With the many roles small business owners take on, it’s often difficult to find the time to sit down and focus on the business financial plans. As a business owner, it is down to you to make essential decisions, such as deciding when to open up a new business bank account and managing the company’s expenses. However, developing a financial plan for the business is crucial to future growth and success.
Developing and using a financial plan enables you to visualise the areas in which resources are most needed for the business to grow, such as marketing, expansion, or product development. Without this vision, business decisions become riskier, and companies could end up missing out on great opportunities.
Personal and business goals should be separated, and the same goes for personal and business finances. However, they’re both equally important, and one will affect the other. When running a business, it can be too easy to neglect personal goals. That’s why it’s essential to set out separate financial plans for both the business and personal sides of life.
The many advantages of financial planning in business include:
Keeping a keen eye on cash and debt levels will help keep your business finances on an even keel, especially important for newly launched businesses.
Whatever the size of your business, it’s essential to take a salary. Salary does not need to be high while using business capital in the early growth stages. Many small business owners will pay themselves enough to cover their National Insurance threshold so that their salary is tax-free. In the short term, this may prove to be an advantage, but a sound financial plan can help accumulate savings for life events in the future.
Business owners should also allocate time to work out their personal goals in the same way that they put together long-term business plans. Knowing what is personally achievable is just as important in planning the finances for a business.
Whether you decide to close down a business or sell it on, you’ll need to determine how much is required in order to fund personal finances post-employment. Keeping tabs on personal expenses will help to establish what is needed to be financially sound in the future.
Most business owners dream that the sale of their business will be enough to fund their retirement years, but in reality this often an unknown. A business finance plan will go a long way to putting the business in a position to help achieve this goal, but it’s essential to plan for a more modest outcome, too. Putting away retirement savings on a regular basis should be incorporated into financial plans.
It’s a common mistake for smaller businesses to reinvest their assets straight back into their own business, but doing this increases financial risk. Ideally, business owners should divide risk across different industries, and this will then reduce the chance and extent of losses.
Any investments should be adequately diversified and in keeping with the amount of risk your business can sustain. Find a well-managed investment policy that, so that focus can be on managing the business.
In starting or running a business, it’s vital to take out the right insurance to cover business and personal assets. You may need more than one insurance policy. If a key employee in a small company is suddenly unable to work, the business may become vulnerable. As a protection for your company, insurance against illness, disability and death should be an essential part of financial planning.
Depending on the nature of the business, an alternative option may be to retain ownership and successional plan. If you’re planning on the company continuing to be part of the business once you’ve retired, a good exit strategy is required, ensuring leadership transition is smooth. With a wisely chosen successor, time can then be spent enjoying retirement while still retaining oversight, strategic input and a potentially significant income.
Selecting a financial adviser who specialises in financial planning for business owners is one of the best decisions you can make. They can help separate business and personal finances, set out plans for the future and keep your assets and investments well managed and diversified, while you continue to focus on growing your business.