Owning your own business can be an intimidating experience. There are many things to think about – from corporate structure to choosing accounting software – and a dizzying and often confusing array of options for each. Too much choice can be paralysing, so sometimes it makes sense to think in terms of what you want to achieve.
Take, for example, financial planning – a topic that begins with startup funding and ends with succession planning. At every stage there will be choices to be made, but where do you start?
In our experience, people have three main priorities as business owners. What are they and how can financial planning options help to achieve these aims?
‘Being your own boss’ is a major motivation for most owner-managers, but in practice that is often easier said than done. Financing choices, particularly at startup stage, have huge and long-term implications for control.
The ‘traditional’ routes for raising money – issuing shares or taking out a bank loan, for example – inevitably mean losing some element of autonomy. Shareholders, whether family members or not, will have views on how the business should be run; banks will expect key milestones to be met.
But for business owners who want to maintain as much independence as possible, there are attractive funding alternatives available – particularly credit facilities such as invoice financing – that allow you to access funding without losing control.
If the pandemic has taught businesses anything, it is that the ability to be agile and adaptable when conditions change can mean the difference between failure and survival.
Agility goes hand in hand with liquidity, which in practice means keeping a close eye on cashflow. If the business has cash available, it can ride out most bumps in the road; if it needs to change track at speed for any reason, the resources it needs are readily available.
A short to medium-term cashflow forecast (of up to 24 months) is essential to this. Controlling costs and predicting revenue will mean nothing if cash runs dry.
Security for the family
The personal goals of a business owner and their family are closely tied to the goals of the business itself. It can often feel like an either/or choice – invest in the business, or save?
Careful financial planning allows owners to consider their long-term personal security, while maximising growth opportunities in the business. For example, when it comes to extracting profits from the business, making a pension contribution is a tax-efficient option because it reduces the taxable profits of the business. And it doesn’t mean that the money is unavailable – the business can still borrow from the pension fund in the future if it wants to invest to expand.
Financial planning for growing businesses is a complex area, but our experts are here to help and guide you through the options that are best suited to your own unique circumstances. For more information, please get in touch with your usual BKL contact or use our enquiry form.