Understanding Manager-Managed Businesses: An Overview
A manager-managed business is a business structure in which the owners (owners/members) of the business delegate their decision-making authority to an elected manager or management team. This structure is common in large companies and corporations, as well as in small- to medium-sized businesses seeking to streamline decision-making processes.
The key difference between manager-managed businesses and member-managed businesses is that the owners (members) of the business are actively involved in making decisions regarding the company’s operations and strategy. Manager-managed businesses can provide a more formalized and efficient way to make decisions and allocate resources, as the management team is solely responsible for making decisions without consulting members.
In a manager-managed business, the members are at times solely responsible for setting the direction for the organization and providing financial support, while the managers have the authority to oversee operations and make strategic business decisions. All decisions are still ultimately voted on by the members, but the management team typically sets the direction that the business should take.
Pros and Cons of a Manager-Managed Structure
The manager-managed structure of a business has both advantages and disadvantages. On one hand, it allows the owners of the business to delegate day-to-day decisions to qualified and experienced individuals. This can reduce overhead costs and provide a more efficient decision-making process. On the other hand, managers may not always have the best interests of the business in mind when making decisions, which could lead to costly mistakes or bad investments.
- More efficient decision-making process. The manager-managed structure reduces overhead costs by delegating the decision-making process to those more qualified and experienced.
- Reduced overhead costs. With the owners of the business delegating day-to-day decisions to a manager or management team, overhead costs can be reduced.
- More clarity when it comes to decision-making. The manager-managed structure establishes clear and concise lines of authority, which allows for better decision-making.
- Lesser involvement from the members. The manager-managed structure allows the owners of the business to be less directly involved with the day-to-day operations, freeing their time for other tasks.
- Lack of control for the owners. The manager-managed structure can lead to a lack of control for the owners of the business, as decisions are delegated to a manager or management team.
- Increased risk of unethical decision-making. The manager-managed structure can lead to decisions being made without consideration for the best interests of the business, leading to costly mistakes or bad investments.
- Management team may not always act in the owners’ best interests. As the management team is solely responsible for making decisions, they may not always take into account the wishes of the owners of the business.
- Increased risk of conflicts. As the management team is solely responsible for making decisions, there is a higher risk of disagreements or conflicts between the management team and the owners.
When to Choose a Manager-Managed Structure for your Business
Choosing the right business structure is important for the success of any business. The manager-managed structure is suitable for businesses of all sizes, especially larger businesses or those wishing to streamline decision-making processes.
This structure can be beneficial to business owners who do not wish to be actively involved in the decision-making process, but still want to have oversight or a say in the strategic direction of the organization. Because decisions are made and carried out by a professional management team, the business owners can focus on other tasks, such as setting up a financial strategy or seeking out new business opportunities.
The manager-managed structure can also be beneficial for businesses that require a streamlined decision-making process, particularly in the case of larger companies or those with multiple stakeholders. By having a qualified and experienced management team making decisions, the business is better able to respond quickly to changes in the market and allocate resources more efficiently.