Owning your own business is a dream come true for most entrepreneurs – so once you have it, you’re going to do everything in your power to create and maintain a successful, growing business.
However, business owners often put a lot of their own cash into their new companies, so it is important not to lose sight of how running a business affects your own financial position. Often, entrepreneurs are focused on setting up their business and ensuring all the relevant systems are in place, but can forget to plan for their own financial goals. They are too busy writing a business plan to think about their own personal financial plan.
Financial planning is crucial. You may well have bags of common sense and knowledge, but the excitement and busy schedule that a new business requires can inevitably mean that financial planning drops down the list of priorities. Keeping on top of your finances and being aware of your options is imperative to your business’ survival.
A financial adviser is a great option for entrepreneurs and business owners, if only to make sure you get off on the right financial foot and clear the way for future success. They can also assist in forming a succession plan and ensuring your business enables you to meet your personal dreams and ambitions.
The crucial thing to remember when your business is off the ground is not to spend too much too soon. Of course, you’ll want to celebrate your success, but try to hold off from spending too much for as long as possible. Around 90% of entrepreneurs’ businesses go bust because of bankruptcy. This is why it is crucial to plan your cashflow as meticulously as possible. A good financial plan will clearly outline how much you can afford to invest and pay yourself. When planning, it’s a good idea to overestimate overheads and underestimate income.
To help cashflow, it is crucial to invoice customers as soon as possible, run credit checks on customers and invest time into negotiating the best deals possible with suppliers.
As well as considering corporation tax, you will also need to look at your personal tax liabilities and how you can reduce these by taking advantage of tax-planning opportunities, particularly in the area of pension planning.
Another crucial element to the financial planning process is risk management. If your business is small, you may depend on a few key people for the operation of the company. This means that key person insurance may be important to plan for the unknown.
It’s also imperative to ensure you have enough personal protection in place for the eventuality that you may not be able to work. Putting together an insurance and protection plan may not seem like a top priority in the very early stages of your business – but it’s definitely better to be safe than sorry.
When first setting up a business, it is important to come to an agreement with all shareholders regarding the terms of the shareholder agreement. This will specify a method of valuing the company. It will also set out the terms of buying and selling shares in the event of illness or retirement.
You should apply the same financial planning priorities for your employees too, putting in place pension plans and group health insurance plans. In general, it will be in your own interest to provide a competitive benefits scheme.
When it comes to setting up a business – there are many angles that need covering. Whether you hire someone to do every job or outsource some tasks – this is something that needs a lot of consideration and forethought.
Financial planning for both you and your business is a long-term task that involves regular review. As your goals and financial situation changes over time, the strategies for managing your income and outgoings will always need to be re-evaluated in order to remain in tune with changes within the business and the economic climate.