A financial plan is just as important to the success of your business as a business plan is.  Regardless of the number of years you have been in business, how many people you employ or what industry you work in, you should build 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 selling your business or passing it onto a family member.
  Once you've determined your goals, a Financial Adviser can help you develop a strategy to reach them.

Planning for the Unexpected

A good financial plan should always identify the risks your business could face and look at ways to manage them, no matter how well your business is doing currently.  Planning for business risk could mean the difference between success and failure.
You need to ensure that your business is protected against unexpected events such as theft, fire or accidental damage.  These and other factors may interrupt or damage your business and reduce your ability to make a profit.
In addition, there are other potential risks which can often be overlooked, but which can still have a major effect on your business, such as:

1. The departure of key staff
2. Losing a business owner
3. Retiring from the business

Losing Key Staff

Your ability to maintain the value of your business can be seriously endangered by the departure of any key person who contributes significantly to the revenue of your business.  The loss of a key person can affect your business through:

• Loss of revenue
• Increased costs (such as recruitment)
• Failure to meet financial obligations

It’s obviously difficult if the loss is through death or disability, but you also need to prepare for resignation and retirement.

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

All businesses should have a plan in place to ensure that a co-owner’s departure can be managed with the least possible disruption, regardless of whether the departure is foreseen or unexpected.

There are plans you can put in place to help ensure your interests are protected, and you retain control and maintain the value of your business, despite the departure of a co-owner. Some measures you can take include:

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 changes in line with the value of the business).
 
Buy / Sell Funding – the Buy / Sell Agreements should be fully funded if possible to avoid delays and avoid existing owners being disadvantaged financially.  The type of funding will depend on the circumstances of the owner’s departure.  For example, if the owner becomes disabled or dies, 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 the daily running of the business.

However, your business may not be worth a great deal, even if it provides a good income for you currently.  Often a business owner is the business – once they are gone, so is the business.

It is essential to have a robust plan and to review it regularly 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.

Contact Us for help to work through the option that is right for you and your business.