Business matters

Time to focus on the financial health of your business?

As a business owner, you may well have complex finances. With such a focus on building and running a successful business, you may struggle to give your finances – particularly your personal finances – the attention they need.

Starting a business can be exhilarating and overwhelming all at once. It’s tempting to devote the lion’s share of time and effort to developing your product or service, hiring the right people and finding customers and clients. But it’s also important to focus on your business's financial health.
While many aspects of corporate financial planning are similar to handling personal finances, there are some important differences.

Business goals

Well-chosen goals and objectives point a new business in the right direction and keep an established business on the right track. Goals establish where you intend to go and tell you when you arrive. They help improve your overall effectiveness as a business, whether you want to increase your market share, for example, or improve your customer service.

The more carefully you define your goals, the more likely you are to do the right things and achieve what you want to accomplish in the first place. Objectives are the specific steps you and your business need to take to reach each goal. They specify what you must do – and when. Think of goals and objectives in this way. Goals tell you where you want to go, and objectives tell you exactly how to get there.

Goals can increase your effectiveness and objectives back your goals and make you more efficient. Goals are typically described in words, and objectives often come with numbers and specific dates.

Goal setting can follow many different processes, and each one can be successful if you define the long—and short-term goals and devise a plan for getting there. Determine your goals; be as specific as possible; commit to them; meet regularly to measure progress; hold yourself accountable to deadlines; and celebrate milestones and achievements.

Explore funding options

Smaller business owners tend to self-fund or bootstrap, meaning personal funds are the owner’s only or major source of capital. Putting money back into the business makes sense. Bootstrapping allows you to grow your business slowly and organically while ensuring the model is financially viable.

On the downside, you’re not well-diversified. Using savings or credit cards for startup capital can put you at significant financial risk, depending on how capital-intensive your business is. It may be prudent to offset some of that risk by exploring one or more additional funding sources, including Venture Capital, Angel Finance, Insider Finance, Crowdfunding, Flexible Business Loans, Equity Crowdfunding, Asset Finance and Business Expansion Funding.

Fortunately, there are plenty of other places to obtain capital. Bringing in outside sources, such as offering equity and getting a good or service in return, business loans, customer pre-sales or recurring sales, can ensure a constant capital inflow.

Cash flow

A healthy cash flow enables you to meet current obligations, like paying employees and purchasing raw materials, while also building up a reserve for investments and emergencies. Amassing assets, like property or inventory, is great, but your business will stall if cash flow is a challenge.
Performing a formal cash flow analysis will tell you how much money is flowing in and out of your business. This knowledge allows you to plan accordingly. When you do these analyses regularly, you will gain a historical perspective and be able to determine the amount you should set aside as reserves to weather the leaner months or an unexpected cash flow shortage.

Manage taxes

Going the do-it-yourself route may work for your personal finances, but tax planning can be far more complicated as a small business owner. Outsourcing tax planning and preparation to a qualified accountant or other financial professional who may be helping with your business will free up time, and that expertise may reduce your tax liability.

Corporate tax planning helps businesses to ease tax burdens and operate more smoothly and efficiently. Effective tax planning is essential if you are to minimise your tax bills. Business or Corporation Tax planning and Income Tax planning should go hand-in-hand.

Business protection

Every business needs to identify and mitigate risk, but it often falls to the bottom of the list simply because creating a plan that addresses all potential perils seems like a massive task. And yes, addressing every risk that could affect your business is virtually impossible. But you can narrow down the list and put safeguards in place, starting with financial protection.

Having adequate cover ensures the business has access to enough funds to continue trading by replacing key people and lost income, paying off creditors and repaying bank loans. It may also help protect against the effects of unknown issues that may arise.

Plan for retirement

Whether you’re a sole trader or the owner of a limited company, a pension can help you save for retirement while saving your taxes along the way. As a business owner, pension planning should be part of your overall planning for how best to finance your business and how to realise the value you have built up in it eventually.

Retirement planning is crucial for everyone, business owner or not. The tax regime surrounding pensions has been simplified in recent years, and you now have considerably more flexibility when it comes to funding your retirement. As with taxes, obtaining experienced professional financial advice involves discussing your options to create a plan suited to your business needs.

Create an estate plan

Proper estate planning helps to provide for your loved ones, business partners and employees who rely on your business, minimise tax exposure, and provide clear instructions on how the business should proceed. These plans are also critical in case you’re incapacitated.

Owning a business is time-consuming. Your focus is on managing the day-to-day tasks while growing the business. There’s little time left to think about anything else, especially what would happen if something happened to you. Not having an estate plan in place risks undermining a lifetime of work and jeopardising the livelihood of your family and business partners.

Create succession and exit plans

Consider these two different scenarios. In a succession, you’re turning the reins of the business over to the next leader. In an exit, you are selling or shutting down the business. When deciding whether to sell, close or pass along the company you’ve built, you need to consider a number of factors.
On a personal level, are you ready to retire or find you’re working too many hours? Are you simply no longer passionate about the business and ready to try something new? Answering these questions should provide clarity into your next steps.

Exit plan

If you wish to sell your business, you need an idea of the value. In fact, even if you aren’t looking to sell, it’s always smart to have a ballpark idea of the business’s market value. Establishing an exit plan early on in the life of your business is crucial if you’re to extract the highest value from your investment of time and money. Exit plans are not static documents; however – they’re fluid and should be reviewed as the company evolves.
This ensures that plans remain achievable and provide the best chance of securing the highest return on sale, whether the business is intended to provide an income until retirement or you intend to sell your company sooner rather than later.

Succession plan

Succession planning is becoming increasingly critical for all businesses. It is the process of identifying and developing potential future leaders or senior managers, as well as individuals who could fill other business-critical positions, either in the short or the long term. The aim is for organisations to have greater visibility of individuals who are interested in effectively filling key and/or new roles.
The process of succession planning is critical to ensuring your business can continue to thrive when key people leave. A well-thought-out succession plan reduces the risk of significant disruption when you lose senior personnel. Without a succession plan, businesses can find themselves without adequate management and leadership where it is needed most.