is especially important because access to finance remains a major constraint for Ghanaian businesses. The World Bank Enterprise Survey explicitly examines finance among the principal factors affecting Ghanaian firms, alongside regulation, competition, corruption and infrastructure. (Enterprise Surveys) When a business lacks proper accounts, financial statements and cash flow records, lenders also have less reliable information on which to assess creditworthiness.

The practical relationship can therefore be expressed as:

Weak records → limited financial transparency → greater lender uncertainty → more difficult financing → restricted investment and growth.

Governance does not automatically provide cheap credit, but it can make a credible business more bankable.

3.         Governance Determines Whether A Business Survives Its Founder

Succession is one of the most neglected governance issues in Ghanaian SMEs.

Many businesses are built around the personality, reputation and contacts of the founder. Customers know the founder. Suppliers negotiate directly with the founder. Bank accounts may depend almost entirely on the founder's authority. Employees may have little knowledge of strategic decisions.

This creates what can be called founder dependency. The danger becomes obvious when the owner dies, becomes ill or wishes to retire.

Consider a transport company with 8 vehicles. The founder knows which vehicles have loans, which drivers owe money, which customers receive credit and which suppliers provide spare parts. If these arrangements exist mainly in the founder's memory, his sudden absence creates confusion even though the company still owns valuable assets.

Family members may subsequently dispute: who owns the company; who can withdraw money; who becomes managing director; whether certain vehicles belong personally to the founder; which relatives are entitled to profits. The physical assets may remain intact while poor governance destroys the enterprise.

A practical succession system should therefore include documented ownership, an updated will where appropriate, nominated successors, clear account signatories and records of important contracts and liabilities.

Succession planning is sometimes misunderstood as planning for death. It is better understood as reducing key person risk.

4.         Family Involvement Can Provide Trust But Also Create Governance Problems

Many Ghanaian SMEs are family businesses. Family involvement has important advantages. Relatives may provide initial capital, inexpensive labour, trusted management and support during difficult periods.

However, family relationships can conflict with commercial decisions. A founder may employ a relative who lacks the required competence because dismissing that person could create family conflict. Another relative may repeatedly take goods on credit without paying. Children may expect management positions because of inheritance rather than capability.

A practical example is a bakery where the owner's brother manages procurement but repeatedly purchases flour at prices above competing suppliers. Because confronting him may affect the family relationship, the owner tolerates the inefficiency.

The business then carries a financial cost because personal relationships override performance standards. Good governance does not require eliminating family members. It requires separating three roles: Family member, Owner and Employee.

A person may belong to the family but still be required to meet the same performance standards as another worker. Salary should relate to work performed, while dividends should relate to ownership.

This distinction becomes increasingly important as the enterprise grows.

5.         Governance Improves Accountability And Reduces Fraud

Small firms are particularly vulnerable to internal financial leakage because duties are often not separated. For example, one employee may receive customer payments, record those payments, deposit the money, and reconcile the bank statement. This person controls the entire transaction chain.

If GH¢500 is removed from daily cash receipts, the same employee may also alter the records. Proper governance introduces separation of duties. One person receives cash. Another records sales. A supervisor performs reconciliation. The owner or manager reviews exceptions.

A five-employee business cannot create the same internal audit system as a multinational company, but it can still introduce simple controls. Other practical controls include stock counts, numbered receipts, bank reconciliations, mobile money reconciliation and spending limits.

The fundamental governance principle is simple: the same person should not initiate, approve and verify an important financial transaction whenever reasonable separation is possible.

6.         Good Governance Supports Better Access To Finance

The finance problem facing SMEs is often discussed as if banks alone are responsible. High interest rates, collateral requirements and cautious lending certainly matter, but governance problems on the borrower side also contribute.

Financial institutions need to answer basic questions: What are the firm's annual sales? What is its actual profit? How much debt does it already have? What assets belong to the business? What are its monthly cash flows? Who has authority to borrow? Can the business continue operating if the founder is absent?

Businesses without reliable records cannot answer the above questions convincingly.

The World Bank notes more generally that SMEs in developing economies face substantial financing gaps, reflecting constraints in access to formal credit. (World Bank) Ghanaian evidence also shows that lenders face information problems when dealing with small enterprises, while SMEs may struggle to provide the information required for lending decisions. (World Bank)

The governance implication is important. A financially disciplined SME can reduce information asymmetry between itself and lenders. For example, an SME seeking GH¢500,000 for equipment is in a stronger position if it can present three years of financial statements, tax records, current customer contracts, cash flow forecasts and evidence of governance responsibilities.

This does not guarantee approval, but it changes the quality of the financing discussion.

7.         Governance Improves Strategic Decision Making

Many SME decisions are made intuitively. Intuition is not necessarily bad. Experienced business owners often understand customers and markets very well. The problem arises when intuition is not supported by financial and operational information.

Consider a restaurant owner who wants to open a second branch because the first branch appears crowded every evening. A governance-oriented approach would require questions such as: What percentage of current sales represents profit? Does the current branch operate at full capacity throughout the week or only at peak periods? How much working capital will the second outlet need? Will existing managers be capable of supervising two locations? Can the business survive if the new branch makes losses for six months? Without the above questions, growth itself can threaten sustainability.

Businesses sometimes fail after expansion not because the original operation was unsuccessful, but because expansion absorbed cash faster than expected.

An advisory board can be useful at this stage. The World Bank's SME Governance Guidebook specifically recognises that SMEs require governance arrangements adapted to their stage of development and available resources rather than simply copying structures used by large companies. (Open Knowledge World Bank)

A three-person advisory group consisting of an accountant, an experienced entrepreneur and an industry specialist may offer greater value to a medium-sized enterprise than an elaborate formal board created only to satisfy appearances.

8.         Governance Influences Employee Performance

Governance also determines how employees understand responsibility. In poorly structured SMEs, employees may receive instructions directly from several family members. A production worker may report to the factory manager, the owner, the owner's spouse and sometimes the owner's children.

Conflicting authority creates confusion. Employees also become less accountable because they can justify poor performance by saying that different people gave different instructions.

Governance solves this through reporting lines. Each employee should know: who supervises the role; what results are expected; what decisions the person can make; how performance will be assessed. This becomes increasingly important as firms move from small to medium scale.

The owner can personally supervise five employees. Personally supervising 50 employees is much less realistic. Growth therefore requires a shift from personal supervision to managerial systems.

9.         Governance Affects Procurement And Supplier Management

Procurement is another area where governance failures create practical losses. Small businesses frequently purchase from suppliers based on friendship or long-standing relationships without periodically comparing prices and quality. This may gradually increase costs.

For example, assume a food processor purchases packaging materials worth GH¢30,000 each month. A competing supplier offers equivalent packaging 8% cheaper. The potential monthly saving is: GH¢30,000 × 8% = GH¢2,400. Annual saving: GH¢2,400 × 12 = GH¢28,800.

A simple governance practice requiring at least two quotations for significant recurring purchases could therefore protect almost GH¢29,000 annually in this example.

Procurement governance becomes even more important where employees receive unofficial benefits from suppliers. Businesses should maintain approved supplier lists, compare quotations and periodically review supplier performance.

10.       Governance Strengthens Inventory Management

Inventory leakage can quietly destroy SME profitability. A supermarket may report good customer traffic but continually experience stock shortages because goods leave the shop without corresponding sales records.

A manufacturing firm may lose raw materials through wastage or theft. The problem becomes worse when stock counts are irregular. Suppose a retailer purchases GH¢500,000 worth of inventory annually. A stock leakage rate of only 3% represents: GH¢500,000 × 0.03 = GH¢15,000. At 5%, the loss rises to: GH¢500,000 × 0.05 = GH¢25,000. For a small company, this may represent a significant portion of annual profit.

Governance therefore needs to reach the warehouse and shop floor, not remain in policy documents.

11.       Formalisation And Regulatory Governance Affect Growth Opportunities

Ghana's large informal business sector presents another governance challenge. The Ghana Statistical Service's 2024 business census explicitly includes formal and informal establishments, open space businesses, mobile operators and other forms of economic activity, reflecting how large and diverse the informal business economy is. (Stats Ghana)

Remaining informal can reduce administrative burdens in the short term. However, it can restrict growth. A business seeking to supply a large supermarket, government agency or multinational company may be asked for: business registration; tax documentation; bank information; quality certification; audited accounts; insurance.

An informal firm may therefore operate successfully within a neighbourhood market but struggle to enter larger value chains. Governance must consequently develop as market ambitions change.

A micro business selling directly to individual customers may initially need only basic records. A medium-sized manufacturer seeking institutional contracts requires stronger accounting, legal, tax and operational systems.

Formalisation is therefore most effective when businesses see a clear commercial return rather than viewing it solely as government compliance.

12.       Governance Affects How Firms Respond To Economic Shocks

SMEs operate in a changing macroeconomic environment. Recent Bank of Ghana data show that private sector credit and economic activity improved into 2026, while the real Composite Index of Economic Activity grew by 8.4% year on year in January 2026. (Bank of Ghana) Ghana's overall GDP grew by 6.0% in 2025, according to data reported by the Bank of Ghana from Ghana Statistical Service estimates. (Bank of Ghana).

Improved economic conditions do not eliminate business risk. A poorly governed SME may increase borrowing rapidly during an economic recovery and become overleveraged.

Abetter-governedd firm asks the following questions: a. How much debt can current cash flow support? b.) What happens if sales fall by 20%? c) What proportion of inputs depends on imported materials? d) How many months of operating costs are held as reserves?

Businesses that answer such questions before a crisis are more resilient. Governance therefore converts risk management from reaction into preparation.

13.       Technology Adoption Also Requires Governance

Digitalisation provides major opportunities for SMEs, but adopting technology without controls creates new risks. A business may receive payments through mobile money, bank transfers, point-of-sale terminals and cash. If these channels are not reconciled, financial leakages become difficult to detect. Thus, 1. Passwords may also be shared among employees. 2. Former staff may retain access to company email or social media accounts. 3. Customer data may be stored on employees' personal phones.

These are governance problems, so a basic digital governance policy should specify: a. who controls passwords; b. who can approve electronic payments; c. how customer information is stored; d. when former employees lose access; and e. how digital sales are reconciled.

Technology improves governance only when controls accompany adoption.

14.       Governance Creates Credibility With Customers, Investors And Partners

Governance also affects reputation. Large customers are often reluctant to depend on a supplier whose operations appear completely dependent on one person.

An investor considering a partnership wants assurance that money will not disappear into undocumented personal expenditure. Suppliers offering credit need confidence that payment obligations will be honoured.

Governance therefore creates institutional trust. The firm becomes more than the founder. This distinction is important for sustainability because a business with institutional credibility can maintain relationships even when individuals change.

15.       Governance Has Costs And Must Be Proportional

A critical analysis must also recognise that governance is not automatically beneficial in every form. Too much governance can create unnecessary bureaucracy. A business employing six people does not need multiple committees, expensive external directors or lengthy approval processes for minor expenditure.

If a GH¢200 purchase requires four signatures, governance begins to reduce efficiency rather than improve it. Governance should therefore be proportional to: business size; financial risk; number of employees; ownership complexity; industry regulation; growth objectives.

The appropriate governance system for a ten-employee printing company will differ significantly from that of a medium-sized pharmaceutical manufacturer. The objective is not maximum governance. It is effective governance.

PRACTICAL RELATIONSHIP BETWEEN ENTERPRISE GOVERNANCE AND SUSTAINABILITY

The relationship can be summarised as follows.

Governance Issue	Common Practical Challenge	Sustainability Consequence
Owner dominance	Every decision requires founder approval	Growth becomes difficult
Mixing personal and business funds	Business cash finances household expenditure	Working capital falls
Weak accounting	Owner does not know actual profit	Poor investment decisions
No succession plan	Business depends entirely on founder	Firm may collapse after illness or death
Family interference	Relatives receive jobs without competence	Productivity declines
Weak procurement controls	Suppliers are selected without comparison	Costs increase
Poor stock controls	Theft and wastage go undetected	Profit margins decline
Weak HR structures	Employees receive conflicting instructions	Accountability falls
Informality	Business lacks required documentation	Access to larger markets is restricted
No risk management	Business responds only after crises occur	Recovery becomes difficult
Weak digital controls	Password and payment access is poorly managed	Fraud and data loss increase
Excessive bureaucracy	Routine decisions take too long	Business becomes less responsive

Suggested Practical Governance Structure For Ghanaian SMEs

A small or medium-scale enterprise does not need to become a miniature public company. A workable governance model can remain simple.

• The owner or shareholders should determine long-term direction and major capital decisions.
• A manager should control daily operations within defined limits.
• An accountant or bookkeeper should maintain financial records and prepare periodic reports.
• An independent accountant should periodically review financial information.
• An advisory board or small formal board can review major investments, borrowing and strategic risks.
• Employees should operate under clear reporting lines.
• Major transactions should leave documentary evidence.
• Business and personal funds should remain separate.
• Key responsibilities should be documented so the firm can continue operating when the owner is absent.

Conclusion

Governance plays a central role in the sustainability of small and medium-scale businesses in Ghana because it determines how businesses make decisions, control resources, manage people, respond to risk and continue beyond their founders.

The issue is particularly important in an economy where small firms make up most of the formal business population. In the World Bank's 2023 Ghana Enterprise Survey, small firms accounted for 52.5% of surveyed enterprises and medium firms for another 37.7%, meaning that together they represented about 90.2% of the surveyed formal firms. (Enterprise Surveys)

Governance should therefore not be treated as an abstract corporate concept reserved for listed companies.

For a Ghanaian SME, governance appears in ordinary decisions: whether the owner withdraws business money without recording it, whether stock is counted, whether relatives are accountable for performance, whether an employee can approve his or her own expenditure, whether important contracts are documented, whether the business can operate in the founder's absence and whether major investments are examined before money is committed.

At the same time, governance must remain proportional. Imposing large company procedures on a six-employee enterprise may create costs without meaningful benefits. The strongest approach is progressive governance, where systems become more structured as the enterprise grows in employees, capital, borrowing, ownership complexity and market reach.

Ultimately, sustainable SMEs are businesses that gradually move from being controlled through the memory, presence and personal authority of the entrepreneur to being operated through reliable systems. The founder may remain central to leadership, but the business should eventually be capable of functioning without depending on the founder for every transaction and every decision. That transition from personal control to institutional capability is one of the most practical contributions governance can make to SME sustainability in Ghana.

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Author:
Lord-Lucas Vodzi, Cenv.
Chief Executive Officer, SPI Consulting Services
(Business Sustainability and Organisational Development Expert)
bvodzi@gmail.com / www.spicsgh.com