Business success depends as much on the financial plan as on the business plan. Whatever your industry, employee numbers or years in business, you should incorporate a professionally developed financial plan into your strategy.
Firstly, consider your goals. For example:
- Your short term goals might include building your business to a particular level and creating a comfortable lifestyle.
- Your medium term goals may include further expansion or investing in larger premises.
- Your long term goals may include passing your business onto a family member and travelling with your spouse.
Once you've determined your goals, a Financial Adviser can help you develop a strategy to reach them.
Planning for the unexpected
No matter how well your business is doing, a good financial plan should always identify the risks your business could face and look at ways to manage them. Planning for business risk could mean the difference between success and failure.
You need to ensure that your business is protected against the unexpected ie events such as fire, burglary, and accidental damage. These and other factors may interrupt or damage your business and lead to loss of profits.
Other risks and issues are less straightforward, and because of that they can be overlooked yet they can still have a huge impact on your business. These include:
- Loss of key staff
- Loss of a business owner
- Retiring from the business
Losing Key Staff
The loss of a key person – anyone who contributes to the revenue of your business – can seriously affect your ability to maintain your business’ value. It’s obviously difficult if the loss is through death or disability, but you also need to prepare for resignation and retirement.
The loss of a key person can affect your business through:
- loss of revenue
- failure to meet financial obligations
- increased costs (such as recruitment)
Key Person Protection
All businesses should plan to reduce their key person dependency over time, but most businesses don’t have this luxury. By taking key person insurance, your business receives a lump sum payment if a key person can no longer work because of illness, injury or death.
Losing A Business Owner
Business owners need a plan to ensure a co-owner’s departure (both planned or unplanned) is as smooth as possible.
What plans can you put in place?
There are plans you can put in place to manage the loss of a business owner. They ensure your interests are protected, and you retain control and maintain the value of your business.
- Key person protection – see above
- Buy / Sell Agreements – these allow the remaining owners to purchase the departed owner’s shares at a pre-agreed value. (This value should be reviewed each year to ensure it keeps pace with the changing value of the business).
- Buy / Sell Funding – wherever possible, the Buy / Sell Agreements should be fully funded to avoid delays and avoid existing owners being out of pocket. The type of funding will depend on how the owner leaves the business. For example, if the owner dies or becomes disabled, insurance policies can fund the buy/sell agreement. Retirement and resignation can be funded through a ‘sinking fund’ (an investment fund established and maintained by the owners).
Retiring from the Business
If you own a business, you’ll need a firm plan in place for when you retire. Many business owners assume that their retirement will be funded by the sale of the business, or that they may be able to draw an income if a suitable person takes over managing the business from day to day.
However, even if your business provides a good income, it may still not be worth a great deal. And often a business owner is the business – once they are gone, so is the business.
A good, regularly reviewed plan is essential if you want the business to maintain its value once you’ve retired from it. If it has value, you’ll be able to choose whether you sell it, pass it on – or continue to draw income from it.
Want to know more? Contact us – we'll help you work through the option that is right for you and your business.
A disclosure statement is available on request and free of charge.